Insights

Consumer balance sheets remain healthy, with manageable debt levels and ample room for further spending to support economic growth. Coupled with a relatively young economic cycle, this suggests continued room for expansion in 2025.

The Fed cut rates again as it seeks to deliver a “soft landing”, balancing inflation and economic growth. Historically, easing monetary policy amid market highs has been a bullish signal, with stocks averaging 15% gains in past instances. Looking ahead, the Fed projects a median Fed funds rate of 3.4% by the end of 2025, suggesting a gradual pace of rate reductions over the next year.

In Q3, most asset classes, including stocks and bonds, saw strong gains, driven by expectations of lower interest rates and diminishing recession risks. Notable trends included a rebound in small-cap stocks, a boost for international markets due to a weaker dollar, and the best quarter for bonds this year. Meanwhile, commodities lagged due to declining oil prices.

The Federal Reserve is set to begin a rate cutting cycle on September 18th. An initial 0.25%-0.50% cut is expected, the first of several over the next year as their attention moves from inflation to a slowdown in employment growth.