While investors are increasingly concerned about whether markets have peaked, bull markets don’t just die of old age. History suggests that the Fed plays an outsized role in determining market returns based on its monetary policy stance. While today’s macro environment doesn’t resemble previous market peaks, and there remains a path for further market upside, policy uncertainty poses a significant challenge to sustaining bullish sentiment.
Following double-digit returns for U.S. equities over the past two years, and with valuations now incredibly expensive, investors are increasingly concerned about whether markets have peaked.
Bull markets don’t just die of old age, however, and history suggests that the Federal Reserve tends to play an outsized role in determining the prevailing market regime based on its monetary policy stance. Indeed, most market sell-offs larger than 10% since 1965 were triggered by either the Fed pivoting aggressively to a hawkish stance and spooking markets or the Fed staying restrictive for too long, putting downward pressure on growth and earnings.
Today’s macroeconomic landscape differs meaningfully from past market peaks, particularly as economic data show little sign of a hard landing while labor market conditions remain resilient. A narrow but viable path remains for markets to grind higher, especially if earnings growth continues to deliver as expected.
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