Rob Herman and Chief Investment Officer Ken Brodkowitz of Gries Financial Partners delve into recent market volatility following the Federal Reserve’s hawkish stance on interest rate cuts. The Fed signaled only two potential cuts for 2025, down from previous expectations of four, while raising inflation estimates from 2.1% to 2.5%. This news, combined with an already overbought market riding on post-election optimism, contributed to significant market declines, including a 3% drop in the S&P 500.
In their discussion, Rob and Ken explored broader economic concerns, including the impact of the 10-year Treasury rate climbing above 4.5%, ongoing government shutdown discussions, and the notable valuation gap between growth and value stocks. While maintaining optimism about corporate earnings and dismissing immediate recession concerns, Ken emphasized that future market returns are likely to be more modest given recent strong performance. The conversation concluded with insights on the neutral rate of interest, with Ken suggesting it may settle around 3.25-3.5% – higher than historical norms but lower than current Federal Funds rates.