NEPC’s Phillip Nelson and Tim McCusker were recently quoted in an article to discuss how after many years of low borrowing costs, too many people have the delusion that these will return. View the full article on Chief Investment Officer’s site here.
To many investors, it is back to normal for interest rates, meaning they expect the sunny days of low single digits will return soon. Consulting firm NEPC begs to differ.
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The Fed, which had jacked up interest rates to combat the inflationary surge, thinks the mission is accomplished and is talking about lowering its benchmark federal funds rate from its current band of 5.25% to 5.50%. Many investors are applauding, expecting lower rates to further juice the stock market.
That buoyant scenario is simply not likely, according to an NEPC webinar on Thursday. A lot of people “are anchored to low inflation,” said Phillip Nelson, the consulting firm’s head of asset allocation. As a result, “the market is biased toward low rates.”
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Meanwhile, in a related delusion, NEPC’s strategists contended that investors remain besotted by the stock market’s bullish performance and believe more is on the way.
Trouble is, noted Tim McCusker, NEPC’s CIO, the S&P 500’s recent rise has merely recovered ground lost in the 2022 slump. The index’s new peak level set on Thursday, of 4,894.16, was just slightly more than the January 3, 2022, apex of 4,796.56. Thus, he said, “This has been a round trip.”