Abby Joseph Cohen, advisory director and senior investment strategist at Goldman Sachs, has some choice words for stock-market bulls hoping for an unfettered run to record heights on the back of an easy-money-oriented Federal Reserve.
‘I think investors need to get into their heads that the period of low inflation, low interest rates and monetary policy continuing to provide nothing but stimulus is over.’
The prominent strategist, often viewed as a longtime market optimist, said the days of a Fed that will help buttress the market relentlessly are coming to a close. She expressed the view during a Thursday morning interview with CNBC, where she indicated that the domestic economy looks healthy but cautioned that Wall Street isn’t properly pricing in a Fed that could be more hawkish than expected.
The Wall Street heavyweight’s comments come after the Fed Wednesday afternoon held benchmark rates in check at a range between 2.25% and 2.50%, but indicated that stubbornly low inflation, holding below the central bank’s 2% target, is likely to pickup, with Fed Chairman Jerome Powell, referring to the current state of inflation as “transitory.”
The Fed boss’s comments weren’t received well in equity markets, apparently prompting the Dow Jones Industrial Average DJIA, -0.60% the S&P 500 index SPX, -0.32% and the Nasdaq Composite Index COMP, -0.33% to put in their worst losses in several weeks. Both the S&P 500 and Nasdaq had put in all-time highs earlier this week, highlighting a market that has mostly recovered from selloff late last year that came as investors bristled at the tightening financial conditions produced by the Fed’s monetary policy.
However, since that point Powell & Co. has done a policy U-turn, indicating that they would refrain from raising rates further and end an unwind of a closely followed $3.9 trillion asset portfolio sooner than expected. The so-called dovish pivot by the Fed had, until Wednesday’s update, led investors to forecast that the central bank may even cut interest rates to achieve its inflation goals.
However, Powell has tried to disabuse investors of that notion.
Cohen says investors need to be more discerning, against that backdrop, with the bull market in its 10th year of expansion.
“We are at the point in the market expansion where it’s not so much a rising tide lifting all ships but looking at individual companies” that have strong revenue growth and strong returns on equity, she noted.
Cohen said she’s adopted a mostly neutral view on the market outlook, but views the outlook for the economy and corporate profits as a “good picture.” She expects global markets rise 3% to 5% this year.
Barron’s: Abby Joseph Cohen highlights bargains
Check out the interview below:
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