The US economy is healthy in most key respects and is expanding at a 2.5% growth rate. Depending upon the scope and size of tariffs, the US economy will either continue to prosper or evolve into a state of stagflation. Company earnings are in a rising trend, although the peak growth rate has likely passed. There is no change in my forecast for higher inflation over the next one to two years. Core inflation bottomed near 3% last summer and is currently rising at a 3.6% annual rate. The Federal Reserve will be on hold in the short term until there is greater clarity with respect to trade policy.
Long-term interest rates should move steadily higher as the year unfolds, causing the Treasury yield curve to steepen further. Balanced account investors should maintain a below-average allocation to the bond market at current yields. The equity market is supported by favorable liquidity conditions along with steadily rising corporate profits. However, equity investors are complacent, and valuations are stretched. Rotation in equity market leadership away from mega-cap technology stocks is at an early stage and should persist throughout this year... READ MORE
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