Analysts at Oppenheimer Asset Management predict that the recent rally in U.S. equities will broaden as the country's economy sustains its expansion at a moderate pace.
They highlight the positive aspect that the 10% rally occurred without additional support from the Federal Reserve or additional fiscal policy actions. While expressing optimism, the analysts caution that market expectations of up to four rate cuts in 2024 may be overly optimistic and could face challenges.
“In our view market expectations (reflected in interest rate futures) that imply up to four rate cuts in 2024 are too rosy and are likely to be tested,” they said.
The broker still expects the Fed to stick with its 2% inflation rate target for now.
“Our call for US investors to favor US equities over international equities this year and in recent years has worked well particularly when performance is reconciled in dollars.”
The strategists also suggest that rallies in small and midcaps are likely to become more sustainable, especially considering their valuations.
“Our preference remains with large cap and mid-cap stocks near term as small cap companies can be more vulnerable in a rising rate environment.”
Moreover, the belief that the Fed's rate-hiking cycle is nearing its end has impacted the dollar, prompting a suggestion for U.S. investors to consider increasing exposure to foreign investments or reducing currency hedging.