So what are the investing implications? There are two main ones:
1. Range-bound rates. Rates are likely to remain range bound for the remainder of the year, or at least until economic data starts to surprise to the upside.
2. Further stock market gains are predicated on a continuation of a “Goldilocks” environment of modest growth and an accommodative Fed. While a more benign rate environment is good news for stocks, equities will have to manage a delicate balancing act. If the economy stalls further, earnings estimates will need to be sharply reduced, probably hurting stocks. Meanwhile, if the economy begins to accelerate, we’re likely to see some pressure on stocks as investors once again reverse their rate expectations.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Sources: Bloomberg, BlackRock Weekly Investment Commentary