Personal Wealth Management / Expert Commentary

Fisher Investments’ Reviews Why Stocks Don’t Need Rate Cuts in 2024

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, reviews how Fed policy affects markets and the economy. Contrary to popular opinion, Ken doesn’t believe stocks need rate cuts to do well in 2024. He says the economy and stocks have done fine despite interest rate hikes in recent years. According to Ken, Fed policy changes are already widely discussed and consequently, already priced into markets.

Michael Hanson, Senior Vice President of Research at Fisher Investments, adds that investors tend to overrate the impact of Fed policy. He explains that interest rate changes are just one part of a large, complex global economy with many inputs. Michael cites US housing as an example of the economy's resilience, despite being negatively affected by interest rate increases. He notes that although new housing starts have declined more than in 2008 and 2009, US economic growth accelerated at the end of last year.


Ken Fisher:

You don't need rate cuts. The back half of 2022 and 2023 showed that.

Now, I just want you to think about this: 2023 documented perfectly that you don't need rate cuts. 2022 actually documented that you don't need rate cuts because depending on where you are in the world, the market started bottoming in June of 22, and by the time you got to October of 2022, the world market had bottomed completely. And we kept having rate rises that whole time. And in 2023, we didn't get rate cuts and the market's going up.

You don't need rate cuts; the back half of 2022 and 2023 showed that. But there's a bigger lesson from that going back to the point of markets pricing all widely known information: as soon as you can get a very wide view that you can read in every darn place in the world, in the Podunk Times, that you got to have rate cuts. You know that priced already. You follow that?

It's so simple that people have a hard time with it. People have a hard time getting that whatever your friends at the cocktail party are talking about might be right, might be wrong, but won't impact stocks.

I've been talking a lot about rates and their effect or non-effect on the economy.

One thing I like to say to clients a lot, because our clients tend to have a little bit of experience, is I say, what was your first mortgage rate that you had when you first became a homeowner? Was it 5 percent or 6 or 7 percent, like it is today? Actually, no.

Many of our clients had their first mortgage be 8, 10, 12, 15-plus percent, because that was a time of high inflation, truly high inflation, persistent at a time when they were first becoming homeowners.

And yet, they still exist and they're here as clients; they somehow made it through.

And that's so reminiscent of things.

We've had this sort of theme of adaptation and anticipation as mitigation. It's the same thing there and then it follows through in interesting ways. So, people worry about interest rates.

Well, the first thing to think about when it comes to housing is you actually have to scale it for the economy.

The average American's mortgage is actually 3.8 percent on a mortgage. So, what really affects things is the new home sales. And you might say, wow, these interest rates, these high interest rates are definitely hurting the economy because new home sales are down. In fact, that's true.

It is a place where interest rates affected things. Home prices, new home prices, are down 18 percent from their highs tied to the higher interest rates, less sales. Right. That's significant.

In fact, that's a bigger decline than what we saw in 2008 and 2009.

And yet—and we can put this up on the screen—GDP not only grew, it accelerated in the last two quarters. Why?

Because these things don't have the effect on the overall economy, and by extension then, the stock market, that many people think. In fact, housing, something very affected by interest rates, did not stop the economy from growing and moving forward.

And that's just another way to contextualize all this.

Interest rates are just one mechanism of a very large system. And just this is a minor point that people have a hard time putting into perspective, the same way that they have a hard time getting that the average effective home mortgage rate in America is 3.8 percent right now, that the fact that new mortgages are almost twice that doesn't necessarily bite the economy. Housing starts are down, absolutely.

But going back to Michael's earlier point about relative normalcy? housing starts have always been volatile, and the current level of housing starts is pretty much average for the last 40 years. It's a pretty normal period. It's just down from what was a higher period earlier.

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