The Fed will almost certainly cut rates this week—which will have implications for equity markets. As we explained last week, our bias is for stocks to go higher over the balance of the year, supported by Fed rate cuts and potentially more U.S.-China trade progress. However, gains from current levels of the S&P 500 Index may be modest and could come with more volatility.
The start of a Fed rate-cutting cycle could prolong the period of growth leadership and delay a potential value rebound. Large cap stocks may also enjoy tailwinds from a more accommodating Fed. Finally, we continue to favor financials, industrials, and technology among the equity sectors while emerging markets and gold may be a beneficiary of a more accommodative Fed.
John Lynch is chief investment strategist at LPL Financial.