One of the most impressive features of the massive US sharemarket rally now under way is its ability to switch narratives with nary a stumble.The prevailing view in financial markets was that the US Federal Reserve could be relied upon to deliver at least five rapid-fire cuts this year, significantly more than the three cuts that Fed officials had pencilled in.
Wall Street analysts are forecasting 11 per cent earnings growth this year for S&P 500 companies, and 13 per cent in 2025, a sharp improvement from the modest 2 per cent gain last year.In the first place, US fiscal policy remains highly stimulative, and this is helping to buoy private sector demand and asset prices. The US government is projecting a $US1.5 trillion deficit in the fiscal year ending on September 30, which is equal to about 5 per cent of US GDP.
Second, Fed chairman Jerome Powell has repeatedly indicated that because monetary policy works with long lags, the Fed will start cutting rates before inflation hits the US central bank’s 2 per cent target.