Insights from our CIO: Tell me something good

I was recently asked to speak at a pre-market morning meeting we hold daily for advisors across our Private Bank and Wealth Management businesses. I generally get tapped to speak when markets get bumpy. I always pick intro and outro songs when speaking. Mood music.

I reached into the time machine for an intro ditty I thought captured the zeitgeist of the moment: “Tell Me Something Good” by Rufus. It still grooves. Tame Impala’s “Breathe Deeper” was the outro. Both seem wildly appropriate as investor ‘edginess’ creeps higher.

Tell me something good is a fair theme to tag to Jay Powell’s post FOMC press conference. The Summary of Economic Projections offered a ‘breathe deeper’ moment. The Fed signaled a specter of stagflation is emerging. Powell somehow managed to spin a dovish posture around that. Impressive.

The Fed lowered growth targets, increased inflation as well as unemployment forecasts. Powell emphasized the Fed is in no hurry to move. They shouldn’t be. Also, that economic uncertainty has risen. Restraint and caution are the watchwords. Longer dated U.S. government bond yields in decline are worth keeping an eye on. They signal concern about the outlook.

Powell hit on a theme I’ve been harping on for a while: the disconnect between hard and soft (survey) data. He recognized the Fed’s commitment to maximum employment and price stability but effectively acknowledged the Fed finds itself in policy bardo. So do markets.

I don’t expect we’ll see a rate cut from the Fed at its meeting in May. A lot will depend on consumer confidence, sentiment and expectations for inflation. Also, trade policy. If consumers expect a weaker economy they’ll cut back on spending. That may temper inflation, but it weighs on growth. It’s why Powell emphasized the Fed’s dual mandate. They’re in a tough spot.

The Bank of England (BoE) is on hold. Inflation’s pressing higher, growth is anemic. Their narrative turned a tad bearish. They’re exercising a careful approach to policy. U.K. businesses and consumers expect inflation to rise in the months ahead. Again, a tough spot for a policymaker to be in. My sense is the BoE would like to ease. They may not be able to when they meet again in May.

The ECB may find itself in a similar position in the months ahead. I believe the ECB wants to land policy rates at 2% before they hit pause. What we see from Washington on trade policy will influence them. Their next policy meeting is mid-April.

With U.S. equity markets feeling less exceptional, there’s a lot being written about the outperformance we’re seeing in Europe. Europe deserved a valuation catch-up. It’s been a long time coming. Expected fiscal stimulus for defense and infrastructure investment has further fluttered animal spirits.

That narrative is well-priced into markets. Spending will take time to ramp up. There is a low multiplier associated with investment this year as it relates to real economy impact. Slow turning. I say that not to be negative but as a pragmatist. Hope springs eternal. Infrastructure and defense spending will help stymie recession. It may boost Eurozone growth above 1%, looking out 12-18 months.

European equity markets have re-rated to longer term valuation levels. They can move higher but have a lot to prove. The easy money’s been made. We’re doing work on individual European names that might make sense to lean into. We’re meeting with the C-suite execs from European financial, industrial and healthcare companies.

With reciprocal tariffs circling, central banks, companies and investors are on hold until we see the next round of trade announcements on April 2^nd. They’ve been dubbed by President Trump “the big one.” Let’s see where they land and how they evolve. I continue to take the President at his word; he is hyper-focused on rebalancing trade. Pain for gain? We’ll see… breathe deeper.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 3/21/25.