Kristen Bitterly, Head of Global Strategy at Citi, recently discussed on CNBC’s Squawk Box, the potential market growth next year and how inflation and employment trends influence the Federal Reserve’s decisions.
She noted that although a 25-basis point rate cut was expected due to persistent inflation data, particularly in owner’s equivalent rent, the key issue isn’t whether the cut is 25 or 50 basis points, but rather the future direction of interest rates.
Bitterly highlighted the unusual timing of rate cuts given the current stock market highs and low unemployment rates. Typically, such cuts occur during economic crises.
She suggested that the Fed might be preemptively addressing a potential economic slowdown, emphasizing that their main focus is employment and price stability rather than the stock market’s performance. With inflation showing some control, the emphasis has shifted to maintaining unemployment at around 4%.
Regarding inflation risks, Bitterly pointed out ongoing spending related to infrastructure, the CHIPS Act, and the Inflation Reduction Act, which could create inflationary pressures. She expressed concern that the Fed’s expectations for inflation to drop to 2.5% might be overly optimistic, emphasizing that the current situation reflects disinflation rather than deflation.
“When we look at the Statement of Economic Projections, you might be right—they could be too aggressive in predicting where inflation will be. It might hover around 2.5%, and that could be sustainable in the near future. We’re not talking about deflation, just disinflation. The price increases we’ve seen are still there, even if inflation is coming down.”
Kristen Bitterly
Strong Economic Foundation Despite Election Volatility
Kristen Bitterly pointed to strong retail sales as a sign of a solid economic foundation, mentioning factors like $6.5 trillion in money market funds, declining inflation, and record profits among U.S. companies.
Despite concerns about election-related volatility, she emphasized that there is still a large amount of capital waiting to enter the market, which supports a positive market outlook. Bitterly predicted that while the S&P 500 would likely end the year higher, October could be difficult due to uncertainty surrounding the elections.
Historically, election years see a market dip in October as investors take profits, but a rebound typically follows once the election results are clear.
Analyst Predicts Return to Fundamentals and Broad Sector Growth by 2025
Looking forward to the next year Bitterly expects a return to fundamentals. She highlighted that 10 out of 11 sectors are projected to show earnings growth this year, with the potential for all sectors’ market growth in 2025. She also mentioned that while tariffs and taxes are important considerations, they are shaped more by policy decisions than by political events.
“Next year, we return to fundamentals. After the election, we focus on fundamentals. This year, we expect 10 out of 11 sectors to show earnings growth, compared to 7 out of 11 last year, which was an earnings recession. It could be 11 out of 11 going into 2025. On the election front, people are looking at tariffs and taxation, but policy drives that more than politics.”
Kristen Bitterly
Read also: Alibaba Poised for Best Monthly Performance in Nearly Two Years and Should You Now Consider Investing in Google’s Alphabet Inc.?
