Sinead Colton Grant, chief investment officer of the wealth management department of Bank of New York Mellon, said that the US stock market fell from the record high set at the end of last month, providing investors with cash opportunities to buy. She said that after rising 24% in 2023, the S&P 500 surged 10% in the first quarter, making the best start since 2019. The sharp decline for three consecutive weeks was a healthy consolidation for traders. From now on, Colton Grant expects that, based on strong profit growth and continued economic momentum, this round of gains will not only resume, but also expand, which may push the S&P 500 index above 5,400 points before the 2024 close.

In an interview, she said, “There are many examples of this in history. Investors waited to find an absolute low but missed the right time, so if you have capital to allocate, now is a good time to start increasing your exposure. It's a fascinating market, and the worst thing for investors is to hold their cash entirely.”

Bank of New York Mellon's wealth management department increased its holdings in US large-cap stocks. Compared to international and emerging market stocks, it preferred US large-cap stocks. Although the price-earnings ratio of the US stock market is higher than other markets, Colton Grant said he likes the free cash flow generated by large companies. She is particularly optimistic about the technology, healthcare, and industrial sectors.

The S&P 500 index is expected to fall for the third week in a row, as investors lowered their expectations for the Federal Reserve to cut interest rates after a series of hot inflation reports came out. Atlanta Federal Reserve Chairman Raphael Bostic (Raphael Bostic) reiterated on Thursday that he thought it would be inappropriate to cut interest rates before the end of the year.

However, Bank of New York Mellon's interest rate cut expectations have always been lower than the market's expectations for interest rate cuts this year. When investors expected to cut interest rates six times, the bank expected four times. Currently, the bank only expects the Federal Reserve to cut interest rates once in December. Colton Grant said, “For the first time, we have seen the market actually respond to lower expectations of interest rate cuts. I think this is healthy.” She pointed out that at the beginning of this year, as traders cut interest rate cuts, there was little reaction from the stock market.

Financial reports are the key to the stock market's rise from current levels. Bank of New York Mellon's wealth management department expects US stock earnings to grow 11% in 2024. Colton Grant believes that it is not important whether the Fed cuts interest rates. She said that since interest rates have been close to zero for most of the time since the 2008 financial crisis, one opinion is that the stock market needs interest rates close to zero and an inflation rate close to 2% to perform well. But for her, this is flawed logic.

Colton Grant said, “The stock market can perform well in the 2% to 4% inflation range, and our current inflation rate is just 2% to 4%. The problem arises when our inflation rate exceeds 5% and is moving in the direction of double digits, just like in 2022. However, we believe that the current environment is actually quite favorable for the stock market.”

Edit/evans