Recent equity rotations reflect a downgrade to the market’s outlook for economic growth, but the prospect of Fed easing has left the S&P 500 near its all-time high. Our economists forecast the Fed will cut by 25 bp for the first time next week and expect 200 bp of easing through 1Q 2026 (vs. market pricing of 260 bp). But the trajectory of growth is a more important driver for stocks than the speed of rate cuts. The offsetting valuation impact of higher bond yields and better growth expectations imply limited scope for P/E expansion. With multiples flat, EPS growth will lead the S&P 500 modestly higher. Our year-end 2024 S&P 500 price target remains 5600. Our rolled 6-month and 12-month price targets are 5700 and 6000.
The historical effect of Fed cuts on equities