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Economy, Fed and inflation

Recent data supports Lee’s positive assessment of the economy. In Q4 of 2023, real GDP in the U.S. grew at an annual rate of 3.3% according to the Commerce Department’s advance estimate. This growth significantly exceeded economists' expectations of a 2% increase.

Lee's confidence in the stock market is further bolstered by the U.S. Federal Reserve's stance. After substantial interest rate hikes in 2022 and continuing into mid-2023 aimed at curbing inflation, the central bank's approach has softened. Lee noted, “The Fed I think has turned dovish, we don't know the timing of the first cut. Inflation I think is falling basically like a rock.”

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The headline inflation rate has indeed subsided. In December, the U.S. consumer price index saw an annual increase of 3.4%, down from its peak 9.1% increase in June 2022.

Lee does not speculate on when the Fed might start lowering rates and believes the timing is inconsequential.

“I think that the stock market really should just care that the Fed has gone from fighting inflation and almost giving the economy a heart attack to one where they're trying to manage the business cycle. So if they don't feel comfortable doing this cut in March, and instead in May, I don't think it should have any effect on equities and how they do today,” he explained.

$6 trillion on the sidelines

Lastly, Lee suggests that the substantial funds parked in money markets could be a potential catalyst if redirected towards stocks.

“We know there's a lot of cash on the sidelines because there's over $6 trillion sitting in money markets,” he stated.

When interest rates are high, investors are drawn to money markets due to their appealing returns. However, Lee contends that these returns are modest compared to the gains from stocks, pointing out, “The S&P in the last six weeks generated more return than an entire year of owning money market cash.”

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Jing Pan Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.


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