Monetary Policy

“Last week's Fed meeting provided incremental support for our positive 2026 outlook on equities. The Fed delivered on its expected hawkish rate cut but also indicated it would do more if the labor market continues to soften. More important than the rate cut was the Fed's decision to restart asset purchases... This is very much in line with our run it hot thesis dating back to early 2021. As a reminder, accelerating inflation is positive for asset prices as long as it doesn’t force the Fed’s hand to take the punch bowl away like in 2022. Ironically, the risk in the near-term is that this larger than expected asset purchase program may be insufficient if the Fed has materially underestimated the level of reserves necessary for markets to operate smoothly... Bottom line, the Fed has reacted to the markets' tremors over the past few months. Should markets wobble again, we are highly confident the Fed will once again react until things calm down. Last week's FOMC meeting only increases our conviction in that case and keeps us bullish over the next 6-12 months, and our 7800 price target on the S&P 500. We would welcome a correction in the short term as a buying opportunity.”

“In the UK, a fiscal drag and the prospect of sluggish real income growth might dampen growth, but monetary policy easing is likely to support consumption, and UK exports could benefit from a global synchronized re-acceleration.”