Can Stocks Rally With a Hawkish Fed?

The Federal Reserve’s current hiking cycle remains a focal point, with market expectations of four rate hikes likely overshooting reality; two or three increases appear more probable. High real yields in the bond market reflect a structural shift, offering attractive long-term valuations despite ongoing fiscal and inflationary pressures. While oil price volatility and AI-related headlines create uncertainty, the US economy demonstrates surprising resilience, maintaining steady growth and a strong labor market. Risky assets have absorbed significant headwinds, suggesting a potential for a bullish shift if energy prices moderate. Ultimately, the current environment necessitates a cautious, month-by-month approach to navigating market volatility, as the economy continues to defy pessimistic forecasts with sustained, albeit moderate, expansion.