BMO's Brian Belski: The Fed has to bring some credibility back with the market

Core Viewpoint - The article discusses the current state of the stock market, highlighting that Goldman Sachs has raised its outlook for global equities due to strong earnings and a Federal Reserve easing cycle, with a bullish target of 7,000 for the S&P 500 by year-end [1][5][7]. Market Performance and Outlook - The rally in the stock market is attributed to recovering earnings, and it is expected to continue as earnings accelerate, with a projected growth of 8 to 10% into the next year [4][6]. - The target of 7,000 for the S&P 500 is seen as potentially conservative, with expectations that the market could exceed this level before stabilizing [8]. Investor Sentiment and Cash Reserves - There is a significant amount of cash on the sidelines, which could contribute to market performance, especially in the fourth quarter, following a strong first nine months of the year [9]. - Historical data indicates that when the market is up 15 to 20% in the first three quarters, the average return in the fourth quarter is approximately 5.6% [10]. Economic Conditions and Fed Policy - The concept of a "Goldilocks" environment is discussed, where interest rates remain steady, and both earnings and GDP growth are positive, although there are concerns about current valuations compared to historical averages [11][12]. - The Fed's actions regarding interest rates are crucial, as aggressive cuts could lead to inflationary pressures, impacting market stability [13][22]. Future Projections - The market is expected to enter a phase of moderate growth, with returns projected to be in the high single digits to low double digits, aligning with historical averages [16][22]. - The Fed's credibility with the market is emphasized as a key factor for future performance, particularly in light of persistent inflation concerns [22][23].