The message from the multi-family office is that you must be an optimist if you're a long-term capitalist.

Citing a strong election year economy and stock market, anticipated interest rate cuts, tech-enabled productivity and improving healthcare, Pitcairn market strategists struck an optimistic tone, albeit with caveats, at the firm’s annual media briefing in New York.

The stock market’s “incredible momentum,” government fiscal policy and breakneck advances in technology and healthcare have created a positive environment only seen “a couple of times in a lifetime,” said Rick Pitcairn, chief global strategist of the multi-family office that bears his family’s name. “You can’t help but be optimistic if you’re a long-term capitalist.”

Drugs involving glp-4, which codes protein involved in human lifespan, as well as new drugs like Ozempic will have a “transformative impact” on the economy and society, leading to lower healthcare costs and a lower burden on Social Security, Pitcairn chief investment officer Nathan Sonnenberg said in a post-briefing interview with FWR.

Advances in artificial intelligence will also boost the economy, producing more efficient data sets and greater productivity, Sonnenberg added.

Continued innovation by the private sector in the United States, “which doesn’t exist anywhere else in the world,” is another reason for optimism, according to Jason Desena Trennert, chief executive officer for Strategas, a New York-based research firm.

And by historical standards, the stock market should perform well this year, Trennert said, noting that the US market has been up each election year for the past 16 presidential elections.

Caveats
To be sure, the market strategists had their share of concerns.

Trennert warned of a “second wave” of inflation within the next 18 to 24 months in a post-briefing interview with FWR.

“Another wave of inflation is quite likely,” he said, citing a Strategas report. “The faster CPI inflation rises, the faster it falls historically… but that does not necessarily mean inflation returns to target and stays there,” the report stated. “Inflation returning in multiple waves [is] a much more common pattern.”

A shortened global supply chain was another inflationary concern, Trennert said. “The golden age of globalization is coming to an end and the West’s relation with China is unlikely to go back to the way it was before Covid,” he explained.

Despite markets performing historically well in election year, a fearful market would most likely “step back” if Donald Trump won the presidency, according to Pitcairn.

The pullback would most likely be temporary, however, underscoring the importance of not allowing short-term political events to unduly influence long-term investing strategies, Pitcairn added.

Rate scrutiny
Sonnenberg found the possibility of persistently high interest rates, difficulty funding the country’s growing debt and a potential spike in energy prices worrying. 

The Federal Reserve Board’s aggressive monetary policy has made market participants “crack addicts” when it came to interest rates, Sonnenberg, hindering the market’s ability to discern true price levels.

Sonnenberg’s fears were underscored when Jerome Powell, chair of the Federal Reserve, declared that although inflation has decelerated, the Fed was not in a hurry to lower interest rates but instead “has time to let the incoming data guide our decisions on policy.”

Looking ahead, unemployment claims and the 10-Year US Treasury rate were key indicators to watch closely, Trennert said.

As the world's benchmark risk free rate, the 10-Year US Treasury is the “most important number in the world” because “virtually all other securities prices are priced off it,” Trennert said. “Of course, that assumes that the yield is not being held lower than it should be by the Fed through the use of quantitative easing.”