'Inflation Is Last Year's Problem': Carson's Detrick

We like small and midcaps the rest of ’24. They’ve had a huge rally the past week, but the truth is they are still nowhere near all-time highs, so there is plenty left in the tank. These stocks are historically cheap relative to large caps, but also should see some explosive earnings growth over the next two years. Now that the Fed is likely cutting rates and inflation is contained, the stage is set for these under-loved, underappreciated and under-owned areas to do quite well.

What’s your biggest bearish view or concern and why?

We expect the economy to surprise to the upside, thanks to strong earnings and profit margins. We’ve been underweight the more defensive areas like staples, utilities and parts of health care and we continue to expect to see those areas lag, as money flows to the more cyclical areas.

What’s your top advice to advisors on helping clients now? Anything specific regarding market moves, repositioning or moving cash? Any strategic or tactical thoughts on portfolios and investing that you’d like to share?

Things have been really good this year. Election years usually aren’t that strong the first half of the year, but this year has clearly been super strong. But just remember it won’t always be that way. We fully expect to see some turbulence pre-election, which has happened the past two elections. Jitters are likely from investors as we get closer to November, but this is perfectly normal market behavior.

Who and what are you watching now, whether a key indicator, policy move or particular person?

The Fed is in an interesting spot. To us, they should be cutting already, as inflation isn’t an issue and will likely continue to improve. A potential policy mistake could come if they stay stubborn and leave rates higher than they need to be.

Look at what is happening in housing and business investment, we need rates lower to get those two parts of the economy going. If they keep rates higher and don’t acknowledge inflation is last year’s problem, then we could see some trouble in ’24. This isn’t our base case, as we expect them to start cutting, but it is a worry.

Pictured: Ryan Detrick, chief market strategist, Carson Group