Stocks Rally but Risks Loom as Economy and Markets Enter Volatile Stretch

U.S. stock market is up over 10% in 2024 so far, but inflation has been stickier than expected, leading to questions around Fed rate cuts. Market sentiment may be too optimistic on "no landing" scenario.

Expect economic growth to slow gradually over next 2 years, with GDP growth slowing to 1.4% in 2025 before recovering. Inflation should return to normal levels around 2% this year.

Housing market is a key area to watch - lower mortgage rates needed to prevent further downturn. Additional Fed rate cuts expected by 2026 to stimulate economy.

AI and tech stocks have strongly outperformed to start 2024, but many now overvalued; contrarian opportunities in undervalued areas like energy, real estate, and utilities.

Significant narrowing of corporate bond spreads suggests ratings downgrades and defaults pose greater risks going forward. Recommend moving underweight on corporate bonds.