The Federal Reserve has been pulling out all of the stops in order to tamp down on inflation and get the economy humming without its interference. And depending on who you ask, the central bank has either done a great job or a horrible job getting the economy back on track after it was derailed by Covid.
But veteran market watchers know that the truth about the economy is rarely black and white, and the shades of grey require some nuance to correctly interpret.
Related: Stock Market Today: Stocks higher as Fed pushes back on rate-cut bets
"There's this intersection of fundamentals and technicals. While the fundamentals weren't great in 2023, the technicals were incredible," Henry McVey, CIO of KKR and Co.'s Balance Sheet, told CNBC Monday.
KKR is forecasting below-consensus inflation and advises investors to look at the market as a "glass half-full" instead of a more pessimistic outlook.
"There was no issuance, there was no (major) mergers and acquisitions (in 2023), and there's a huge amount of money on the sideline so that created upward pressure on most risk assets, particularly equities."
McVey and his team estimate that there is some $5.6 trillion "sitting on the sidelines" because M&A activity is weak, at an all-time low, and debt issuance has gone down as a result.
"Our base view is that the recession in earnings actually occurred in the second quarter of 2023. We are forecasting slower growth for '24 from gross domestic product, but earnings should make it through," McVey said.
Those technicals are enough to make McVey cautiously bullish on the market's chances in the coming year, despite the hangover of stubborn inflation and an economy that seems to be stuck in neutral.
"We need to just get used to a world where we have rolling recessions and rolling recoveries. When you think about what's happening right now, we're having good deflation and having very weak performance in the goods sector," McVey said.
Check out his full comments below.
"We need to get used to a world where we have rolling recessions, rolling recoveries," says @KKR_Co CIO of Balance Sheet Henry McVey. pic.twitter.com/OUtlA06wip
— Squawk Box (@SquawkCNBC) December 18, 2023
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