US equity markets have continued to climb off their April lows in the face of persistent headwinds, seemingly in anticipation of Federal Reserve rate cuts. Indeed, markets cheered the Fed’s 25 basis point reduction in its policy rate last week, and expectations of two additional cuts before year end may continue to provide support. In our view, however, the prospect of easier monetary policy alone isn’t a particularly compelling reason to invest in the continued success of what is a richly valued US stock market.

That said, we believe the current environment does present an interesting dynamic for bottom-up stock pickers. While the US equity market appears quite expensive relative to historical levels by any number of metrics, its extreme concentration—the 10 largest companies in the S&P 500 Index comprise about 40% of its total market cap and trade at price multiples even higher than the index’s median—suggests pockets of opportunity may be found in its less-stretched corners.¹ Healthcare comes to mind as a sector in the US where we are seeing what we believe to be attractively valued opportunities.

Dispersion is even more evident on a global basis, as non-US markets generally appear quite a bit cheaper than US markets even after their strong year-to-date outperformance. This is true both on an absolute basis and relative to the long-term trend; international equities currently are trading a lot closer to their historical median than to the 90th percentile-plus levels seen in the US.² With that backdrop, we are finding interesting bottom-up opportunities across a range of non-US markets and sectors, including certain Latin American and European consumer names, Japanese industrials and Southeast Asian holding companies.

The Federal Open Market Committee (FOMC) on Wednesday announced a 25-basis point cut to the federal funds rate, bringing its key policy rate to a range of 4.0–4.25%. While this move was largely expected, the FOMC’s new dot plot of rate expectations going forward was less so, with a narrow majority signaling the need for two additional 25-basis point cuts before year end as well as one each in 2026 and 2027 as it moves toward a neutral policy setting.

The FOMC’s latest Summary of Economic Projections indicated that the median committee member had increased expectations for economic growth and inflation over the forecast period and decreased expectations for the unemployment rate. While these shifts may seem contradictory to the easing trajectory, they highlight the uncertain path forward as the committee seeks to balance upside risks to inflation and unemployment.

• Inflation. Federal Reserve Chair Powell highlighted that goods inflation has increased due to tariffs and has added to core PCE inflation, though moderating service sector inflation has served as an offset. Notably, Powell sounded more confident that tariffs were likely to have a one-time impact on inflation; he noted, however, that while firms to date have absorbed the bulk of the tariffs, they are likely to pass those costs on to consumers eventually.
• Labor market. Powell mentioned the labor market sits in a “curious balance,” with both demand and supply softening largely due to changes to immigration policies and, to a lesser extent, tariffs. Though the labor market persists in its current low-hire/low-fire equilibrium, there are upside risks if layoffs pick up. Higher youth and minority unemployment are signs that labor markets are weakening.

Commenting on the range of policy views suggested by the dot plot, Powell remarked that such divisions were not surprising given the “unusual challenges” facing the economy. “There are no risk-free paths now,” he said. “It’s not incredibly obvious what to do.”¹