So given that, I'm gonna put you on the spot.

How many cuts do you think we're gonna see as part of this cutting cycle?

Great. Thank you Vanessa.

Marta, you and your team have just released your q four outlook, and I think this really could not come at a more important time. There is so much going on right now. The labor market's weakening. The Fed just started cutting rates, yet earnings and also equities remain really, really strong right now. So a lot going on. I wanna start with the economy. What is the real story there right now in your view?

Okay. The key takeaway is that the labor market is certainly softer Than it was even a few months ago. And when we take a look at revisions, that suggests that that softness is more entrenched. That's why Chairman Powell and Jackson Hole called for a policy pivot.

But there are some signs of strength when it comes to the economy. Corporate earnings are some protection against the worst case outcome for the labor market, which is, some protection against the worst case outcome for the labor market, which is mass layoffs. So what does this tell you about the overall environment right now? Well, it feels like the environment is more splintering than it is collapsing.

Okay. So take labor. People who have jobs generally feel secure, but those who do not may be seeing fewer opportunities. And it extends beyond labor.

Homeowners have built a lot of wealth in recent years with housing values climbing, but renters are being priced out. And then when we look at consumer spending, household that households that are higher income continue to spend, but some of these lower or middle income folks are pulling back a bit. So on the surface, the economy feels steady, but underneath, it appears a bit more fractured. Yeah.

And Marta, you flagged concern about the labor market back in June, and we're starting to see that come into effect and show up in some of the numbers now. But it sounds like you think that there is some protection against the downside, and your outlook shows that exact same tension in equities right now. There is resilience in a lot of spots, but there's still a lot of things that we need to be on the lookout for, a lot of places that we need to be cautious about. That's right.

So on the downside, valuations remain elevated.

Yeah. On the upside, companies are delivering both on revenue and profit. And investors have really benefited, not just from technology, but also from areas like financial, industrials, communication services.

One of the key risks right now though, putting those two things together, is that much of that strength has been priced in, and you can see that here in this chart. So performance since April eighth has been very strong, and that's what these bars represent.

And as a result, valuations have moved markedly higher. So take a look at these valuation dots as of April eighth relative to mid September. If tariffs or stubborn inflation or any other kind of outfield risk comes into play, these valuations don't necessarily offer a ton of protection.

And, Marta, I think that makes weaker labor but earnings still holding up really shows us why this moment is so tricky, why it's so tough to predict, and that takes us straight to bonds and the Fed and the cutting cycle and what we can expect there.

Yeah. Okay. So let's talk bonds and specifically the Fed funds rate, which is the cash rate that the Federal Reserve sets. If you take a look at this chart, you can see that where the Fed funds rate has been, where it is today, and you can see that it's still above what the Federal Reserve considers this long term estimate of the average, which is this dash line around three percent. The dots moving lower is what the futures market is pricing, a series of cuts that would actually bring rates below neutral by roughly this time next year. The big question is whether the fed actually delivers that many cuts or just a few.

So given that, I'm gonna put you on the spot.

How many cuts do you think we're gonna see as part of this cutting cycle?

Great. Thank you, Vanessa.

Okay. So this is something that I will likely get wrong and this video is going to be recorded. So I'll just go on the record with significant uncertainty and for illustrative purposes. Oh, it's like you've been talking to Kabayan.

Clearly.

I could see the Fed funds rate hitting mid threes by next year. If we're seeing significantly lower rates than that, it would suggest that inflation has been vanquished and the jobs market has materially deteriorated.

So in other words, Marta, you don't expect as many cuts as the market, but to your point, there is still a lot of uncertainty out there right now. There is still a lot for us to to continue to watch. Yes. You've got so much in your outlook.

It's very comprehensive. We can't get to all of it in this video. But if you're up for it, I wanna do a lightning round and get you through through some of the, other spots of your outlook. Yes.

AI, are you bull or are you bear? Bull. Okay.

But I don't think it's a straight line higher, so prepare for volatility.

Alright. Washington, will this, continue to play a bigger role in markets policy wise? I wouldn't bet against it, especially with some of the legal questions around tariffs. And it's hard not to anticipate more saber rattling Yeah.

The Federal Reserve. And it's gonna be interesting to watch. US stocks or non US stocks? Benchmark weight.

Okay. You non US stocks have gotten more expensive than they were over the course of the year, but US investors had tended to be a bit light overseas.

So it still makes sense potentially to have a a bit more exposure.

Love that. And what's next for you and your team? What are you working on next?

Okay. So we have the retrospective coming out in mid October. That will be a look back at the key moments in twenty twenty five, and that leads into our annual outlook. That's a big It's very big. It comes out in mid November.

Okay. Looking forward to that. Yeah. For sure. And if you wanna take a deeper dive into what Lauren and I just went through and you wanna see her full q four outlook, you can find it on both of our LinkedIn pages.

It's also in the investment section of empower dot com. So I encourage you to go there, download it, look at the graphs, look at all the research. There is so much more there to help you really try to understand the variables, all the variables that we're all facing in this current climate. We hope that this video was helpful and we hope that the outlook will be helpful for you as well.

Thanks so much for spending time with us.