A higher-for-longer interest rate environment could mean a "stalemate" for equities after their long upward march in 2023. Stocks continued to rise even as bond yields climbed to multiyear highs and a war broke out in the Middle East. All three major averages are higher by roughly 1% this month and quarter. However, history indicates that's unlikely to continue, according to Chen Zhao, chief global strategist at Alpine Macro.
He anticipates the key to unlocking rate cuts from the Fed will be the end of fiscal stimulus and rapidly falling inflation, which will happen faster than the market anticipates. "You're not going to have a major bear market but you're not going to have a major advance. It's a stalemate," he said. "On the positive side, you have growing earnings. On the negative side, you have a higher discount factor. So you basically create a standoff or stalemate.