Stock markets (^GSPC, ^IXIC, ^DJI) are slightly higher Thursday as Federal Reserve Chair Jerome Powell takes the stage for his second day of testimony on Capitol Hill, with potential rate cuts remaining a key focal point. Drew Pettit, Citi US Equity Strategy Director, joins Yahoo Finance Live to provide insights into the market's movements. According to Pettit, "quite a bit" of potential Fed rate cuts have already been priced into the markets. He notes "to justify" current valuations, interest rates will need to move lower. While markets are expected to gain based on earnings growth, Pettit emphasizes that "multiple derating" is "built into the base case," suggesting that lower rates would be necessary to propel markets higher. Pettit stresses that markets are not in a bubble. However, he acknowledges the presence of "much healthier micro-bubbles" that inflated in the aftermath of the pandemic. As these "bubbles" burst, Pettit observes that investors have become "much more discerning" about the companies they choose to invest in. For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live. Editor's note: This article was written by Angel Smith