Many Technology investors got religion on August 26th as it relates to interest rate increases (more to come) and a Fed pivot (not any time soon). The message of "higher for longer" was reiterated yesterday by Fed Chair Powell. The Fed tends to undershoot when it comes to inflation and its Fed Funds target. We … Continue reading It Always Makes Sense To Invest In Quality Names
If the Fed raises by 100 BPS tomorrow we believe there is another 10% downside to the NASDAQ before October earnings. We believe the NASDAQ will continue to work lower as the Fed hikes its Fed Funds Rate and as Treasury yields climb. We expect the Fed's rate hiking will stop by early next year … Continue reading A NASDAQ Bottom. QT Or Not To QT?
We have updated our Fed Funds Rate increase probabilities from our previous note on September 5th: 100 BPS increase: New probability: 75%; Old probability: 50%;75 BPS increase: New probability: 25%; Old probability: 40%;50 BPS increase: New probability: 0%; Old probability: 10%. The FOMC meets on September 20th and 21st.
August Core CPI was 6.30%, ahead of the Cleveland Fed's 6.25% estimate (table below), and up from July's 5.90% print. Headline CPI was 8.30%, down from July's 8.50% print given oil's retreat, but ahead of the Cleveland Fed's 8.24% estimate. Our view is that with Core CPI at 6.30%, the Fed will likely raise by … Continue reading Core CPI Runs Hot. Yields To Move Higher.
The Fed will look to Core CPI next week - not the Headline CPI number - to assess the level of its next rate tightening move. We have advocated for a 100 BPS increase should Core CPI grow versus last month as the Fed Funds Rate remains accommodative and the markets need to be shocked … Continue reading Forget Headline CPI. Focus On Core.
Despite hawkish rhetoric the Federal Reserve's monetary policy remains accommodative. Real interest rates remain negative by a wide margin (8.50% CPI compared to a 2.25-2.50% Fed Funds Rate range) and we are nowhere near a "neutral" rate. Our outlook calls for muted Real GDP growth and high prices (i.e. Stagflation) for years to come. Commodities … Continue reading The Fed Remains Accommodative. Inflation Remains Persistent.
When may this occur? Don't hold your breath. Investors' obsession with interest rates will likely persist until the market finds a bottom. It is unlikely that equity markets will find a bottom while the Fed is tightening monetary policy. We saw the NASDAQ Composite recover in October 2019 as the Fed became more accommodative. We … Continue reading A Return To Fundamental Investing
The Federal Reserve Bank of Atlanta estimates Real GDP for Q3 at 1.4%. That is likely an optimistic outlook and 1% growth is certainly nothing to write home about. Get used to it however as Real GDP in the -1% to 1% range is likely our future for the next decade or two given elevated … Continue reading Prices Up, Personal Consumption Down
What Fed Chair Powell spouts Friday in Jackson Hole WY will be meaningless in the long-term. The longer the Fed allows price inflation to persist, the longer the economy will remain in this stagflationary environment of high prices and low economic growth (if any real growth at all). It's simple math. For every incremental dollar … Continue reading Fix The Problem Rather Than Dance At The Edges
The Cleveland Fed's current August year-over-year CPI estimate is 8.3%, down 0.2% from July's 8.5% level. The bank estimates August Core CPI at 6.3%, up from July's 5.9% level (while oil prices have fallen, food prices continue to rise). We quote the Cleveland Fed as the bank's view on CPI and Core CPI is in-line … Continue reading August CPI To Remain Robust