Johny Fernandez: So Wall Street is bracing for a pivotal Federal Reserve policy decision this Wednesday, even as Friday's inflation report caused some immediate hawkish fears across financial markets. And with crude oil trading above $100 a barrel and rising borrowing costs testing corporate balance sheets, capital is rotating fast.
So joining us to discuss this and more is Patrick Healey, president and chief investment officer at Caliber Financial Partners. Patrick, thanks for joining us.
Patrick Healey: My pleasure.
Johny Fernandez: So Patrick, Friday's CPI data cooled some immediate hawkish fears. But Wednesday's FOMC decision looms large, and obviously it's been the talk of pretty much everyone's mind.
So why might Chair Warsh's press conference testimony matter more to the markets than the actual rate decision?
Patrick Healey: Yeah. So I do think that the Fed minutes are much more important than the actual rate decision, generally speaking, and in this cycle as well. I think a lot of the expectations are pricing in a 25-basis-point hike.
I think if that happens, that's in line with what the market is expecting. I think it would be a relatively muted response. I think we don't get a move one way or the other. We may rally if they stay neutral. If they hike by more than 25, I think that's going to surprise the market and spook it.
But the Fed testimony, constructively, over the next several months is what matters a lot more, as expectations are built in for maybe a future hike.
Johny Fernandez: That's interesting. And let's talk about crypto, because crypto has rallied ahead of Tuesday's Senate vote for the CLARITY Act. That's also top of mind for a lot of people.
Is the surge already pre-pricing the legislation's passage, or could formal regulatory rules unlock a fresh wave of institutional capital?
Patrick Healey: Yeah. So I think the initial crypto surge was shorts covering after the Treasury Secretary made some accommodation on the long end of the bond market. And so that was a natural reaction. We've seen some follow-through.
I think the vote tomorrow by the Senate could have very pivotal implications on a longer-term basis. So I don't think everything's priced in. I think there's some anticipation that that vote gets passed, and I hope it does.
But I think the Trump administration is also making some plans in case it doesn't get passed. They're trying to foster some rules with the SEC and the FTC. And so if it doesn't get passed, I still think it's constructive for crypto, but it would be a big move for the long-term health of the sector.
Johny Fernandez: So let's pivot a little bit to yields now, because obviously that's also been top of mind. So elevated yields are increasing financing costs for the AI buildout, and obviously we had some news regarding AI this morning, while slowing M&A in biotech and real estate.
So how are these tech firms creatively financing CapEx, and what sectors are suffering from the higher rates at this point?
Patrick Healey: Yeah. So anyone that's a debt-based sector, one that, you know, is increasingly borrowing, is feeling the pain, right? The cost of capital is increasing.
On the AI side, you know, really the challenge is with investment banks that are doing the equity and debt issuance. Some private debt lenders are getting more creative about the structures of the capital that they're putting into the marketplace.
And it's incumbent upon them to continue to do that if the borrowing activity continues to fuel the buildout.
We did see some comments from the Anthropic CEO earlier today that kind of spooked the market a little bit. I would view that as a buying opportunity. I think ultimately, you know, you don't want to get ahead of yourself in terms of the buildout, but at the end of the day, it's an arms race.
And if we don't do it, China's going to do it. I think ultimately that will continue.
Johny Fernandez: That's interesting. So let's talk now about software stocks. Software stocks are rebounding even as investors position for an upcoming IPO debut. Again, unknown when that's kind of going to be, especially after today's news.
So are you seeing capital reshuffle across tech like it did before SpaceX went public? Or kind of where's the value for software at the moment?
Patrick Healey: Yeah. So software stocks took it on the chin several months ago, and their fears were that AI was going to replace a bunch of that sector. I think those fears have been alleviated to a larger extent.
You've seen those names rally, like Microsoft, ServiceNow, Snowflake, just to name a few. I think the biggest fears have been alleviated. I think a lot of those stocks will benefit actually from AI.
In terms of Anthropic, yeah, they're the next big IPO on deck. We could see some capital drain from other sectors in advance of that as people try to get stakes in the investment.
But ultimately, you've seen with SpaceX that happen, and there was a sell-off and normalized market activity. And so I would expect something similar to happen this time around as well.
Johny Fernandez: All right. And last question. I mean, we're seeing oil near kind of that $100-a-barrel mark, Canadian tariff headwinds and a midterm election approaching soon. So macro risks remain high.
So how are you advising clients to position portfolios heading into the fourth quarter?
Patrick Healey: Right. So we manage capital for clients, and so those decisions are made by myself and our firm. But I'm treating the volatility as a buying opportunity.
If we do get rallies, a relief rally, we're taking profits because it's a very volatile environment because of the things that you mentioned, as well as the war in Iran.
And until some of those things are really in the rearview mirror, we're going to be a lot more active trading, taking advantage of dips like we're seeing this morning and selling rallies when we get them.
Johny Fernandez: Awesome. Well, Patrick, thank you so much for joining us today.
Patrick Healey: Yeah. My pleasure.
