Remy Blaire: On this Friday afternoon, we're looking at the major U.S. stock averages in negative territory and the 10 year yield back above that 5% level.
Now, earlier this week, Fed officials voted unanimously to raise the benchmark rate to a range of 3.75% to 4%, with their dot plot forecasting at least one more hike before the end of 2026.
We're also keeping an eye on oil prices on this Friday.
Well, joining us live from the trading floor is Michael Reinking, Senior Market Strategist at the New York Stock Exchange.
Happy Friday, Michael. What a week it's been.
Michael Reinking: Yeah, it's been a long week. We're on the countdown to what's expected to be a pretty big close.
Remy Blaire: Yeah, absolutely. So first and foremost, I think we need to take a step back and look at all these central bank decisions, in particular the Fed decision.
So there was so much anticipation heading into that, and it was reflected in the volatility we saw across all asset classes.
But on this Friday, where do you stand with the Fed outlook?
Michael Reinking: Yeah. So, I mean, look, on Wednesday, the Federal Reserve hiked rates for the first time since July of 2023, which was widely expected.
They suggested that that hike was to return inflation to their target in a more timely fashion.
You know, when you looked at the Summary of Economic Projections, right, that kind of told a little bit more of a dovish story, right? And one that wasn't kind of fully coherent, right?
Their inflation expectations showed that they expected it to drop pretty significantly next year, pretty much in line with what they had said in June.
But they didn't expect inflation to hit their target until 2029, which is, you know, kind of a stretch when you talk about kind of a timely return to inflation, which is kind of a nine-year period almost, you know, since, or I guess seven years, since we started to see inflation above target.
The dots showed that there was pretty widespread support for the hike, with 16 of 18 officials expecting one additional hike this year and then the median dot showing rates to hold steady throughout next year.
So that kind of raises a little bit of a question of, like, if you are suggesting that you want to more aggressively start fighting inflation, is that going to necessarily do it?
Now, Fed Chair Warsh was a little more hawkish in his press conference, kind of suggesting he was hard-pressed to describe rates as being in restrictive territory.
And he kind of suggested that, you know, they were removing some of the accommodation, which to me suggests they're looking to kind of unwind the rate cuts that we saw at the end of 2024.
So, you know, you're looking for somewhere between one and three hikes in this cycle, kind of as they're currently thinking about it.
Remy Blaire: And of course, global central banks, as well as people in the marketplace, are paying close attention to Treasury yields as well as the price of oil.
So I do want to start out by mentioning that the 10 year U.S. Treasury yield is back above 5% again. So what's going on there?
Michael Reinking: Yeah. So, I mean, look, a lot of this is right now kind of tied to what's happening with oil prices, right?
Oil kind of did back off from the highs, right? But we do have this kind of continued creep higher in rates.
And this is, you know, not just a U.S.-centric situation, right? This is happening kind of globally.
You know, overnight we had the ECB inflation expectations moving higher across all time horizons. We also had kind of a hot PPI reading out of Germany, right?
And, you know, the high oil prices, which are obviously feeding into diesel prices, right, are going to have, and you're hearing that this is going to potentially kind of weigh on margins for companies on a go-forward basis.
But it is going to make its way into inflation. It's a transportation cost. You know, companies are going to look to pass that.
Remy Blaire: Yeah. And when it comes to the price of oil, as well as the conflict in the Middle East and what's happening between Ukraine and Russia, none of us have a crystal ball. So we do not know how this is going to play out in the long run here.
So when it comes to the inflation picture, where do you stand? And in terms of the base, bear, as well as bull case scenario, what are you expecting as we head into year-end?
Michael Reinking: Yeah. Look, I mean, it's hard to be really, really constructive on inflation at the moment, just given the overarching situation that we have in the Middle East, in Ukraine, right, and the kind of inflationary impulses that can continue to push through the economy.
So in the short term, right, there's not really a great bull case from an inflation perspective.
We can fall back, I guess, on some of the housing and the shelter-related components, which have continued to be weak.
But that's not kind of what the Fed is really trying to target at this point.
And, you know, unfortunately, the tools that they're working with are, as they will tell you themselves, blunt instruments, right? And aren't going to necessarily be able to really help the supply shocks that we're currently involved with.
But the problem is, when you have multiple supply shocks over a multi-year period and you continue to have supply shocks, which is driving inflation, you can't just continue to ignore that for perpetuity.
Remy Blaire: So a lot of concern as we head into the rest of this year. But before I let you go, I do want to get your take on triple witching as well as the S&P rebalancing.
So how much volatility do you expect?
Michael Reinking: Yeah. So actually, this is the reintroduction. This is the first time we will actually reintroduce quad witching, as we now actually have stock futures trading once again at the CME.
So today is our first kind of true reintroduction of quad witch expiration.
You know, look, it's why they expect it to be a very big close. You know, we have the quarterly rebalances and obviously all the options activity.
And there's, you know, kind of a lot of talk that we could see a record kind of closing auction in today's session. We'll see how that plays out.
You know, what I'm sort of watching for outside of the pickup in volume and potentially volatility to the end of the day is really what happens kind of next week as all these positions roll off.
Right now, there's kind of plenty of talk about how we're kind of in a negative seasonal time period. The final two weeks of September are historically two of the worst weeks in the calendar year.
And there's some other factors outside of the fact that we're just kind of rolling off some of this protection.
You know, we're also kind of entering into the buyback blackout window ahead of earnings season.
And then next week, you know, the focus is going to, there's not a whole lot of corporate headlines. We do continue to have some sell-side investor conferences.
But the focus is going to very, very much be on the geopolitical situations, right, and kind of the macro, as you have, you know, kind of traffic getting bad here in New York with the U.N. here, right?
And then you have President Xi kind of coming to visit President Trump.
So, you know, geopolitics is going to be a big driver of what happens next week.
Remy Blaire: Yeah. And I'm so glad you mentioned that because I did want to ask you about the upcoming week, the U.N. General Assembly, the high-level meetings taking place.
And that is that time of year here in New York City. There's so much gridlock, especially in Midtown, and hopefully we don't have to encounter too much traffic.
But as we pay attention to geopolitics, we're going to be hearing from the heads of nation-states.
And of course, as you mentioned, a lot of anticipation ahead of that Trump-Xi meeting.
So what do you expect, and what do you think we should be paying attention to?
Michael Reinking: Yeah. I mean, you know, look, I think it all kind of, right now, much of it focuses on the Middle East, right?
So, you know, there have been reports that President Trump is going to meet with Gulf leaders next week. That helped oil prices kind of back off earlier in the week.
And we have reports that some of the Iranian officials are going to be coming to the U.S., right? So that's adding a little bit of optimism, although, you know, it's hard to see kind of a clear outcome here in the near term.
You know, you've seen some posturing between the U.S. and China ahead of their meetings next week, right?
The administration has kind of pushed back the announcement of some of their tariffs. Whether they're using that as kind of a negotiating tool or just trying to kind of keep everybody in a good mood heading into the U.S. is to be questioned.
We've also heard some stories in the background that China has been pushing Iran, right, to get them to kind of rein in the Houthis and some of that activity.
So, you know, I think there's a lot of posturing happening. I don't know that we're going to necessarily have any kind of big breakthroughs, but, you know, hopefully we'll see the kinetic activity in Iran continue to remain at subdued levels, at least as we head into next week.
Because oil prices and yields are both sitting at pretty key levels where, if you start to get an upside move here, things can get more dynamic pretty quickly.
Remy Blaire: A lot to keep our eyes on as we head into the weekend here.
Mike, always appreciate your insights, and thank you so much for joining us today.
Michael Reinking: Thanks for having me.
