Markets at a Crossroads: Fed Policy, Tech Earnings & Regional Banks

Jacob Sonnenshein is markets reporter here at Baron's, my man.

Welcome back to the show.

Thanks for having me.

Let me get your take first and foremost.

The FOMC meeting next week.

This will be Kevin Warsh's 2nd meeting as Fed chairman.

What are your expectations for how hawkish or non-hawkish this Fed looks to be the second half of the year?

I think first thing you had to Remember, it's, it's not going to be very easy for Chairman Warsh to be more to be much more hawkish than he was when he first spoke in front of the media and said that inflation is essentially the priority.

So I don't know if he's going to get more hawkish than that, but I have, I think you have to remember the market is expecting something in the neighborhood of one hike this year.

Uh, I'm expecting to continue to hold this microphone, but I also think.

That beyond that hike, I don't know that he's going to start jawboning more hikes than one because oil is volatile, but he's gonna give you some chatter about, about a hike.

I'll hold this.

We're gonna do this because I don't know if this active microphone is working, so I'm gonna pick this up, and this is the beauty of life.

I'll just chat with you like this.

Uh, your expectations with regards to interest rate policy more broadly and the approach of this Fed between now and the end of the year.

Yeah, he, between now and the end of the year, Warsh is going to, he's not going to sound dovish.

I don't know that he can sound more. hawkish than he did about a month ago because he said inflation is a priority, but he's, he's gonna, he doesn't want the market.

He doesn't want rates to come down so much until oil resolves itself.

Oil is still up a lot, and we know what his priorities are in terms of inflation.

How are you?

Give me one second.

I'm gonna bring you while you and I do this live.

Uh, talk to me about big tech earnings after the, after the belt today.

We just heard from Peter Tuchman, the Einstein of Wall Street.

We'll hear from Alphabet.

We'll hear from Tesla.

It's really the first of the big mega caps.

Know how closely the market continues to pay attention, especially when these handful of very consolidated names in the S&P give us a sense of what's under the hood.

Yeah, I mean, I, I, I think the, the, the thing that chip investors are looking for is CapE as usual, you know, Google just reported, I got to go home and read that stuff.

But in terms of Meta, which is also going to be this month, Meta has an opportunity in front of it.

We know that the CPE growth in terms of the guidance is, is huge, and that has weighed on the stock and has weighed on the valuation.

And there's concerns near term about return on invested capital, but if Meta can come in and say, we have excess compute that, and, and give a little more direction on who and how and the scale at which they're going to sell that, they might even have a little more wiggle room to increase CapEx.

I hope they don't, but they might have some wiggle room, and if they can increase that return on investment story with the cloud compute situation at a 19 times PE multiple, they could push their stock up.

Uh, give me one.

Element of these markets right now that you think we would all benefit from paying a little closer attention to, and I'm gonna hand you that as you give this next answer.

Really boring dividend yielders.

You have a bunch of 5% dividend yielders that I've found, um, uh, you know, there's some large cap names like Clorox, but there's also some REITT names, real estate investment trusts, companies that are growing their dividends, uh, every year and at least the last 10 years with pretty good balance sheets.

Sometimes REITs have some weird wonky balance sheets with a lot of debt, but you can believe in that.

So look at those types of areas.

The reason is because the ten-year yield at 4.6%.

I think that's heading lower because the oil situation, again, it's volatile, but I think we're peaked out at 4.6%.

We've already gotten a big move and it's, it's very much ahead of inflation, uh, inflation expectations.

So if the 10-year yield comes down, look at some of these dividend yielders that are above 5% that reliably grow their dividend payment.

Uh, before I let you go, and I'll give you one last question here.

I know you like the chart of financials.

Perhaps.

Poised for a breakout.

What more is on your radar knowing we got the big banks behind us.

A few more key names like Blackstone and others still set to report.

Yeah, I, uh, I keep, keep looking at the reports.

Blackstone, you mentioned, will report soon.

Um, regionals over investment banks.

Investment banks have absolutely, absolutely exploded.

They're starting to, starting to trade like tech stocks because of their IPO businesses.

They're trading at high multiples as well.

I would say in terms of putting new money to work, I'd stay away from investment banks.

Go to regional banks.

The economy is strong.

Regional banks.

In terms of lending will benefit, but all banks, including regionals, including some CEOs that I've spoken to of super regionals, they're investing in AI to the point that you can see with the naked eye margin expansion, you can see better profitability and you can see maybe even double-digit earnings growth for a group of regionals that is far cheaper than your group of investment banks.

Damn, Jacob Sonnenstein, my man, thank you for being here, total pro handling the mics, by the way.

Really grateful for that.

I promise I will never ask you to do that again.

We'll talk to you again soon.

Thank you.