Morning trade, we are looking at US stocks opening higher after yesterday's sell-off, and we are looking at the 10 year yield recovering that 4.7% level.
And this does come as oil prices remain fairly elevated and sticky inflation does overshadow Scott Besson's promised bond buybacks.
But at the same time, investors are bracing for a Fed. high stakes speech at Jackson Hole, Wyoming next week and this is as markets are pricing in right now a 36% chance of a rate hike at the September Fed meeting following three hawkish descents at the latest meeting while here to break down the bond selloff as well as Fed policy and where to find portfolio opportunities is Carol's life whose chief market strategist.
Wealth Management.
Carol, good morning.
Happy Friday.
Now it has been quite the week as well as quite the month, but historically heading into the month of September, we do have seasonality lurking.
So given that we're looking at elevated valuations, are we preparing for a deeper seasonal correction, or do you think we're looking at a buying opportunity right now?
Well, I think the seasonality piece, first off, thanks for having me and happy Friday.
Um, the seasonality piece gets a little overblown because if you look back in the last few years, we've actually had a number of fall seasons that have been up.
We write in the last couple of years, we've written about spooky season and we've ended up rallying right through the fall, so markets are doing a really great job of staying focused.
On the fundamentals and as we see coming up or coming off of this 2nd quarter earnings, fundamentals have been strong across the board for most companies.
So that said, there's plenty to deal with as you, as you touched on with Chair Wars next week with the Fed with policy, lots of stuff, but still this overarching fundamental underpinnings are very strong.
Yes, and I do want to get your perspective on what we're seeing across Treasury yields in New York morning trade right now we are looking at the €10 back above the 4.72% level.
So this does come despite Secretary Besson signaling larger bond buybacks as well as fiscal consolidation plans.
So do you think that these Treasury buybacks are just a short-term band-aid that won't succeed to keep long-term yields down?
What is your take on this?
I think it's important to look at the bigger broader message being sent, and that's that the government is paying a lot of attention and Chair Besson in particular has paid a lot of attention to the bond market all along.
He's taught President Trump, if you will, how to focus on that 10 year, and they've been focused on Trump.
Trying to keep that under, under wraps if you will, but I'm not sure that doing mechanical things in the market like Operation Twist with a twist because it's the Treasury doing it, not the Fed, not sure that helps as much as really trying to focus on the deficit.
And as I understand it, they're, they're pending some announcements hopefully that would address the deficit because the other big news we got this week is we passed $40 trillion on the debt.
Yesterday and we're racking up an additional close to 2 trillion every year to add to that that pile and so markets are going to stay keyed in the what are you doing to bring that deficit down.
Yes, and I'm glad you brought that up because that is quite the sum there.
And when it comes to the Treasury as well as the central bank, there's a lot happening below the surface.
So as you mentioned, Fed Chair Kevin Warsh speaks at Jackson Hole next week, and this does come after 3 Fed members descended in favor of a rate hike at the last meeting.
So when it comes down to communications, what do you think Chair Warsh actually needs to do when it comes to guidance?
Well, obviously he's made it very clear that he doesn't want to give forward guidance.
He wants the markets to figure it out from the incoming data.
The problem is, the Fed has also got a task force working on data, so we don't know what, what sorts of data set the Fed's going to lean into.
Hopefully at the at the talk next week we get some early indications of what these five task forces. are working on.
He put them on a pretty short timeframe in terms of wanting it to be wrapped up by December.
But if we could get some sort of hints at what they're looking at and thinking about, but when you, when you tell the markets you're not going to get forward guidance, you're going to have to figure it out for yourselves.
They're going to take and overinterpret every single economic stat that comes, so you're increasing the volatility in markets.
But in the context of current volatility, it's also super important to remember that we're in late August and from talking about seasonality means a lot of people are on vacation and the volume is light and so the moves can be exacerbated just by the fact that there's not as many people riding the desks as there would be, as there will be in a couple weeks when we're all back in September.
And speaking of which, I do want to get your perspective on inflation because we continue to see pain at the pump here and although in New York warning trade, both WTI and Brent are nearly flat on the session, prices have been creeping higher and geopolitical tensions do remain and Those tensions, we all know that those tensions have been affecting consumers, squeezing consumers, in fact, and stoking concerns about inflation.
So give us your perspective on how big of a concern energy prices are when it comes to monetary policy as well as corporate margins.
Well, I think from, it's important to remember when you look at and assess the US economy, it's substantially less energy dependent than it was during the original round of oil shocks in the 70s and 80s.
We have diversified from a lot and manufacturing techniques and lots of other Things in a more services-based economy, so we're less dependent on the shifts in oil and the markets have done really well and and the economy's done really well absorbing higher prices.
From a consumer standpoint, it's also important for investors to parse out, for better or worse, the consumer that the markets care about are the ones that drive the economic numbers and they tend to be the top tier that if it's a K shaped or an E shape depending on how you you segment it.
That top tier are the ones that drive the markets.
The others, the ones that are feeling the most, the rest of us that are feeling the best, the most amount of pain, filling up tanks, not getting wages that are growing above the rate of inflation, we're not necessarily going to impact the economic numbers that drive the stock market, but we do have the opportunity to vote and impact things that way.
And so that's where I think The parsing goes, but it's hard for investors because we hear all the headlines we're influenced by those headlines, but the markets really operate on that very fundamental drivers and what's driving the earnings increases, and it's those top tier consumers and the AI buildout trade.
Carol, you mentioned two key words there, and that is the case-shaped economy as well as voting.
So we all know it's a midterm election year and there's uncertainty across stocks and bonds, and this has many investors holding extra cash or potentially looking for defensive plays.
But when it comes to the ultra high net worth clients or ultra affluent clients as well as family offices, where are you seeing the best risk adjusted opportunities right now?
I think that the great part is is that diversification is really working because you're getting paid to hold cash, you're getting paid to sit at the short end, especially when you've got this divergence of opinion about whether the Fed's going to raise or lower or sit tight.
Our House view is they'll sit tight.
That's been our House view through all of this just because of the incoming data. and all, but, but seeing opportunities.
There's opportunities in the public markets and the and the private markets.
There's some opportunities internationally, if you will.
We still remain overweight US equities and with the growth bias because we think this story has legs and continues to play out for some years to come.
And Carol, finally, before I let you go, what is your take on overseas markets, both developed economies as well as emerging markets?
That we, we have a, we're favorable on the emerging markets in particular.
They've proven very resilient, especially with all the hostilities in the Middle East and the disruption to the oil, their oil flow that more directly impacts them than directs than impacts us in North America.
Developed markets are a little bit trickier because it's hard for many of them.
Well, first off, you have to parse developed markets because Japan is a developed market, but Japan plays more like Southeast Asia and has opportunities going there.
But the traditional developed markets of the EU tend to be, they've they've got to increase spending, they've got slower growth, they've got much more manufacturing dominant society and much less technology dominant society, so they've got a lot of work to do, but we know that the as indexes, so we're underweight there, we're not no weight there, we're underweight they're just thinking there's a lot of things to sort themselves out despite the fact that those indices have done pretty well this year.
Well, Kara, we will have to leave it there for today, but thank you so much for breaking it all down as well as covering so many topics on this Friday morning.
Have a great weekend.
You, you as well.
Thanks.
Happy Friday.
