Federal Reserve Chair Jerome Powell is speaking at the European Central Bank (ECB) Forum on Central Banking in Sintra, Portugal on Tuesday, stating the US Fed has “made quite a bit of progress” on tamping inflation down to its 2% target.
The Morning Brief welcomes on Marketgauge.com chief strategist Michele Schneider, who believes the market (^DJI, ^IXIC, ^GSPC) is moving in-line with Powell’s comments and the Fed’s overall interest rate policy.
“Essentially there’s a there’s a double-edged sword when it comes to these yields. You want the yields not to get too soft in essence because, to date, we’ve actually had the S&P 500 outperform the long bonds,” Schneider says on Treasury yields (^TYX, ^TNX, ^FVX). “And the junk bonds relationship to the long bonds is also important because they have really been more on a risk on. So even though the yields pinch and certainly pinch areas that are very interest rate sensitive… It’s also really giving confidence.”
Schneider also comments on Nvidia (NVDA) in the semiconductor industry and various commodities.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
This post was written by Luke Carberry Mogan.
Video Transcript
Portugal Powell NFT activated FED chair, Jay Powell is participating in a discussion at the European Central Bank in Portugal now saying they have made quite a bit of progress on inflation but still not indicating when the fed will cut rates to discuss.
Let’s bring in Michelle Schneider, who is the Market cage.com Chief strategist here with us.
MS. Great to see you.
Thanks so much for hopping on.
So as you’re sitting here digesting as many market participants are exactly what fed Chair Powell is saying, I mean, is it so dissimilar from what we’ve already heard to this juncture that the markets are best trying to time and anticipate with regard to the pathway for rate cuts?
Well, hi, Brad, great to see you.
Um Actually, my assessment would be that it’s pretty consistent with everything that he said and it really makes the most sense.
Actually, if you’re looking at it from a fed perspective, which is keep just holding steady right here because we see signs of disinflation, right?
But we know that that’s very nuanced because there are other areas that are popping up of concern for inflation and the economic statistics we’ve seen some softness, but he’s still anticipating a strong labor market.
And so he’s kind of like, really voicing investor sentiment right now is we’ll see what’s going to happen because there’s a lot of uncertainty, even though the market right now is reflecting strength.
I mean, looking at the S and P since they started, uh, hiking rates in 2022 the S and P is still up 26% since then.
So it’s amazing, but it almost seems like they’ve gotten a pass.
The fed and right now nothing major has broken.
Yeah, it’s interesting.
We’re seeing the, uh, the dollar sort of, uh, off its highs of the day after this panel discussion began.
We’re also seeing yields on the 10 year, a little bit lower just down by about five basis points after these remarks began.
I’m curious from your perspective, how much of a read through, do you think that that type of movement that we’re seeing could have on equities just throughout the course of the day here as we get more commentary in from Powell?
Well, it’s so interesting about the yields because we saw this dramatic spike yesterday after it looked like we were relaxing a little bit in terms of the yields.
There’s all different types of theories on why that happened.
A lot of it people think had to do with the debate and the idea that if we do get some kind of Republican sweep, we can continue to see higher debt, which is interesting because people think that the Democrats are all about the higher debt, but really, it’s both parties if you want to be realistic about it.
So essentially, there’s a, there’s a double edged sword when it comes to these yields, you want the yields not to get too soft, in essence, because to date, we’ve actually had the S and P 500 outperform the Long Bonds and the junk bonds relationship to the long bonds is also important because they have really been more on a risk on.
So even though the yields pinch and certainly pinch area that are very interest rate sensitive, which is why tech has been such an out performer.
Not so much there.
It also is you don’t, you, it’s also really giving confidence and this goes back to Powell to the market that they don’t have to do anything dramatic in terms of lowering rates, which would be more of a sign of fear of recession and they certainly don’t look like they’re going to be hiking.
So here we are optimism.
I want to talk about the tech trade in particular.
I know that you are law on NVIDIA, but you have sort of exited most of tech broadly.
Are you worried at all about that?
Leaving you a little bit in a riskier position given that the majority of those gains for the tech trade have come from NVIDIA so far.
But there is not necessarily a guarantee of that happening in the future and you have trimmed that broader exposure to the rest of the tech names.
Well, we are still long, we still have some micron and NVIDIA, as you mentioned, and we’re more active than passive type traders.
So if things set up again, um then we would certainly be coming right back into it.
Like for example, if super micro which we’ve been in and out of would set up again and we still have exposure even to the ETF S and the leverage ETF with semiconductors S MH and then ROM which is leverage.
So we feel good about the fact that we’ve taken the profits and that we can jump in if we start to see the trend continue and add to that those positions or buy new things.
But as far as the overall exposure of the market, we also have exposure to what some of the result of all of this tech is.
And that is the strain on uh consumption for energy and electricity.
And that’s also what we’re seeing here.
So in terms of oil and copper and silver, natural gas, which has come back down but had a nice spike there.
These are also really good areas to be exposed to and we are lightly exposed to.
I mean, we definitely have our summer hats on and July as we know is seasonally strong, but we still want to wait a little bit before we kind of jump in.
But yeah, I, I think at this point, we feel very comfortable that we’re flexible enough exposed but not overexposed can add if we need to.
And yet also with some kind of a cushion, not get hurt if things start to turn down.
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