Latest / Markets with Megan: A Quick Financial Markets Update / Powell Spooks Equity Markets | Episode 190 | 11-18-24

Transcript

Powell Spooks Equity Markets | Episode 190 | 11-18-24 · Markets with Megan: A Quick Financial Markets Update

• 0:02
  Megan Horneman: That election euphoria that we saw right after President Trump's election, with the equity markets, really took a beating last week and we just want to discuss why, what we see going forward and the changes that we saw out of, specifically, the Fed speech last week.
• 0:18
  Megan Horneman: So on Friday we got a retail sales number that, on the headline level, didn't look too bad, but when you strip out everything food, energy, trade, all of those volatile items retail sales actually declined for the month.
• 0:31
  Megan Horneman: So what we're seeing is that slowing consumer that we have discussed.
• 0:35
  Megan Horneman: That is a big risk to the economic growth.
• 0:37
  Megan Horneman: But at the same time, because of the fact that the market got ahead of itself, of getting optimistic on what the Fed would do, getting optimistic on inflation Well, we got other inflation data last week that showed some of that progress is stalling and the sticky components like housing services these are still elevated and much more difficult for the Fed to control.
• 0:59
  Megan Horneman: So on Friday then we got Fed Powell speak and he said that don't be expected, there is no clear path for interest rates.
• 1:08
  Megan Horneman: Some of the actual comments that he made were there's no need to be in a hurry to lower rates.
• 1:15
  Megan Horneman: We saw that.
• 1:16
  Megan Horneman: He said that they can act cautiously, given these persistent inflation pressures.
• 1:20
  Megan Horneman: So this took a lot of that euphoria out of the market.
• 1:24
  Megan Horneman: Investors are now getting a little bit more realistic from the interest rate perspective and we have said this that the interest rate cuts that are baked into the market for next year are just too aggressive because of this inflation environment.
• 1:38
  Megan Horneman: And we've also warned we've said the Fed with that 50 basis point rate cut in September it was aggressive.
• 1:46
  Megan Horneman: It's very easy to reignite inflation.
• 1:48
  Megan Horneman: One of the things some of the other Fed officials said last week was inflation is a very uneven trajectory, down to 2%.
• 1:55
  Megan Horneman: So they're going to be very data dependent.
• 1:58
  Megan Horneman: They have their meeting in mid-December.
• 2:00
  Megan Horneman: Before that we will get another reading on GDP second quarter GDP.
• 2:06
  Megan Horneman: We'll also get the PCE, which is the Fed's preferred inflation indicator.
• 2:10
  Megan Horneman: We'll get a payroll report and we'll get more inflation on the CPI and PPI.
• 2:15
  Megan Horneman: All of these things before the Fed meets in December.
• 2:18
  Megan Horneman: So there's a lot of moving parts here.
• 2:20
  Megan Horneman: What we do know is the market did not like this.
• 2:22
  Megan Horneman: Last week we saw the 10-year Treasury jump to the highest level since July and we saw all those interest rate sensitive sectors, specifically the small caps that had been the biggest beneficiary, coming out of the election.
• 2:34
  Megan Horneman: The small caps are telling you whoa, whoa, maybe the domestic situation is not as good as we had anticipated.
• 2:41
  Megan Horneman: The Fed may not be able to be aggressive with rate cuts and now we're looking at a slowing consumer so concerned about the economy side.
• 2:48
  Megan Horneman: On that, and from the interest rates and fixed income market, they basically priced out some of these Fed fund rate cuts.
• 2:55
  Megan Horneman: Before last week there was about an 80% chance of a 25 basis point cut in December.
• 3:00
  Megan Horneman: Now it's about a 60% chance.
• 3:03
  Megan Horneman: Now our view as it stands right now, the Fed is likely going to cut 25 basis points in December, but deliver that with a hawkish tone Now.
• 3:12
  Megan Horneman: This can very easily change if any one of these economic indicators come in much better than expected or make it troublesome for the Fed.
• 3:20
  Megan Horneman: We'll continue to update you on that, but for now that is our view.
• 3:24
  Megan Horneman: That they'll still cut in December Next year is very unknown at this point.
• 3:28
  Megan Horneman: So we're kind of going meeting by meeting, just like the Fed is.
• 3:31
  Megan Horneman: That's all we have today.
• 3:33
  Megan Horneman: If you like this podcast, please subscribe.
• 3:35
  Megan Horneman: Share it with friends, family or colleagues.
• 3:37
  Megan Horneman: You can hit that alarm bell and if you want any of our historical podcasts, you can go to marketswithmegan dfm.
• 3:43
  Megan Horneman: Thank you.