As the S&P 500 (^GSPC) continues to dominate the headlines on Wall Street, many investors are wondering whether the index can maintain its strong performance, or whether upcoming CPI (Consumer Price Index) data and economic headwinds will result. I think this could put a damper on the rise in the S&P 500 index. .
NewEdge Wealth Senior Portfolio Manager and Head of Fixed Income and Macro Ben Emons joins Yahoo Finance to discuss the performance of the S&P 500 and why he's bullish on the broader market.
“The CPI will be a catalyst for that momentum because everyone is focused on it.” [interest] Rate cuts, and we have reversed some of the rate cuts…” Emmons commented on the upcoming CPI data and the possibility of a Fed rate cut. [they’re not] “Despite the rush, we're reaching record highs, so I think we'll need to continue lowering rates to sustain this momentum.”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
video transcript
Brad Smith: When the stock trades, right after the opening bell, it now falls. Mixed says, Nasdaq says, put my beer here. Flat, barely upward. However, the Dow and S&P 500 are in the red.
This takes place after a historic milestone. As of Friday's close, the S&P 500 index closed above 5,000 for the first time in history. Optimism about his CPI results tomorrow is also likely to maintain market momentum.
To learn more about this, we speak to our new NewEdge Wealth Portfolio Manager, Ben Emons. I'm happy to have you come to the studio with me. One of the big things we've been tracking within this market is to see if we can continue this momentum right now and what it will take.
Ben Emmons: Yeah. With everyone focused on rate cuts, the CPI will be a catalyst for that momentum. And we got some of it back. There are seven states included. There are almost four now. Expectations are rising that the Fed will act. But they are in a hurry. Still, we are reaching an all-time high.
So I think we need to continue lowering rates to maintain that momentum. So it's interesting to see these small-cap stocks outperforming for the first time today. A lot of people are talking about the rotation, which didn't happen this year. And yes, Russell, Mag 7, and the technology index are far behind.
Therefore, the CPI could be a catalyst for that change. Perhaps because a moderate CPI would provide a huge boost to economic growth. And I think that will increase the rotation even more. market.
Rachel Akuffo: So do you think this allays recession concerns, especially looking at your current performance?
Ben Emmons: I think it's been completely off topic for a few months now. I would even argue that Ecobear has been demonstrably wrong for over a year, so to speak. Because what we're actually dealing with is excessive inflation. But the Fed has tightened enough to bring inflation down modestly.
By the way, we are receiving some aid from China, but at the moment it is higher than that and deflation is occurring. Therefore, a recession would only occur if prices collapsed significantly. It doesn't seem to be progressing. So this is a soft landing or no landing. And I think small-cap stocks have some breathing room.
Brad Smith: Fed Chairman Jerome Powell is then expected to keep interest rates unchanged in March. Earlier today, I actually had the opportunity to meet with Steve Pagliuca, a senior advisor at Bain Capital. Here's what he said about the central bank's path to possible rate cuts this year: And receive your response on the other side.
Steve Pagliuca: When it comes to cuts, there is a certain excess. And people saw interest rates drop. But again, if you look at history, I think that's an anomaly.
Brad Smith: And with that in mind here, the market's expectation that the Fed will cut rates, and perhaps we're pricing this in too early, and it's going to take longer than we thought. This means that high prices will continue for a period of time. How does that impact the portfolio positioning that people should consider at this point?
Ben Emmons: Yeah. It's a dichotomy. And, as I said last time, I think the cash in the trash can still speaks to us. You can trash it to some extent, but you may not be able to trash it completely.
Second, higher long-term interest rates mean a stronger economy. Otherwise, you wouldn't be able to get such a high interest rate. We're really going to be back to where we were before the pandemic, when the economy was depressed. We don't know what will happen in January 2025 with a new president in the White House, how old policies will change, and what will happen to the economy.
But I think this is a year where we can expect the Fed to stay somewhat elevated for an extended period of time because the economy is improving. If not, I think the Fed will cut rates sooner. Can interest rates be lowered? can. But they think rates are the problem here. And there is room for the inflation rate to decline slightly.
But according to my calculations, there isn't that much room. I think last week was an important signal that the Fed (and some of them) are not looking at three rate cuts, but maybe two rate cuts. I think that's what's on the market's mind right now.
