Welcome back to closing balance chatter news everyone,
the Federal Reserve minutes from its january meeting showing that
the central bank is ready to raise interest rates.
And it also provided more details on how it plans to trim
its massive balance sheet.
Well, this coming is January retail sales, surging,
rising 3.8% beating Estimates and showing a
massive jump over December is 2.5% drop.
Well,
consumers are still willing to spend despite rising inflation across the board.
And joining me now scott brown market strategist at LPL Financial,
a firm catering to independent financial advisors
scott. Thank you so much for coming on the show.
What's your reaction to the january Fed minutes and
what it says about the path forward for rates?
Hey, thanks thanks for having me. So you're right. We we did get a good number.
We obviously beat expectations with that 3.8% increase,
But we do believe that some nuance in perspective
is important because this report is not inflation adjusted.
And so a lot of that increase does come from
higher prices that -2.5% um revised report from December.
Also not that great.
So, you know, we think the consumer is still strong and healthy,
but this also isn't just a blowout number in our view,
you're a firm catering to financial advisors
providing them solutions how our financial advisors preparing
to speak to their own clientele about the path forward for the market this year.
As we do await a potential rate rise.
Yeah, it's so I think financial advisers were telling our financial advisors,
they're gonna have to really put in the work, uh, this year,
because the path for stocks where we still think
stocks are a better place to be than bonds.
The path is going to be a lot rockier. It seems like than it was last year.
The Federal Reserve.
How they're going to react to inflation is going to continue to be a big story.
And it seems like the market is kind of inclined to trade off these headlines
really through the first half of the year. And then,
oh, don't forget we've we've got midterm elections,
which always tend to add a little bit of volatility in the second half of the year.
Mm hmm.
And how are you navigating that?
We haven't even spoken about the midterms much
this year because the market's been so volatile
since really the first trading week of this year.
But what kind of volatility could that inject scott those midterms
as we do expect the Fed to raise rates
anywhere between four and potentially six times this year.
Yeah. Yeah.
So, I mean, the politics, you're right, luckily they've been kind of put aside.
I don't think it's gonna stay that way for forever, but it's not common.
Not uncommon to see the stock market really chop around
and not see a lot of gains until the very,
very end of the year in a midterm year, you know, back to the Federal Reserve.
It does seem like the Fed is inclined to hike 3-4 times in the first half of the year.
But then, in our view, the range of possibilities really opens up.
We're a little bit below market consensus.
Some shops have, you know, jumped out to six or seven hikes this year.
We just don't think that we're necessarily going to be there.
We think inflation readings are likely to come down enough
in the first half of the year that by the time we get to july or so
you're gonna be staring down an election.
Financial markets have already tightened a lot on their own and that
was mentioned in the Fed minutes that many participants have already noted.
I mean,
you've got 100 and 25 basis point jump in mortgage rates in just the past six months.
That's a big move.
And so in some ways the market has already done some of the Fed's job for it.
Okay, so let's talk about retail sales data out this morning,
stronger than expected in january even as Oh, Macron was spreading.
People were still willing to pay higher prices
for goods.
How long scott does your firm see inflation continuing to rise at these
elevated levels and will a rate rise in and of itself curtail inflation?
I know it's a complex picture here and it likely is not just to be rate rises, right?
That could quell these inflation numbers as we work our way through the year.
Yeah, so we think we're very close to the peak in the that headline, you know,
year over year inflation number,
was it the january number 7.5 or is it going to be the february number?
We're not quite sure, but we think we're very close to the peak.
And then while we're still going to be dealing with elevated numbers,
we expect that to come down and come down in relatively quick fashion.
So we think that's really important for what the Fed is going to do
in the second half of the year.
We're just advising our advisors and their clients to to
stay the course to recognize that there's more market volatility,
but we don't think that inflation is necessarily taking
the wind out of the consumer quite yet.
We've seen a little bit of a, you know,
if energy prices were to continue to rise up above $100 a barrel on crude oil,
Maybe you start to see a little bit more stress.
But so far we're not seeing that quite yet.
Well, we see the S&P.
actually turning higher Scott as we're getting this interview underway.
Of course, after those Fed
meeting, minutes were released at the top of the hour,
we did hear from ST Louis Fed President James Bullard earlier
this week saying that he thinks the Fed should front load
these rate rises this year to combat higher inflation.
Many do expect that it will start to add by the
second half of the year as you mentioned as well there.
But we all saw that those expectations
uh
just three months ago were changed, right? And inflation has persisted.
So do you think it would be wise for the Fed to front
load those rate hikes and try to combat inflation as soon as possible?
So there's definitely a lot of nuance to this situation.
It's it is very strange because the Fed is still buying bonds right now.
So you've got a situation where they've got to turn and turn on a dime pretty quickly.
We don't think it's necessary to get a 50 basis point hike in March and you
can see the market has already backed off
that following the release of these minutes,
the odds of a 50 basis point hike have fallen back below 50%, albeit
barely. We think they're going to get 3 to 4 hikes that's pretty aggressive.
Remember the last rate hike cycle campaign?
They hiked once in december of 2015 and waited a full year before we did another hike?
So they're already going to be more aggressive?
It seems like that's firmly baked into the market. But you know, you're right,
does that really fix the supply chain issues that
have caused a lot of the inflation issues?
We don't think it does.
And so we think that they are going to be a little bit more measured
than some market participants have been aggressively pricing
in over the past couple of months.
Alright, scott Brown Market strategist at LPL Financial scott,
thank you so much for taking the time.