As Wall Street braces for key inflation data, Wells Fargo Securities’ Michael Schumacher thinks one thing is clear: “The Fed is not your friend.”
He warns that Federal Reserve Chairman Jerome Powell is likely to keep interest rates higher for longer, and that could leave investors on the wrong side of the trade.
“You think about the history of the last 15 years. Every time there was weakness, the Fed came in to the rescue. Not this time. The Fed cares about inflation, and that’s about it “, the company’s head of macro strategy told CNBC “quick moneyMonday. “So the idea of a lot of easing – forget it.”
The Ministry of Labor will release its January report consumer price index, which reflects the prices of goods and services on Tuesday. THE producer price index is in the spotlight on Thursday.
“Inflation might come off a bit. But we still don’t know exactly where the destination is,” Schumacher said. “[That] makes a big difference to the Fed – if it’s 3%, 3.25%, 2.75%. At this point, It’s in the air.“
He warns that the momentum of the start of the year cannot coexist with a Fed determined to fight inflation.
“Higher yields … don’t sound good for equities,” added Schumacher, who believes market optimism will eventually fade. So far this year, heavy tech Nasdaq is up almost 14% while the wider S&P500 is up about 8%.
Schumacher also expects risks related to the Spy balloon falls in China and Russian tensions to create additional volatility.
For relative security and a few advantages, Schumacher still likes the 2-year Treasury bond. He recommended it during a “Fast Money” interview in September 2022, saying it’s a good place to hide. The note now yields 4.5% – a jump of 15% since that interview.
Its latest forecast calls for three more quarter-point rate hikes this year. So this should support higher yields. However, Schumacher notes there is still a chance that Fed Chief Powell will change course.
“A number of people on the committee are quite accommodating,” Schumacher said. “If the economy looks a little weaker, if the jobs picture gets a little darker, they can talk to Jay Powell and say, ‘Look, we can’t take any more rate hikes. We probably need a cut or two soon enough.’ He can lose that argument.”