A harsh market response to higher-than-anticipated inflation could lead to further losses.
Investor Peter Boockvar thinks Wall Street is accepting the harsh truth that the Federal Reserve won’t change course because inflation isn’t abating.
“We’re going to start playing a risky game with the status of the economy after next week’s rate increase. The Fed funds rate will only surpass the previous peak in a rate-hike cycle twice in the next 40 years, according to the chief investment officer of Bleakley Advisory Group, who spoke on CNBC’s “Fast Money” on Tuesday. We are approaching dangerous seas.
Boockvar asserts that a 3/4 point increase at the Fed meeting next week is all but guaranteed, despite indications of lower commodity prices and a slowdown in used vehicle prices.
“How the BLS [Bureau of Labor Statistics] records that lags. Thus, the reason for our two-lane highway’s opposite-direction lanes, according to Boockvar. “The markets are moving in one direction, and the BLS hasn’t yet taken that into account, so we rose 200 S&P points in the four days prior to today (Tuesday).” Unfortunately, the Fed is likewise taking its time responding to events. They are also driving with a rear-view mirror mindset.
After the consumer price index (CPI) for August increased by 0.1% to 8.3% over the previous year, the key indices reached lows not seen since June 2020. Even a significant decline in petrol prices was unable to offset increased expenditures for housing, food, and healthcare. According to Dow Jones, economists anticipated a 0.1% decline in the index.
Nomura formally revised its rate hike estimate in response to the increase in inflation. It now anticipates that the Fed will raise rates at its upcoming meeting by one full point.
Boockvar, a contributor to CNBC, doubts the Fed will take action to that extent. He cautions, however, that investors will still have to deal with the negative economic effects, such as wealth destruction and declining profitability.
“You’re going to see additional reduction in earnings expectations at the same time,” he added. “Labor costs remain sticky, if they continue to climb at the same time the revenue side continues to stall in the face of this slowing economy.” “I don’t think a [p/e] multiple of 17x marks the end of this market,”
Boockvar predicts that multiples will eventually be 15x or less.
Brian Kelly, a trader on CNBC’s “Fast Money,” predicts further problems for the stock market and the economy, particularly for housing.
“Housing is scarcely showing signs of cracking. People will therefore feel as though they have less money than they had previously as that starts to decline. We don’t know what that will do to the economy after that, he continued. It’s possible that this 75 basis point rate increase was a mistake. We are aware of the delay.
Additionally, that might be too much for the economy to bear.
Tim Seymour, another “Fast Money” trader, continued, “This is a Federal Reserve that could not raise interest rates by 25 basis points in 2018 and actually sent the market into a convulsion. Ultimately, they had to step back in and start this easing process.”