As the stock market (^DJI, ^IXIC, ^GSPC) enters the second half of the year, investor attention will turn to the Federal Reserve’s stance on monetary policy. Jim Smigiel, Chief Investment Officer at SEI, offers his views on the economic situation.
While acknowledging the economy’s resilience, Smigiel warned that rising interest rates will likely remain a challenge in the coming months. “Inflation is stronger than we expected,” he said, suggesting the Fed will probably cut rates only once this year, if at all.
“The only uncertainty here is what the Fed will do,” Smigiel told Yahoo Finance, saying he thinks a July rate cut is “unlikely” and that a September cut is unlikely given the election is so close.
For more expert insights and the latest market trends, click here to watch this entire episode of Market Domination.
This post Angel Smith
Video Transcript
Investors are gearing up for another strong July.
The focus remains on the Fed and its outlook for the rest of the year.
And now we’re joined by Jim S. Miguel SE.
I’m Jim, your Chief Investment Officer, and it’s great to have you here.
Good to see you again, Josh.
So we probably painted a bigger picture.
Jim, you know, we obviously had a good first half.
Well, what are you telling your customers, I mean, do you think the good times will continue?
Will this be repeated in the second half?
We are making sure to let them know that we think the economy is going to be much more resilient than expected.
Yes, but we are also preparing them for rising interest rates.
We see that today.
These past two days have been really busy.
Obviously, a lot of that will depend on the outcome of the last debate and what that brings in November.
But that has always been our view, and it has been one of our biggest tactical positions.
This is the year that 10-year interest rates will rise.
In other words, we believe inflation will be stronger than expected.
The Fed wants to cut rates.
There is no question as to whether they should.
But I think we’ll only get one this year.
Yeah, and we think the holding period will continue to rise, up towards the 5% level.
Probably the biggest news of the last week, even outside of the debate and from a debt perspective, was the CBO report.
So, you know, we’re 400 people.
That would be an increase of $400 billion in debt since February estimates.
Over the next decade, the debt-to-GDP ratio is projected to be 100% and 22%.
Interest costs exceed defense spending.
This photo is not pretty.
And at some point, supply and demand will matter in the Treasury market.
You say it could potentially bounce back to the 5% level, but what’s the timeline for that?
How soon do you think you can get close to them again?
As we approach the end of the year, I wouldn’t be surprised if that happens.
So, you know, the only uncertainty here is what the Fed will do.
I don’t think there’s enough time between now and July.
July is out of the question, and September may be a little too close to the election.
So, again, they want cuts.
Whether the data will allow that remains to be seen.
We’ll have another photo this Friday at NFP.
Um, but this bear market that we’ve seen on the curve is expected to continue.
Well, this will definitely happen by the fourth quarter of this year.
Test these levels again.
Jim, let me ask you a question. We’re about to see another earnings season and I’d like to hear your thoughts.
Looking at your revenue projections, do you think that’s achievable for you, Jim?
Does it look noble?
What do you think about that?
I choose the latter.
It feels a bit lofty.
Wow, that’s very optimistic.
Well, I think earnings season will be interesting not necessarily in terms of if companies will achieve their targets, but how they will achieve their targets.
Are we talking about micromanagement?
Is this expense control and share buybacks to hit the numbers that the market has set for each company, or is there actually organic growth being seen?
And other than that, we’re more interested in guidance than revenue. Like, how?
What’s going on?
How do businesses see the next six months of the year?
How are they preparing?
How do they view their day-to-day financial situation?
What does that mean for consumers?
What does that mean for the business environment?
That will be the most interesting thing.
However, the hurdles are high.
The standards are especially high at Mech.
I mean, that’s a very noble thing.
