Why the S&P 500 is 'like a duck' amid risks of rising interest rates

00:00 Speaker A

The market, the S&P is like a duck right now. It’s really calm on the surface, but when you look underneath, there’s there’s tons of paddling and rotation. I think that’s really the right move.

00:11 Speaker A

To us, yeah, higher rates are a risk, but we think the S&P, given the growth expectations and how they keep moving higher, can actually withstand rates into the low fives.

00:24 Speaker A

Just puts a lot of emphasis on growth to deliver. So we think the right action right now is to rotate within stocks, not out of them. And I think that’s why estimate revisions, growth and quality quality are relatively holding up better within the market right now.

01:04 Speaker B

And Stephanie, you mentioned the market expectation that the Fed will be hiking rates. Are you leaning towards that that they are indeed going to do that? I mean, what happens if there is a divided Fed and they don’t?

01:21 Stephanie

Yeah, I mean, so we’ve changed our call. We’re now looking for the Fed to be hiking both in September and then as well as December. I think it’s going to be really difficult for for them to to to to really sit down next week and and make and hard be made to be holding rates just given that that contradicts a lot of things that they have said most recently. You know, Waller was looking for something in the point twos, now we got point three, Warsh had his hawkish speech at Jackson Hole. So

01:54 Stephanie

I would be surprised if you end up with with a with a real divide that leads to to a whole. I’m sure there will be debate in the room, but realistically Waller and the the the core governors will probably swing towards a a hike after everything that we’ve learned and certainly the oil price shock most recently doesn’t make the case any uh, you know, less clear that they’re going to that they’re going to end up moving.

02:30 Stephanie

Everybody is is trying to bring rates down at the long end and in doing so, it’s it’s sort of counterproductive in in a sense. So you have certainly the president, uh, you know, asking and and you know, sort of pleading for rates to come back down. That increases the term premium, which realistically puts upward pressure on rates.

02:54 Stephanie

You have Bestion uh rolling out the uh Treasury buyback plan which certainly disappointed markets because it’s not very big in size. You have Warsh having mixed communication, and arguably Governor Waller’s framework is is probably the most effective way of of actually getting credibility, therefore lower term premium and and lower rates, which is just having a framework and guidance about the future, and ultimately, a way for the market to assess if the data come in a certain way, what is the Fed going to do and then the Fed’s forced to just to stick to it.

03:32 Stephanie

So that is arguably the the one piece of that 4D chessboard that is actually uh sort of the way to get rates back down and realistically he he is a really important sort of guiding light here in terms of what the Fed’s ultimately going to do because so many of the governors are going to be voting with him.