Don’t Fight the Fed – Investors Warned to Watch Out for Market Overheat
By Optimistic investors are sending U.S. stocks higher, but they should be wary of moves that “fight the Fed,” Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley reports.[0] The well-known expression “Don't fight the Fed” suggests that investors should adjust their investments in order to take advantage of the US Federal Reserve's monetary strategies, instead of being adversely impacted by them.[0]
The Federal Reserve has raised interest rates from near-zero in March to 4.50-4.75% currently, hinting more hikes could still come.[1] It has been suggested by certain policy makers that the Federal Reserve in the United States will increase interest rates beyond 5% and leave them there for the entire 2023 year to attempt to bring US inflation down to the desired 2% level.[2]
The US Bureau of Labor Statistics said Tuesday that the consumer-price index rose 0.5% in January for a year-over-year rate of 6.4%.[1] Economists polled by The Wall Street Journal had predicted a 0.4% rise in January, but the actual figure was higher.[3] In December, the rate of inflation had risen to 6.5% year-over-year, but the pace has since slowed over the past 12 months.[3]
Meera Pandit of JP Morgan Asset Management told CNBC that investors are still displaying excessive optimism in regards to the stock market.[4]
Pandit informed CNBC on Thursday that the economy is currently responding positively to robust economic numbers such as employment, CPI, PPI, retail sales and industrial production; however, he believes this is likely to be a temporary high point before a downturn.[4]
Data from the US labor market has stayed strong in the recent months, and inflation went down to 6.4% in January, which is the lowest level in over 12 months.[4] The possibility that the central bank could reduce inflation without causing a recession has caused optimism among investors.[4]
But JPMorgan Chase & Co. strategist Marko Kolanovic said he is “turning more defensive,” recommending that investors fade this year’s stock rally because “a recession is currently not priced into equity markets.[5]
0. “Three reasons warrant a period of profound uncertainty – Morgan Stanley” FXStreet, 16 Feb. 2023, https://www.fxstreet.com/news/three-reasons-warrant-a-period-of-profound-uncertainty-morgan-stanley-202302161513
1. “Stock Market Just Made The ‘Same Mistake Again’—Here’s Why Experts Are Worried About The Latest Rally” Forbes, 13 Feb. 2023, https://www.forbes.com/sites/jonathanponciano/2023/02/13/stock-market-just-made-the-same-mistake-again-heres-why-experts-are-worried-about-the-latest-rally
2. “Pivot away from stocks with investors fighting the Fed: Morgan Stanley” Markets Insider, 14 Feb. 2023, https://markets.businessinsider.com/news/stocks/stock-market-outlook-buy-bonds-fight-the-fed-morgan-stanley-2023-2
3. “‘Underlying bullish tenor’: U.S. stocks fare surprisingly well as Treasury yields rise after hotter-than-expected inflation, says Morgan Stanley’s Andrew Slimmon” MarketWatch, 14 Feb. 2023, https://www.marketwatch.com/story/underlying-bullish-tenor-u-s-stocks-fare-surprisingly-well-as-treasury-yields-rise-after-hotter-than-expected-inflation-says-morgan-stanleys-andrew-slimmon-76c0299d
4. “Optimism about stocks is still too high as the US economy is showing ‘the overheat before the retreat', JPMorgan strategist says” Yahoo Canada Finance, 17 Feb. 2023, https://ca.finance.yahoo.com/news/optimism-stocks-still-too-high-124717176.html
5. “JPMorgan's Kolanovic Urges Investors to Ditch Stocks for Bonds” Financial Post, 13 Feb. 2023, https://financialpost.com/pmn/business-pmn/jpmorgans-kolanovic-urges-investors-to-ditch-stocks-for-bonds
