UBS Global Wealth Management Head of Asset Allocation Jason Draho joined Market Domination anchors Julie Hyman and Josh Lipton to discuss Wednesday’s market moves after August’s CPI report and what it means for expected rate cuts next week and the Federal Reserve going forward.
When asked what he makes of US stock climbing from intra-session lows as investors digest the CPI report, Draho told Market Domination that he doesn’t put too much weight into intraday moves but said Wall Street’s initial reaction to the inflation data makes a 25-basis point cut more likely at the upcoming Fed meeting.
“Big picture, [August’s CPI report] doesn’t really change the dynamic from the Fed perspective,” he said, adding that it could affect the timing of when the rate cuts happen “more so than the magnitude” of the cuts, and “that’s ultimately really what matters for the markets overall.”
Draho said the market reaction to the inflation report could indicate investor confidence in a soft landing and the timing of the Fed’s cuts. “Certainly sentiment on the economy has gotten worse in terms of confidence in a soft landing, but if the equity markets are really worried about a recession, they wouldn’t be at these current levels,” he said, noting that he thinks “the conviction in a soft landing has moderated.”
“I think the mindset of a lot of investors is they want to buy, they want to add exposure,” but “they need economic data to give them catalysts or enough evidence that the Fed is going to be proactive,” Draho said, adding that a better-than-expected jobs print or a dovish Fed could be this catalyst.
Believing that a 25 basis point cut is already backed into the market, Draho told Yahoo Finance that “the key will be what does the Fed signal going forward” given the market pricing in an around or over 100 basis points cut in total by the end of the year.
“There is a chance for the Fed result to be a little bit hawkish,” with fewer or less significant cuts by year-end, Draho noted, saying that investors will be watching for indicators from Jerome Powell at next week’s press conference on the Fed’s thinking going forward.
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