As the Federal Reserve gears up to initiate its first interest rate cut, some investors feel as if it’s too little, too late to stave off a recession. Slatestone Wealth chief market strategist Kenny Polcari joins Catalysts to discuss the current state of the economy and how the market may react to the Fed’s rate-easing cycle.
Polcari expects the economy to continue to slow, and argues, “I wouldn’t even mind if we had a little bit of a mild recession, not a deep one, because a mild recession will reset it right.” In a mild recession, he expects prices to come down in key areas like food and energy.
As the Fed moves toward its first rate cut, Polcari expects small caps (^RUT) to benefit. He explains that small caps often borrow a lot of money, and lower interest rates will allow for some breathing room. However, he warns that not all small caps are a good investment, and encourages investors to take into consideration the broader sector a small-cap company may be operating in.
While the Fed has its eye on a soft landing, Polcari believes it will most likely be a “semi-soft landing,” which investors should take into account. “I think you just have to be conscious of your time frame, where you are in the life cycle, where you are in the investment cycle. If you’re 30 years old, it’s a very different conversation than if you’re 60 years old in terms of how you want to be weighted and where you want to have your exposure,” he tells Yahoo Finance.
He notes that overall, the US economy is “fairly resilient,” and given the current economic picture, he believes a 25-basis-point cut from the Fed would be the most appropriate move. “I think all this panic about we need 50 basis points because we’re going over the edge. I think that’s baloney because I don’t think we’re going over the edge. And like I said, I think actually a slow down would be better for the economy long range because we can’t keep going at the pace we were going because then if we do, then the correction is going to be even more difficult.”
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