'Really good' inflation data still won't budge Fed -CIO

Well, the PC number today was certainly a good #0% month over month and then 2.6% year over year. That's happy news for those who are waiting for Fed rate cuts. Now, the Fed, it's interestingly enough, the Fed actually said 2.8% by the end of the year. So 2.6% is actually a really good number. But the Fed needs more than that. It needs conviction that inflation is going to stay put and stay low. So what does this mean? I mean in terms of rate cuts, September rate cut in my opinion, is still a little too soon. Between now and September, anything can happen. And we really need several months of stable prices, stable inflation numbers, I think for the Fed to have conviction. Some of the Fed officials have said that they need several orders now. Several quarters might be very, very hawkish. And we are still looking at, you know, maybe two more quarters of 2024. So one cut in December, still very likely two, maybe one in September, probably unlikely. All right, let's circle back to the election because the headlines today are obviously saying that Biden had a shaky performance and that Democrats may be scrambling behind the scenes to replace him as the presidential candidate. Markets, as we know, like certainty, that's a well worn phrase. If he were replaced, that takes what was already looking like a very uncertain election in terms of the outcome into more uncertain territory. What are the implications then for the markets? You know, it's unusual to have presidential debate in June. So it was a little bit of a, a, a wild card there. And certainly the performance of President Biden has put the Democratic Party in a difficult position. Let's say, you know, the American political system and the American economy is a lot deeper, larger and stable than just the presidency or just the White House. So I just heard this recently, which I'll share with you. Warren Buffett has said that he has invested through 14 presidents, seven of them Democrats, seven of them Republican, over a long period of time. He has been a successful investor. So what this means is that even though there may be uncertainty in who the candidate might be, and I guess we will find out at the end of the day, who is in the White House may have little impact on where the markets actually end up given how high flying the market has been, albeit it's been a very narrow market. How much of A pullback do you see though coming up in the coming months? Well, when you have a narrow market, it means that you have just a handful of stocks that are really leading the way. So where the S&P 500 is is sort of misleading if you consider all 500 stocks instead of just the chosen few at the top. Now the risk of volatility really lies with the fact that those stocks that are that have run year to date may be so overvalued that when there is a market turn in sentiment that they may fall too much. And so the risk of volatility definitely comes with a narrow leadership. And the the thing about the market is anything can trigger that. Anything can be a catalyst. The election could be a catalyst. Anything happened this summer that could be a catalyst, but it's really the narrow leadership that is really the culprit of a potential volatility rather than the S&P 500 just having a bad day. I think if all 500 stocks had gone up, you know, maybe not equally, but in similar dynamics, potentially the the diversification of the upside may also lead to the diversification of the downside, which may mitigate it. Let's take a look at a couple of individual companies making headlines because Walgreens cut its profit outlook and it's closing underperforming stores and Nike shares are set for their worst day potentially ever on gloomy sales forecast. Are these companies specific or are they signs of a broader consumer pullback? Yeah. So Walgreens, it seems to be a little bit of both idiosyncratic as well as consumer weakness, which they actually cited. Now another company, Nike, it seems that it's a little bit more of potentially not wise choices and where to concentrate their products, right? So that's a little bit more idiosyncratic, but they actually follow a trend of other stocks and other companies that have reported weaknesses in consumers, right? So we're talking about Walmart, Home Depot, Amazon, Target. And then we have companies like McDonald's and Wendy's. They're bringing back the $5 value meal. Maybe it was $3 at Wendy's, but these are value prices, right? So this is, this paints a picture of a consumer or the American consumer that's really financially strained is really looking to stretch that dollar, especially with our the delinquencies going up in both credit cards as well as other loans. This is something that we need to pay attention to as something more than idiosyncratic.