The US economy is less sensitive to rate cuts than we thought: Brenda O’Connor Juanas

Welcome back this time now for the word on Wall Street. Top investors watching your money. Join me right now is UBS Wealth Management senior vice president Brenda O'Connor Quanas. Also with us is John Lotsky. Brenda, good to see you. Thanks for joining the conversation this morning. I want to kick things off with you, John, with oil. Take a look at the price of oil this morning. Pulling back, OPEC Plus is announcing plans to phase out voluntary production cuts totaling 2.2 million barrels a day beginning in October. And yet, oil is down almost 2% this morning at 7288, still elevated in the $72 range. But what's your expectation and reaction here? Well, you know, my first impression is this latest decline by the price of crude oil is in response to a lower than expected demand for crude oil, putting downward pressure on the price as we are at the start of the peak driving season in the United States and elsewhere in the Western world. This is, I think, quite noteworthy. And not only is the price of oil down this morning, so is the price of copper and some industrial metals. So perhaps we're getting some hint of the beginning of a period of slower economic growth. Is that what you see, Brenda, as well? I mean, when you look at interest rates in the 10 year Treasury yield this morning, we've broken through 4.4% on the 10 year. Take a look at yields this morning. With the 10 year now sitting at 4.38%. The futures market is pricing at a 59% chance the Fed will cut interest rates in September and a 72% chance they'll cut in November. We've got a big week of jobs data on deck. The April Jolt report out this morning at 10:00 AM Eastern. Economists are expecting 8.35 million job openings available at the end of April. Then we'll get the ADP number tomorrow morning. And we've got the May jobs report out, of course, on Friday. Brenda, look, if we're looking at an economy that is slowing and we've still got all this job creation, does it really make sense for the Fed to cut rates? What are you expecting? So Maria, let me just say this. The biggest surprise in the markets this year is that the US economy is as not, not as sensitive to rates as we thought. You know, we at the beginning of the year, we expected six rate cuts. We haven't seen any of those and look best in peace up 11%. Our expectation for rates is 2 rate cuts starting in September. Frankly, I think we should be lucky if we get one. And as importantly, drawing that back into the job story, the path, the quickest path to rate cuts is not going to be through inflation. We saw the disinflation and the stickiness in last week's PCE report. It's going to be through job weakness. So Jolts will be important today, as will payrolls this Friday. Maria. Yeah, I know. But Brenda, do you think we're going to see rate cuts this year or no? The official UBS forecast is for two rate cuts, 50 basis points this year. I think we get one. We think the 10 year will come closer to 4%. It's again trading in that range between four and a quarter, 4 1/2. You know, the the data is not there, Maria, at this point, it's just not there. It's not there. And of course, then it's also an election year, John. So how does that shift things? What how does that play into your thinking? Well, I'd like to think that the Federal Reserve is independent of political forces, but there you never know. I would say though, you know, Brenda is right on the importance of the labor market to where interest rates and where the economy said it very important. But I take exception to that one statement where higher interest rates haven't have not mattered much. I think higher interest rates right now are doing damage to the economy. You know, I'm looking at mortgage applications from potential home buyers in the current quarter. They are at their lowest level for any second quarter for any peak selling season for housing since the Great Recession. And we had this report that came out last week on the index of pending home sales that was down by 8% from the prior month in April. Usually April is a great month for the housing industry. So I, I think we're, we're at the start of beginning to observe a number of incidents where higher interest rates are beginning to take their toll of U.S. economic activity. I know of people in Westchester County that are trying to sell homes in the 2,000,000 to $3,000,000 range and can't move them. They can't get people to even view the homes. Well, it is true, Brenda, that many people say that we haven't really seen the impact of 11 rate hikes yet and that we'll continue to see that because it took more time than many expected because of all of the federal stimulus money still flowing. Yeah. And, you know, to that point, Maria, I think there is a disconnect between what the data has said to this point and what the US consumer is feeling. And I think that's shifting, right. You saw again in last week's PC report a very important number around personal income. This is important because it actually measures what Americans are putting into their pockets after taxes and inflation. This number is negative. We know consumers frankly don't care necessarily what's happening in the S&P. They care about what they're feeling and seeing to John's point. So I do think that we are seeing a reversal in terms of how the consumer is feeling and the how these eleven rate cuts are eventually and finally working its way through the system. Yeah, all really great points. Markets down 150 right now. Are you expecting a good second-half, Brenda, for stocks? So our view on the S&P is that we go a little bit higher from here. 5500 is our new target. Look, that's three to 4% higher from here. I think it's bumpy along the way. There's a little more scope for upside, but it's not going to be necessarily that great going into 2025. All right, we'll leave it there. Great to see you, Brenda. Thank you, Brenda. O'Connor Juan is joining us. John, you're with us all morning. We appreciate that.