Fed may not cut rates following April’s CPI report. Here’s why.

All eyes are on April’s Consumer Price Index (CPI) report, as it will reveal details about the current state of inflation among consumers. SEI (SEIC) CIO Jim Smigiel joins Market Domination to break down what investors should expect from Wednesday’s CPI print and what it could signal for the Fed’s next moves.

“We have three hot prints in a row, as most investors are aware, and the Fed is really running out of room here in order to deliver the cuts that I think most investors would love to see,” Smigiel tells Josh Lipton and Julie Hyman. He anticipates April’s numbers to be slightly weaker, adding that he’s bearish on rates.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video Transcript

Stocks are mixed just ahead of closing Bell on Wall Street as an investors await.

Now key inflation data on Wednesday for more on what to expect from that.

April CP I print we wanna welcome in Jim S Miguel ce I cio Jim.

It is good to see you.

So markets to look at the major averages uh kind of modest moves today, Jim, but we do have that uh big inflation print on Wednesday CP I is on deck.

What what do you expect to to see there, Jim?

And how important is that for the market?

Uh Good to see you, Josh.

Thanks for having me.

I I’ll start with the latter question first.

It’s very, very important for the market.

All eyes definitely focused on on this number.

Uh We have three hot prints in a row as most investors are, are aware.

Uh and the fed is really running out of room here in order to deliver the cuts that I think most investors would love to see and that the FO MC wants to deliver themselves.

So uh one data point doesn’t make a trend, so they’re going to need a few more.

Uh uh, after this one, even if this one does come in light, I will say the, the whisper that we are hearing around Wednesday’s numbers that we should expect slightly weaker.

Uh, but even if we do get it, get something slightly weaker, you’re still looking at a three handle on probably both headline and core, uh, still leaving the fed in a, in a pretty tight spot if they would like to see rate cuts coming in calendar year 2024.

So Jim, um how you then sort of position yourself going into that?

Do we just assume that rates are gonna stay where they are for a little bit here and, and sort of uh strategize, excuse me, uh accordingly.

We’re, we’re actually taking a little bit of a more pessimistic stance as it, as it uh comes to rates.

Uh We are a little bearish.

We do expect a 10 year in particular to try to maybe retest that 5% level that we saw about a year or so ago.

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Uh and even at the very least get that 20 or so basis points back uh post the last FO MC uh press conference where really what Chairman Pell went ahead and did is took any talk of a rate hike completely off the table.

So uh we know with the trend that we’ve seen recently a bit of a re aeration in inflation, the market began pricing in, you know, the probability however small of a potential rate hike coming in here.

Uh uh Pal went ahead and squashed that and we have a 10 year kind of rallying below 450.

So, you know, from a positioning perspective, we’re, you know, we’re taking, you know, relatively modest moves at the margin.

But our view is for rates actually higher between now and the end of the year.

You know, Jim, we talked about that CP I print this week but another date on the calendar for investors is uh NVIDIA, their earnings are coming up as well.

Could that be a catalyst for the market, Jim?

Uh I think it absolutely uh could be looked at it’s if you take a look back, uh the last 12 months, maybe even 18 months, NVIDIA is in, in one way kind of all that’s really mattered.

I mean, as much as we talk about the magnificent seven and whether that’s turned into the, I don’t know, the fab four now or the terrific three, whatever they, who’s ever left standing.

NVIDIA is clearly the juggernaut uh of the bunch.

So you, you’re trading at the 4050 times kind of forward earnings.

Uh When we look at, when we look at that as a possible event, we’re looking at that relative to the fix.

So uh equity volatility we think has been unusually low, given everything else that’s kind of happening in the world and just given the overall importance of of this one individual name, uh the earnings, the percentage of investment, the percentage of earnings that this one name, the percentage of performance, I should say year to date that this one name has been, uh, has delivered and delivered.

Uh not just year to date but also in 2023.

Uh a lot of uh a lot of importance riding on this one number.

Um Jim can talk to us about utilities a little bit because that’s an area that has been rallying.

I believe you like it as well.

Um Why, you know, and this is not typically a group that does well when rates are high.

Um Do you think it’s gonna be able to continue to run here?

Yeah, we’re a little skeptical on that.

So we’re, we’re kind of neutral utilities.

Um It, I think you’re, it’s, it’s a great point, Julie because you know, this, this hook in the utility performance.

If you track the chart on Yahoo Finance, you know, you, you can see that uh it’s been pretty, pretty recent rally there.

Uh And I think a lot of that has to do with this kind of doves stance that the FO MC came out with.

So everybody knows we started the year with these huge expectations, six rate cuts kind of kind of priced in or, or, or investors trying to bake in the cake for 2024 that’s been walked all the way back.

Uh Now we put a few more back on.

Uh thanks to the DS from the last uh press conference.

And I think, you know, utility is always a bit of an income play.

Uh whenever there’s expectations for lower rates, you would expect utilities to kind of hang in there.

And that’s what we’ve seen recently, especially with that uh kind of strong uh performance post uh press conference.

So, Jim, you said you’re a bit skeptical of utilities.

What, where do you see opportunity right now, Jim, what what sectors look attractive?

Yeah, it all kind of goes back to the same point which is uh kind of our view for rates.

We, we, you know, we think rates have higher, we think inflation is gonna be stickier for longer.

Uh And if we have that view, that’s gonna probably not too surprisingly lead us in to the direction of more kind of value type names and what represents kind of good value right now.

Uh It is financials uh good conversation in the last segment uh on financials, very, very diverse uh part of the market for sure.

Investment banks, money center banks look pretty attractive right now.

Forward earnings and twelves and thirteens and fourteens relative to the broader market at uh 22.

Uh We’re also looking at things like materials and energy.

So uh things that really have aren’t overly geared to an interest rate kind of move or at the very least are gonna benefit.

Uh If we do see uh rates kind of drift higher uh from where they are today.

Jim.

Thanks so much for joining the show today.

Appreciate your time.

Thank you.