As Wall Street prepares for key inflation data, Wells Fargo Securities’ Michael Schumacher believes one thing is clear: “The Fed is not your friend.”
He warned Federal Reserve chairman Jerome Powell would hold interest rates higher again, and could leave investors on the wrong side of the trade.
“You think about the history of the last 15 years. Every time there is weakness, the Fed rides to the rescue. Not this time. The Fed cares about inflation, and only about this,” said the head of the company’s macro strategy to CNBC ” Fast Money” on Friday. “So, the idea of a lot of easing – forget it.”
The Labor Department will release its January consumer price index, which shows the prices of goods and services, on Tuesday. The producer price index took the spotlight on Thursday.
“Inflation may be reasonable. But we still don’t know exactly what the goal is,” said Schumacher. “[That] makes a big difference to the Fed – if it’s 3%, 3.25%, 2.75%. At this point, that’s up in the air.”
He warned that the momentum early in the year could not coexist with the Fed’s continued fight against inflation.
“Higher yields … don’t sound good for stocks,” added Schumacher, who thinks the market’s optimism will eventually fade. Until this year, it was tech-heavy Nasdaq up almost 14% when wider S&P 500 up about 8%.
Schumacher also expects risks related to the fall of Chinese spy balloons and Russian tensions to create extra volatility.
For relative safety and some upside, Schumacher still likes it Treasury Note 2 years. He recommended during the interview “Fast money” in September 2022, saying that it is a good place to hide out. The note is currently yielding 4.5% – a 15% jump since the interview.
His latest forecast calls for three more rate hikes this year. So, that should support higher results. However, Schumacher noted there is still a chance Fed chief Powell could switch.
“A lot of people on the lean committee are pretty dovish,” Schumacher said. “If the economy looks a little weak, if the jobs picture is a little dark, he can talk to Jay Powell and say, ‘Look, we can’t go up with additional rate hikes. anytime soon.’ He might lose that argument.”
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