Federal Reserve officials in recent statements have come out to suggest that the market may be moving too fast in response to set rate cuts in 2024. Could the market be getting ahead of itself?
Clearnomics Founder and CEO James Liu joins Yahoo Finance Live to weigh in on market activity and whether it’s too soon to declare victory. Liu believes that rate cuts “is a question of when they start” and not a matter of if.
Liu notes a “diversification benefit from bonds” over the past year, and encourages investors to focus on “what could happen when rate cuts start to happen."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
AKIKO FUJITA: You know, we've sort of seen, heard from Fed officials since the Fed meeting really come out and say, wait a second, we're not sure the market has interpreted our messaging because the market is expecting, sort of, additional rate cuts going into next year. The Fed officials making it pretty clear that that's not a done deal yet. How do you set your portfolio in that uncertainty?
JAMES LIU: Yeah, to your point, Akiko, if you look at what the Fed said in its latest summary of economic projections, they were only calling for about three rate cuts next year versus the market right now, which is saying six. And there are portfolio managers out there at major institutions calling for much more, maybe 250 basis points of rate cuts. So it's a very challenging mix.
I think what Fed officials are talking about is, of course, they need to not declare victory too soon. So it's a question of when they start. So right now the market says that probably May is when this happens. It's a coin flip whether it happens in March, but it certainly will happen by the second half of next year.
So to your question on portfolios, I think the question over the last two years has been, do bonds still work? Do they still diversify? And we had a big route in bonds last year, but this has been a much better year.
The US ag is up about 5%. High yield, of course, much more risky and equity correlated up about 13%. Even investment grade corporate bonds up about 8% this year. So that diversification benefit from bonds is still there. It's shown itself to be valuable this year. And it's important for investors to act not based on what happened the last two years with bonds, but what could happen as rate cuts start to happen.