Laffer Tengler Investments CEO and CIO Nancy Tenngler and GraniteShares Founder and CEO Will Rhind discuss the Fed's economic outlook amid its interest rate hike cycle, market reactions, and slowdowns experienced during inflation.
SEANA SMITH: And that wraps up the selling action as we await the Fed decision tomorrow afternoon. Dow closing off 311 points, S&P off just over 1%, NASDAQ closing off just over 100 points. Like Jerry mentioned, all 11 of the S&P sectors moving to the downside here as we await the Fed's decision on rates tomorrow.
Let's bring in Nancy Tengler, Laffer Tengler Investments CEO and CIO, and Will Rhind, GraniteShares Founder and CEO. Will, let me start with you. Another day of selling here as we await the Fed decision. Just what's your takeaway and your expectation for what we are going to hear from Powell tomorrow?
WILL RHIND: Well, that's a key question. I think the market expects a 75 basis point raise. But clearly, the worry, I think, today and today's price action is that it could be more, and it could be 1%, which would be the first 1% move that we've seen certainly in this tightening cycle. So I think the fear is that some of this rhetoric that we heard at the last meeting continues and that actually the move is perhaps more exaggerated than the 75 basis points.
RACHELLE AKUFFO: And, Nancy, in terms of people talking about the recession and how far ahead it might be coming, if it happens, you say that it won't be caused by financial weakness and a real economy recession, but rather a policy error recession in a strong economic environment. Break that down for us.
NANCY TENGLER: Sure. I'm happy to. So I think one of the things that I find a little bit not amusing but interesting is that the Fed has used-- has used rhetoric to get the market to do the heavy lifting, so they started in-- while they were still being accommodative and markets acted. Now we're hearing that same rhetoric, and the market is acting again. But this is a Fed who has shown, I would say, questionable judgment all the way back to 2018 when Fed Chair Powell first became the chairman when he talked-- he talked about tightening in October, and then had to walk it back and begin easing a few months later and policy flip-flop. That gave us the 2018 bear market.
And now we have this policy error that I think took place from waiting too long. The Fed was laser-beamed focused on jobs last summer when they should have been focusing on inflation. And now they're laser-beamed focused on inflation, and a lot of it has become persistent and sticky. So I think it's going to take a lot longer than the Fed thinks and that the market may understand. But at the very least, I think that we may be surprised that they're not as aggressive tomorrow in their rhetoric because a lot of the underlying components are starting to flip over that comprise inflation.
DAVID BRIGGS: Will, how high will rates get? How long will they stay there? And is there any concern to you that it's too much, too fast?
WILL RHIND: Well, I think there's-- to me, there's huge concern that it's too much, too fast because I think we're already seeing that reflected, certainly in the GDP numbers. And I think there's no doubt there's a slowdown happening in the economy. We've seen-- although-- although on the whole earnings from last cycle were pretty good, there's still warning signs flashing from some of the major retailers about excess inventory build-ups and signs that everything is not completely healthy in the economy.
So I think that raising rates, we've seen the market doesn't like it, obviously. That's not to be surprised. But I think that, again, going back to this idea of a policy mistake, I think that that's well within the grasp here and could really push us into maybe another quarter of negative GDP.
SEANA SMITH: Nancy, what about the bond market, the 2-year's run towards 4%, the 10-year yield continuing its climb to the upside? Do you think we are going to see yields head even higher across the curve?
NANCY TENGLER: Probably. I think this is providing investors with an interesting opportunity to put in place short ladders of high-quality corporates and/or buy bullet shares, whatever your preference is. I do think that the market is going to correct on either side in excess, so that would drive yields higher. But I think a year from now, yields are lower. That's an easy one.
So it's interesting time to at least take a look at bonds. We had moved our clients out in August of 2020 when the 10-year yield got to 50 basis points. But I think the Fed needs to be careful here and be deliberate and measured because we have seen a great deal in hikes, and we've also seen-- we will begin to see the effects of QT, which even the Fed has said we're not really sure how it's going to impact the market.
RACHELLE AKUFFO: So, Will, I want to then take a look at what all of this means. Obviously, in an environment like this when you have bad news coming out from FedEx, when you have Ford having this sort of negative forward guidance, a lot of people are wondering, though, are these company-specific issues? Are these broader bellwether issues? And is it just part of this overall frothiness that's still in the market right now because they want more certainty from the Fed?
NANCY TENGLER: Is that for me or Will?
WILL RHIND: It's a bit of both because-- [LAUGHS]
RACHELLE AKUFFO: That's for Will, if you want to go first, Will.
WILL RHIND: OK. Sure. Thank you. It's a bit of both because, of course, there's going to be company-specific because certain companies are exposed to some of these risk factors much more than others. So if we're talking about supply chain or if you're talking about energy prices, I mean, certain commodities-- certain companies are exposed more than others.
But overall, it is going to be a macro factor, I think, that drives this for everybody because, clearly, financial conditions are tightening. That's the ultimate impact of rising interest rates. And a slowdown will affect everybody on the whole. I mean, clearly, there'll be some companies that will benefit. But on the whole, a slowdown, a recession is going to impact all companies.
DAVID BRIGGS: And, Nancy, go ahead and weigh in there.
NANCY TENGLER: OK. Thank you. Sorry to step on your toes there, Will. We saw-- as Will pointed out, earnings season was pretty good. And there are companies that will be the exception. So we're looking to own reliable growers, dividend growers, companies with excellent managements, free cash flow, and that also have a secular narrative tailwind, so cloud companies, cybersecurity.
We also like some of the high-end consumer discretionary names. And then we have many of the usual suspects that you would expect from a defensive standpoint in terms of reliable growth, so a public storage company or some of the health care names. And so I think-- I think Will's right. I think-- or we know we're in a decelerating economy. We also know that will impact earnings. But there are going to be some winners, and that's where we're positioning our portfolios.
RACHELLE AKUFFO: A big thank you to our market panel. Nancy Tengler and Will Rhind, thank you for joining us this afternoon.