Hot CPI report; stocks take it in stride (0:45). Impact on sectors and stocks and how tariffs play into it (2:10). Keep an eye on Fed commentary (5:15).Show Notes:Gold edges lower for second straight session, backing off all-time highTrump announces reciprocal tariffsPowell Leaves Fed's Rate Options OpenEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: What is the main topic of this episode?
Brian Stewart, our director of news at Seeking Alpha. Our usual discussions will still happen on Friday at Wall Street Lunchtime. But today, in Kim Kahn's absence, although he is irreplaceable, we are doing a quasi-Wall Street Lunch today following some macro news. So, Brian, first of all, welcome to a Thursday edition of Wall Street Lunch. Great to have you.
Thanks. Big shoes to fill, but I'm ready.
Absolutely. Absolutely. Clown size big. Talk to us about the macro picture. How would you articulate it for investors listening?
Chapter 2: How does the hot CPI report affect Federal Reserve rate predictions?
So the obvious big news in terms of Fed prediction that happened this week was the CPI report, which came in very hot. Pretty much took a rate cut off the table for the March meeting and pushed it back quite a ways. There's now an 86% chance of no change in May. So we're looking in the kind of June, July, September timeframe for a cut.
Another thing to look at is the chance of no cut at all this year. has gone up dramatically. It's now sitting at about 23%. This is based on market trading. It was 11% a week ago, so more than doubled in the course of the week. And the major catalyst for that is a CPI report. So the market's getting used to the idea of higher for longer.
Chapter 3: Why are stocks taking higher interest rates in stride?
that we might have these interest rates even through the rest of 2025. Though by and large, stocks took it in stride. There was a sizable dip as the news came out at the opening of trading and then the recovery. And as we said on Thursday, we're now higher than we were before the news came out. So by and large, it's been kind of shrugged off.
But I think if you're an investor, you're kind of looking longer term. impact on consumer impact, on businesses' ability to borrow, things like that. It is definitely something to keep an eye on.
And anything else to mention in terms of how this may impact stocks or which stocks it may impact or which part of the market it may impact more? And how are tariffs playing into this picture? I know we're anticipating some announcements, other things we don't know. How does that figure into this conversation?
Chapter 4: Which sectors are most impacted by interest rate changes?
Chapter 5: What role do tariffs play in current market conditions?
And anything else to mention in terms of how this may impact stocks or which stocks it may impact or which part of the market it may impact more? And how are tariffs playing into this picture? I know we're anticipating some announcements, other things we don't know. How does that figure into this conversation?
The impact on individual sectors, I would look to the traditionally interest rate sensitive sectors. So REITs is a good example of a sector that moves in accordance to how interest rates are looking. The home builders and other housing stocks are another indication. If it's becomes more difficult for those companies to book revenue and therefore can affect their bottom line.
So I would keep an eye on those things. I would keep an eye on the treasury market as well. There's kind of the feeling that the treasury traders are the smartest traders on the financial markets. And so you can kind of get a pretty good idea of what the street thinks generally of the prospects for inflation and other aspects based on the movement. in treasuries.
Chapter 6: How does Fed commentary shape economic outlooks?
And then secondarily, I think it's interesting, another news point this week was Powell appearing in a semiannual testimony on Capitol Hill. Those conversations didn't have a lot to do with inflation. I mean, they had sort of the normal amount, but there was also a lot of conversation just about sort of the intersection of the Fed and the new administration.
The Trump administration has been much more kind of aggressive in stating its opinions about interest rates, specifically that they should be lower. And I think that it'll be an interesting kind of dance to watch the machinations between a supposedly independent Fed and the White House.
Chapter 7: How does the Trump administration influence interest rate discussions?
You had also asked about tariffs, and I think that's something that's making it much murkier when you look into sort of the crystal ball of inflation. You have sort of the normal pressures that the Fed is dealing with in terms of the economic pressure. causes of inflation.
And then you have this sort of political possibility out there, the extent to which tariffs are going to push prices higher for consumers. And obviously, that's out of the Fed's hands. There's nothing they can't raise interest rates to a point where tariffs go away.
It's going to be interesting how those play into the Fed's decision making, whether or not they'll kind of ignore it and try and just kind of look at the underlying inflationary pressures, or if, as the White House would like them to do, kind of counteract tariffs by keeping inflation under control. Gold has been rallying to new highs. recently driven by fear of inflation.
It's generally seen as an inflation hedge. So I think the more that worry pops up, the more you can see people taking positions in gold as kind of a hedge for that. Looking at the bond market, looking at the gold market, I think those will give you indications about where inflation, where the impression is that inflation will be headed.
What is most pertinent that you're looking at come Friday or also the next big data point that you're looking towards?
Yeah, we're through the jobs data and this was the most recent inflation data. So we're in a bit of a quiet period in terms of actual information. So it won't be into March that we're going to get the big data points that can kind of move expectations. So I think that people should keep an eye on Fed commentary as it bubbles up in various Fed commentators speaking over the next week or so.
They'll give you an idea of how aggressively hawkish the Fed wants to become. Like I said, right now we're kind of pricing in a rate cut sometime in the summer. So that would be the target. If you're wondering if the Fed is starting to turn extremely concerned about inflation, look for commentary that would push rate cuts past that period into later in the year.
And also look for people who might be talking down the possibility of any rate cuts this year. In terms of a turning point, kind of a pivot point for inflation expectations, I would keep an eye on if there's ever any commentary starting to bubble up whether the next move should be a rate hike.
Right now, we've kind of talked about things in terms of whether or not there's going to be a cut and when that cut might happen. But at some level of inflationary concern, the tide might turn to worrying about a rate hike as the next move.
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