The market’s violent reaction to higher inflation may bring more losses.
Peter Boockvar believes Wall Street is realizing inflation isn’t moderating, so the Fed won’t pivot.
After next week’s rate hike, the economy will be in jeopardy. The next rate hike will be only the second time in 40 years that the Fed funds rate exceeds the prior peak in a rate hiking cycle, an investment officer said Tuesday on CNBC’s “Fast Money.” “We’re in danger.”
Boockvar predicts a 3/4 point hike at next week’s Fed meeting, despite signs of softer commodity prices and used car prices.
“The BLS lags in capturing that. So we have a two-lane highway with opposing lanes, said Boockvar. “We rallied 200 S&P points in the four days leading up to today [Tuesday] because the markets are driving one way and the BLS hasn’t captured that. The Fed’s reaction time is also slow. They have a rearview-mirror mentality.”
After August’s CPI rose 0.1% to 8.3% year-over-year, the major indexes fell to June 2020 lows. A drop in gas prices didn’t offset rising housing, food, and medical costs. Dow Jones predicted a 0.1% drop.
Nomura changed its rate hike forecast after inflation rose. It expects a full-point Fed rate hike at the next meeting.
Boockvar, a CNBC contributor, doesn’t think so. He warns investors to expect wealth destruction and earnings declines.
“If labor costs remain sticky, if they continue to rise as revenue slows in a slowing economy, earnings estimates will fall,” he said. “I don’t think this market ends at 17x p/e.”
Boockvar predicts 15x or lower multiples. Brian Kelly predicts more trouble for stocks, the economy, and housing.
“Housing is just cracking.” As that declines, people will feel like they have less money. “We don’t know what that’ll do to the economy,” he said. “This 75-basis-point rate hike may be a mistake. We know a delay.”
This could overwhelm the economy.
“This is a Federal Reserve that couldn’t raise rates 25 basis points in 2018 and turned the market into a convulsion,” said “Fast Money” trader Tim Seymour. We couldn’t raise rates in good times, much less bad.
The Fed meets Sept. 20-21.
