• Video
  • Fed to Cut Rates 100 Bps in 2024, Gentrust's Duff Says

Fed to Cut Rates 100 Bps in 2024, Gentrust's Duff Says

Show Transcript
Bloomberg Sep 12 20:35 · 17.8k Views

Mimi Duff, Gentrust managing director, says she is seeing a broadening of the stock market rally. Duff also discusses the outlook for Federal Reserve monetary policy and her investment strategy.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more

Transcript

  • 00:00 Start there because this gets to the point and we've kind of been through various market cycles where we've had one or maybe a small handful of stocks
  • 00:06 that really just have dominated everything.
  • 00:08 They are kind of like the vortex for the entire world and NVIDIA and I guess you can maybe broaden out to chips overall.
  • 00:14 That is the trade right now, isn't it?
  • 00:15 It sure is right now,
  • 00:17 yeah.
  • 00:17 Does that has anything changed that?
  • 00:19 Well, the thing that
  • 00:21 what I would point out is
  • 00:23 over the last 100 years there have been market leaders and it's usually a narrow set.
  • 00:28 So what changes the AII mean we are seeing if you look at the equal weighted S&P, it's gathering more strength.
  • 00:35 So we are seeing a broadening of the recent rally and I think that that would be a healthy thing to see continue.
  • 00:41 When we talk about and you make a good point, I mean we've been through this before it was Apple, in the old days, it was GE and the telecoms.
  • 00:46 We've always had this,
  • 00:48 this sort of a churn that goes through.
  • 00:50 But it always raises the question that
  • 00:52 if you were not lucky enough to sort of get on this train right when it left the station, do you try to get on it now?
  • 00:57 I wouldn't get on that narrow set right now with the amount of enthusiasm and and the P ES priced into that sector.
  • 01:04 It's
  • 01:05 it just looks too rich for you.
  • 01:06 It's a bit, yeah.
  • 01:07 It winds up moving
  • 01:08 if what Charlie Magellan got said was true, right?
  • 01:10 It's central bank power and it really has the power to move the markets.
  • 01:14 And it's hard to ignore, right?
  • 01:15 Is it just sort of like the broader indices what you want to own or you want to fight against it like you wouldn't want to fight against central bankers?
  • 01:22 No.
  • 01:22 Well, we would want to own the broader indices and just keep our humility and let the winners win.
  • 01:28 But we think that the bigger picture is going to be dominated by the economic cycle
  • 01:33 and,
  • 01:34 and these other drivers and, and not a few,
  • 01:37 a few companies.
  • 01:38 So central banks still matter.
  • 01:39 They do matter
  • 01:41 within equities.
  • 01:42 You guys still remain underweight, right?
  • 01:43 So what's your signal to buy?
  • 01:45 So we've been underweight equities and overweight fixed income.
  • 01:49 Big Syncam has been a smoother move frankly in you know it's also rallied with yields coming down pricing ahead of this easing cycle.
  • 01:57 That's like very likely to start in a week.
  • 02:01 We've seen the amount of you showed the intraday volatility on the equity side, but also the August dip.
  • 02:06 We think that that highlights some fragility in the markets.
  • 02:09 What would cause us to to get back
  • 02:12 our exposure.
  • 02:13 Probably if fixed income got too dear, too rich, that would be one thing.
  • 02:18 Another repricing in equities, a substantial repricing.
  • 02:22 A third bit would be
  • 02:24 if we get greater confidence that
  • 02:27 a soft landing is possible, which I think is the Fed's baseline right now and it's probably the equity markets baseline.
  • 02:34 But we think that's a, it's a pretty high challenge to land that plane
  • 02:38 so carefully coming from a 5 1/2 percent funds rate.
  • 02:42 Where do you think, though,
  • 02:44 what the Fed can do, because we've gotten to this point now where everyone sort of knows this easing cycle is coming,
  • 02:49 There's still a lot of disagreement as to
  • 02:51 exactly how aggressive or how expansive that cycle is going to be.
  • 02:55 Remember, this is a market that really did think we were going to get 75100 basis points of cuts this year alone.
  • 03:00 They've really pared back some of those bets.
  • 03:02 Now, I know 25 is the basis that we're going to start with for next week.
  • 03:07 Yeah.
  • 03:07 I mean, I think if gone to my head, I would say that.
  • 03:09 But
  • 03:10 look, we have 100 priced in for this calendar year,
  • 03:15 4 cuts and 10 cuts priced in through the end of next year.
  • 03:19 And I think that leaves a good amount of variability.
  • 03:22 That's the
  • 03:22 that's the average kind of cut.
  • 03:24 So or the average
  • 03:27 what's priced in the market.
  • 03:28 But look, you could see a weakening economy where
  • 03:32 on the way up the Fed hiked aggressively.
  • 03:34 We could see if,
  • 03:36 if things were to weaken them,
  • 03:38 he's aggressively
  • 03:40 the number of cuts pricing and I'm glad you went out to 2025 because this gets into the soft landing scenario.
  • 03:45 If you're talking about bringing the Fed funds rates down from whatever 5 and a quarter on the low end
  • 03:49 down to I guess based on your, the number of cuts you're talking about that would take us both to round three or
  • 03:54 three or less.
  • 03:55 Is that
  • 03:56 a soft landing?
  • 03:57 I mean, if the Fed feels compelled to take us down to three,
  • 03:59 I would think that there's got to be some weakness there in the economy somewhere.
  • 04:03 Well, there
  • 04:04 we're coming.
  • 04:05 We are coming from a very overheated employment picture
  • 04:10 and a ridiculous,
  • 04:12 you know, inflation picture.
  • 04:13 The inflation picture is so well behaved.
  • 04:14 Now
  • 04:15 on the employment side, we've softened.
  • 04:18 We're not in negative territory, but we're pre we're back to the pre COVID levels.
  • 04:24 So to get us to 3%, yes, some weakening from here, but also
  • 04:29 the Fed knows they're restrictive right now.
  • 04:31 So I would say that the actual path that we see will
  • 04:35 the speed with which the Fed moves will be dictated by
  • 04:40 when and how that weakness
  • 04:42 you, you,
  • 04:43 you had mentioned sort of when yields get too overheated, then maybe you'll reallocate some money from bonds of the equity market.
  • 04:49 What yield is that?
  • 04:51 Well, right now at around 370 and 10 years, we just don't think that's very exciting at all.
  • 04:57 I mean that that's pricing in this kind of mid.
  • 05:00 Point
  • 05:01 look, if funds were, if
  • 05:03 I think it's
  • 05:04 we, we have a higher degree of odds on a recession than the market
  • 05:08 and that justifies lower yields than say the market.
  • 05:11 But if you got a perfectly soft landing and Fed funds were down at 3%, then probably 10s could be a little bit low
  • 05:19 on the equity side.
  • 05:20 It's all a relative play for us.
  • 05:22 So we had this strong conviction.
  • 05:24 We thought the bonds were going to perform in a better range of scenarios.
  • 05:27 So we took money off the equity table to put it there.
  • 05:30 So we'd have to kind of see how things develop with the data
  • 05:34 to
  • 05:34 how are you guys looking at the election, by the way?
  • 05:36 Yeah.
  • 05:36 So all of our analysis on the election
  • 05:39 is
  • 05:40 inconclusive,
  • 05:42 right?
  • 05:42 So it really depends the exact composition that you're going to get.
  • 05:47 We don't think any either party's going to have a clean sweep.
  • 05:51 We think that whatever economy is handed to the incoming president matters more
  • 05:57 than a lot of the other factors.
  • 05:58 So we're not really playing for
  • 06:01 one way or another right now.
  • 06:02 And the
  • 06:02 and the polls show they're so close at this point.
  • 06:05 So it's it's not at our forefront.