TheoTrade Chief Market Technician, Professor Jeff Bierman, CMT joins Yahoo Finance Live to discuss the impact of the Fed's 2023 rate hike outlook on markets - WATCH FULL SEGMENT HERE
Or, enjoy the full transcript below:
Seana Smith:
Jeff Bierman, he's TheoTrade Chief Market Technician. Jeff, it's great to have you here. I know you are focused on the technical, so taking a look at the technicals and where we stand today, what is that signaling to you?
Professor Jeff Bierman, CMT:
Well, you got to take a few things into account. There's a lot of cross currents, Seana, and what I mean by "cross currents" is there's a lot of mixed feelings and emotions in terms of interest rates, upward pressure on wages, how far do we have to bring inflation down. Even though oil's come down, it doesn't necessarily mean that prices have come down because oil is not a component part, actually, of the CPI. It says we exclude food and energy, and that makes things in a sort of uncertain situation. And if there's one thing the market hates, it hates uncertainty. It hates lack of clarity. And you're getting that, and it's being reflected in that volatile price section. So if you think it's going away, I don't think it's going away for quite some time, until the market gets better clarity in terms of where the inflation rate needs to get to, where the top tick and interest rates are, and next, what are the earnings going to be reported for the quarter, which I think the expectations are still a little bit too high.
Dave Briggs:
Jeff, let's go piece by piece, in terms of those components, and let's start with how far you think the Fed has to go to bring inflation down. It doesn't seem like the markets want to believe Jerome Powell.
Professor Jeff Bierman, CMT:
Well, it's one thing to believe something and one thing to be in reality, and I think this market's been pretty much detached from reality for a very long time. Jerome Powell has kept a zero-interest-rate policy, and now that that's behind us and out the window for quite some time, the market needs to recalibrate its expectations, Dave. It really does. I call this a transition period, in which the market was living on a Fed-fueled fantasy, and now we're actually dialed into a certain level of reality, where people need to ratchet down their expectations from, let's say, expected growth of 5 to 10% to even, maybe, 5% or below for an extended period of time.
Seana Smith:
So Jeff, let's talk about what has already been priced into the market when it comes to Fed policy and this risk of recession. How big of a risk do you see that being, at this point?
Professor Jeff Bierman, CMT:
I think the recession itself is already in play. There's different definitions of a recession, per se, Seana, as in two negative quarters of GDP. That's old fashioned, and I'm not against it, but there's other things that are at play here of recession, such as rising interest rates, rising inflation, lower profit margins, and higher unemployment. And unemployment right now is just starting to uptick. You had salesforce.com announced 10,000 layoff here. You had Goldman Sachs announced last week an 8% layoff across the board. I think this is just the beginning of layoffs that could take the market down possibly 10 to 15% this year, but it all depends upon how well the Fed can manage inflation and interest rates, because you cannot detach the two or one from another.
Dave Briggs:
Speaking of, the bifurcation between growth and value stocks... What's your projection ahead, Jeff?
Professor Jeff Bierman, CMT:
It's the highest I've seen in a long time. Listen, Dave, they've started to correct it. Started, but they still have a long way to go. For instance, I was explaining earlier that Procter & Gamble trades at a 23 to 26 multiple. It's growing at about 2 to 3%, and a lot of people associate Procter & Gamble as a value stock, but it's priced as a growth stock. And then you take a stock like Kohl's in retail, KSS, which has been badly, badly battered... It yields better than 8%. It trades at a multiple less than six, and you can see the bifurcation in what Kohl's is supposed to be a growth stock priced as a value stock, and what Procter & Gamble's supposed to be a value stock priced as a growth stock. So all of this is part and parcel of sector rotation based upon an impending recession perception, but the fact of the matter is, until that bifurcation is rectified, this market's going to stand a very little chance of rallying this year. Value's in play. Growth is out. And eventually, that bifurcation, like I said, is going to be rectified. And when that convergence happens, that will help the market turn itself around eventually.
Seana Smith:
And, Jeff, in addition to the moves that we're seeing in the equity markets, I know you're also taking a close look at what we're seeing play out in the bond market, the 10-year yield. We've been trying to make sense of the levels that we have seen, although, more recently, we've remained relatively range-balanced. Today, we're right at 3.71. What is that signaling to you?
Professor Jeff Bierman, CMT:
I call it a happy place, Seana. That's a happy place. It's saying, "Listen, below three, not feasible, but somewhere between, let's say, 3.35 and maybe a five and a quarter handle is where the market may fluctuate most of the year, depending upon the debt, the Fed's data-dependent decisions." So I think that we're capped at five and a quarter. I think the Fed's going to set some type of mandate saying, "Listen, we don't need to go by five and a quarter. That's an overshoot," but then again, for those looking for a pivot and a cut, that's also out of the cards. And that's just not going to happen unless we get inflation below a four handle, and we're still sitting at a seven handle, so I think maybe we stay between three and five and a quarter. And if you time-weight average it, we might just fluctuate between 3.5 and 4.5 for the better part of three to four to six months from where we are now.
Dave Briggs:
Buckle up. Quickly, Jeff, you say the great resignation has backfired, and what do you see that reflected?
Professor Jeff Bierman, CMT:
Well, a couple of years back, Dave, you had 8 million people who said, "This is an opportunity for me to change my lot in life." And there's nothing wrong with that. It was the COVID. People made decisions with their lives, and they were laid off and they had to kind of reconfigure their job positioning. And so when 8 million people quit, half of them went into starting their own businesses. The other half worked for other people but worked on a part-time basis.
Well, that thing is now backfiring because, with layoffs coming forward, with upward pressure on wages, and we're kind of slowly sinking into a warm bath of a recession, that great resignation works wonders in a bull market, in a growing economy, but in a declining economy or a compressed economy moving into some type of mild recession, it actually turns out to be the worst of all possible worlds, because now, these people who have set their sights on starting new businesses and doing work from home... Well, when that work is not available and the capital's not there, there's going to be a lot of people, maybe a third or a half of those, who are going to find themselves probably having to go back to work in the gig economy. Perhaps it's something like part-time at Dash or at Lyft or even at Uber, just to make ends meet. So I think the great resignation for that first year, Dave, was a great idea, but in a recession, it's completely backfired now, and you can start to see it play out.
Dave Briggs:
No question. Excellent stuff from Jeff Bierman. Appreciate that, sir. Thank you.