Ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday, the market has gained some momentum. Investors are no longer anticipating a rate cut announcement at the March gathering, with the CME FedWatch tool indicating the low probability of cuts.
Scharf Investments Managing Director Eric Lynch joins Yahoo Finance to share his insight into what investors should focus on if the Fed does not cut rates.
Lynch suggests a focus on earnings growth: “If you look at what’s happening in the markets, at least the equity markets, you’ve seen a pretty strong rotation from the Mag 7, the technology US mega caps, into just all sorts of different areas: cyclicals, financials, internationals, small caps. And so what I think that is telling you, what investors are trying to tell us, are that, we need to probably pivot our attention from the macro to the micro, start looking at earnings going forward. “
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Nicholas Jacobino
Video Transcript
RACHELLE AKUFFO: We’re taking a look at stocks higher today, as investors await the latest Fed decision on Wednesday. Investors are no longer anticipating a rate cut at this March meeting. So with that out of sight, what should they be focused on?
We’re joined by Eric Lynch, Scharf Investments Managing Director. Thank you for joining us this morning. So as we look at what some of the investors have been really mulling this week. We know, obviously, the AI push keeping some of the rally elevated here, but also the Fed as well.
If a rate cut is off the table here, what should we be focusing on at this meeting?
ERIC LYNCH: Yeah. I think rate cuts clearly off the table, Rachelle, because you’ve got really these strong CPI, PPI prints, persistent strong job growth. Yes, things are slowing a bit in the economy. But it’s still strong.
And so there’s really no reason for a rate cut this week, arguably, the next week. Markets are really not pricing in the first rate cut in terms of the highest probability until June. So I think what investors need to be looking at is what’s the speed of these rate cuts going forward, and when’s the timing?
It looks like heading into this FOMC meeting, you had three cuts on the dot plot. We may see that decrease to two. But I would argue that, at this point, we’re splitting hairs.
AKIKO FUJITA: We’ve had analysts on who said, the timing of this doesn’t necessarily matter. It is about, to your point, what that cycle looks like. Are we expecting or are you expecting any significant move on the markets on the back of this meeting just based on what Powell is likely to say, If we get what has been pretty much a consistent message from the Fed Chair? It seems like most of that’s already been priced in.
ERIC LYNCH: I think that’s right, Akiko. What’s interesting, if you look at what’s happening in the markets, at least, the equity markets, you’ve seen a pretty strong rotation from the Mag Seven, the technology US megacaps into just all sorts of different areas, cyclicals, financials, international, small caps.
And so I think that is telling you what investors are trying to tell us are that we need to probably pivot our attention from the macro to the micro. Start looking at earnings going forward, because, if you think about it, what’s really driven the stock market in 2023, the S&P 500 was up 26%. Profits were flat.
And so now, you take off immediate and substantial rate cuts off the table, then the eyes or the focus is going to be more on the economy and on earnings growth going forward.
And I think that’s what we need to start focusing on in these guidance going forward for 2024.
