Stock market ‘caught so offsides’ by Fed meeting, strategist says

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Truist Chief Market Strategist Keith Lerner joins Yahoo Finance Live to discuss the Fed’s 50 basis point rate hike, stock market movements, inflation trends, and the outlook for investor sentiment.

Video Transcript


Welcome back to “Yahoo Finance Live,” everyone. Continuing our coverage of the Fed decision announced yesterday, 50 basis point rate hike. The largest since 2000. Joining us now to dive into what this decision means for the markets is Truist Chief Market Strategist Keith Lerner.

Keith, great to have you here with us this morning. Help us break this down even further as we consider at this point in time how far behind inflation the Fed is in the correction action that they’re looking to take.

KEITH LERNER: Well, first, Happy Cinco de Mayo. Great to be with you again this morning. Yes, an important day, right? Listen, I do think the Fed’s somewhat behind the curve. But I think really what happened yesterday is that sentiment became so one-sided, really concerned about an overly hawkish Fed.

And a little bit of good news went a long way in Powell basically saying that 75 basis points isn’t under current consideration. I still think the debate about inflation peaking and how quickly it will come down will inject volatility. But at least on a short-term basis, even though we’re giving back some today, I think this rally that we’ve seen has a bit further to go because investors were caught so off-size heading into that meeting.

Keith, it’s so fascinating to me, the reaction to the market in the markets this because there’s this real vacillation here between the market wanting the Fed to be hawkish and not wanting them to be hawkish. Being worried about inflation and being worried about economic growth. And so what can the Fed do going forward now to please the market? Is it 50 basis points in the next few meetings? Is it slowing things down even, and not raising as much if people are so worried about economic growth?

KEITH LERNER: I think the most important thing the Fed can do is to remain flexible. If you remember back in the fall of 2018, what the market got concerned about, which led to almost a 20% correction, was that they thought the Fed was on autopilot.

What the market wants to see is that the Fed will adjust and adapt to the data. And Powell left him himself enough flexibility in order to do that yesterday. And I think that’s why the market liked it because there was so much discussion about 75 basis points, and he brought that down.

At the same time, if the inflation trends don’t improve, likely we’ll start to ramp that up again. But again, offering that flexibility is what really provided some comfort for the overall market yesterday. But again, I think this is still very complicated and he mentioned as much yesterday.

Keith, tell us that, in light of what the Fed said yesterday, this tech stock correction is over, and we can all go out and drink some tequila tonight.

KEITH LERNER: I’ll meet you for some tequila if you’ll fly me up tonight, Brian. But listen, I think the context is, we still think we’re in this broader, choppy range, you know. I think this inflation question and the Fed will continue to inject volatility.

We don’t think we’re zipping back to new highs, but we do think we were at the lower end of the range. And because sentiment was so inside, we put out something on last Friday saying that, you know, who brought the bears out? Because we had the most negative sentiment we’ve seen in the market since really March of 2020– sorry March of 2009 on some measures.

And I think because sentiment was so low and depressed that we can have some more room say the next few weeks, maybe on the S&P where around 4,300 today, maybe we can get to like 4,450, 4,500.

But then I think we’re– I think there’s going to be somewhat of a cap, so we’re still in a broader trading range. But short-term, I do think there’s some upside in some of these oversold moves, even in tech, which, longer-term, we’re still mixed on.

You downgraded your views on stocks in April, Keith. Are you upgrading them today?

KEITH LERNER: No. We downgraded them in early April, and after that initial call, stocks dropped about 7%, but we downgraded them to neutral. So it’s not like we have become big bears, but we’re recognizing that the range of outcomes is wider, that the Fed’s going to inject volatility.

And what I would tell viewers, we would use a rally to continue to upgrade the quality of portfolios, and also lag into some of these defensive names, which probably got overdone to the upside here over the last month– but we still think that’s somewhat more leadership, and stick with some of the inflation areas like energy and materials, as far as on a sector side, where we still see some upside.

All right. Well, go enjoy some tequila. Right now, Truist Co-chief Investment Officer Keith Lerner. Always good to see you.