Christopher J. Wolfe, chief investment officer of First Republic Private Wealth Management, joined Cheddar News to discuss Wednesday's stock market gains following the Federal Reserve's decision to raise rates.

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Breaking Down Wednesday's Market Gains Following Fed Hike

Joining me now is Christopher Wolf, Chief investment officer of First Republic. Private wealth management chris it's good to have you on the show, good day of gains for stocks continuing the momentum that we saw in january what should investors expect ahead? Well I think it's interesting today was a day of selective hearing and it's gonna lead to my comments about what's ahead. The selective hearing was all about the bond market. Heard what it wanted to hear. That was the Fed will stay on the case as long as it takes to get inflation down. That's good for bonds. The stock market heard something else which is well, we see the I. S. M. And other macro data, the PM I data coming in weaker than expected and the Feds say it's going to be data dependent therefore things may not be so bad and the Fed will probably pause sooner than we want. So it's like each market took it Own meaning out of what the Fed was saying today. I think that gets us to what lies ahead. I think what lies ahead is a couple of things. The first is there's some persistence in the inflation data that we observe out there mostly on the services side. Chairman Powell mentioned this today and that's a stubborn kind of inflation. It's really hard to get down think of it this way. When's the last time you saw the price of a car wash a service for example dropped by 50%. They don't really do that. They tend to go sideways over time. So that's persistence of inflation is one piece. And I think the second is we're going to come into the earning season and second quarter, but I think a bit of weakness and that's something that we think will add more volatility to markets. So what kind of volatility should investors expect Christopher? Because when we see the stock market book games like we did in january, people might get fomo, they might want to jump in. We're still quite a ways off of our relative highs are all time highs that we saw at the start of 2022. What should investors prepare themselves for? You know, I think there's an Ohio State football reference here three yards and a cloud of dust and the fear of michigan fans sorry. But but really I think we're coming into a period where expectations are going to be tested. So we started this year with expectations that were crystal clear, of course we're gonna have a recession, of course it's gonna be bad. Of course earnings are gonna correct really hard. Of course the Fed is gonna have to pause and all of these of course is, and the certainty is the old Mark Twin thing, it's all the things that you know, for certain that just aren't. So that I think is going to come to fruition over the course of the next few months. I think the volatility is going to be created by surprises in earnings surprises in inflation. And I think what we're advising clients to do is to be more flexible, navigate this environment with more sources of income and ways to ways to take advantage of the volatility. I think the bigger message though is Mark, we are in a transition phase towards more fundamentally driven approaches and more valuation based approaches. That's a good thing for long term investors. But the path from here, which is a lot of excess money still in the system to there, which is more fundamentally driven markets, I think is going to be messy. So let's talk about Christopher as a chief investment officer, how americans should be putting their money to work right now. What would you recommend? Well, I'd say three things first is bond markets still look pretty good here. The Fed is doing a good job on inflation and if you can get 4% or in some cases with credit markets five or six or even 7% a little bit is gonna go a long way. I also think municipal bonds would be another place to look at for taxable investors. We think states, given their tax picture changes are going to have to issue a lot more bonds in the next set months on stocks. I think it's all about the earnings and the cash flow really, it's about something more important, which is margin durability and what that really means is inside every sector. There's some top performers companies that are using their cash flow to deploy into technology, manage their cost structure in a way that their margins are preserved. And we observe that with higher dividend growth buybacks and the like. And it's upgrading everything in your portfolio towards those margin durable companies. But I think the last pieces for clients that are qualified what looks really interesting as some of the private markets, it's shrinking rapidly in terms of all the excess cash and that will probably create some opportunities. The last piece, which I didn't mention in detail was international markets were starting to get to a place where valuation looks really attractive. Alright, We'll be following that closely Christopher, Wolf, chief investment officer of First Republic. Private wealth management Christopher. Thank you.