Ahmed Riesgo, Chief Investment Officer for Insigneo, discusses the importance of the Fed's comments on future rate hikes and what lower-than-expected Retail Sales data means for consumer spending in the near term. 




Opening Bell

Markets Rally as FOMC Meeting Set to Conclude With Decision on Rate Hikes

I am joined by Ahmed Rezko, a chief investment Officer officer at insignia, glad to have you on this morning the afternoon we're going to get, as I noted a moment ago, the Fed raising interest rates for the first time since about 2018 by all accounts, that race is gonna be about a quarter of a percentage point when it comes to inflation. The war in the situation in Ukraine, the balancing on tapering balance, excuse me and tapering, what are you hoping that Fed chair Powell will actually emphasize or maybe not emphasize during this meeting? Good morning. And that's a great question because I think the Feds sort of path here for a policy mistake has narrowed. So I think Chairman Powell is going to have a very difficult time Balancing those risks because like you said, the war has definitely increased inflationary pressures and we've already seen that, but at the same time they have reduced growth potentials more so in Europe, but also in the United States as well. So that that's going to have to balance those two out. I still think they hike today and I think we're looking at around 150 basis points of tightening for the rest of the year. But I think what's going to be key and what will really help markets rally here is the Fed maintaining a semblance of optionality meaning that all its options are open, whether it's pausing or perhaps even increasing the pace of hiking Interesting because Wall Street right now is pricing about seven rate hikes. I'm curious that in your mind is this realistic, you know, given the situation in Ukraine and the resulting kind of domino effect that it's had on kind of global markets also, I mean this is probably a lower, you know, on the threshold in terms of an indicator. But we did also get the retail sales data that they could potentially start to show this morning that the consumer is pulling back a little bit amid all the higher prices and all the uncertainty. You know, how does that factor in into the Fed decisions more long term? Does it really mean the more I would assume hawkish Fed, you know, with so many rate hikes? Right. And that's a great point. But we also have to remember what is the Fed's point here in hiking rates, What the Fed is trying to do. The Fed is trying to tighten financial conditions and to a certain degree, the market has already done a lot of that for it. Basically the market has done the Feds work for it to a certain degree here. We've seen credit spreads in the bond markets widen out. We've also seen the stock market fall, those all point to and the dollar strengthened. So those are all things that tighten financial conditions. So in all likelihood. And I think the part of the valley you've seen in the past couple of days is the market anticipating that the Fed might have to dial back some of that sort of hawkishness that's priced into the forward curve. Yeah. And I think that that's kind of the same sentiment that I'm seeing here again. I know the retail sales data that we got out, you know, at 8:30 this morning. It's just one indicator and doesn't show a trend quite yet. But at some point the conversation has been high prices have always been the solution to higher prices. At some point, the consumer is going to start to pull back, the Fed's going to have to account for that. Um, you know, in its kind of taper timeline and its timeline for interest rates. Um, and that's something that I imagine and hope maybe we hear Fed chair Powell mentioned today or some some indication of that in his notes. In terms of what you were saying a moment ago, Just showing flexibility and where the Fed could go from here on out. I also want to get your thoughts oil that has returned to levels before the Russia invasion, crude price back finally under $100 a barrel at least finally, for the consumer side of things. Um, the energy market, that's still up those 6.6% of the last four weeks. What's your overall outlook on oil and gas industry? Let's say in the next six months, but we continue to see kind of this spiky volatility. Yes, I do think you will continue to see volatility if you look at the forward curve for oil? It's pricing in around $86, a year out from here. And what we're seeing is that maybe the supply disruption hasn't been as badly as first feared. The Iaea came out yesterday and said that only two million barrels are coming off the market. A lot of that is due to the fact that India, for example, has said that they're going to continue to buy Russian oil and there's a massive purchaser of oil. So what we're seeing is that the disruption to the supply might not be as high as anticipated. We're seeing also that we might be getting supply from Venezuela, possibly from Iran. And we finally get this deal done and at the same time you're seeing some demand destruction because of the rapid increase in oil and the and the shutdowns in china. So all that balances out too. What I think is going to be a market that still has a tendency to go up. So even though you might see some further price moves down here, I think you will see that the tendency for the oil market is going to be higher. And I want to point this out because that has been sort of a central thesis of what we've been telling, investors are bullish case for oil had really nothing to do with the war in Ukraine. It really has to do with structural under capacity that has happened in the oil and gas market for close to a decade at this point. So we think that producers are going to have to really ramp up production here in order to meet supply even if we do take the short term hit because of faltering demand. You know, we noted retail sales data just a moment ago or at least so I mentioned it, but I'm curious to get your actual thoughts on it. The number came out about 3/10 of a percent for what we saw in february in terms of a rise that was lower than the expectation, about 4/10 of a percent. Do you think this is any signal that the consumer could start to pull back and what's your kind of greater outlook on consumer spending given that, I mean, the reality is the cost of everything is going up, you go to the grocery store, you fill up your gas tank and it's starting, it's starting to hurt. Yeah, there's no question. So there is going to be a hit to consumer spending like you rightly pointed out not just in the oil markets for gas prices, but also for shelter inflation, uh, for food prices specifically. So that's going to take it all these things are like taxes on consumers. So we are going to see a drop in consumer activity, especially on discretionary spending. That's very important to keep that in mind. Um, but what we saw was that the consumer came into this crisis and what I mean, that, I mean here at the beginning of the year with very with a very good balance sheets. So they're able to absorb some of these hits. Obviously, the longer it lasts, the greater the hit will be to consumer spending ability. But what we saw again is the consumer came in in very great shape. They've taken a hit and, and, and, and that will continue, but possibly not long enough. Or are they sharp enough to actually put us into a recession? That's certainly the hope. Right? You know, I think that's the balancing act of of the Fed wanting to slow things down a little bit, but not too much, especially as it relates to consumers just naturally having the pullback that that certainly we could see over the next, you know, couple of weeks, perhaps next couple of months. Let's talk about the NASDAQ obviously it's up to about one in 6/10 of a percent, But it's down about 6.3% over the last four weeks, 15%, roughly a year to date. There's been a lot of kind of eyeing of the tech sector. So certainly it's been kind of the big winner over the last couple of years. I wonder now what the pullback that we've seen, Where do you see pockets of opportunities or what sectors within tech do you think are gonna be able to best kind of manage the downward trend, albeit today, it's it's popping up. Yeah. You also remember that the sort of hit the tech sector really began back in november and that's when that really strong cP I print came up in the market sort of reassess the forward path of fed rate hikes. Um, we think that sector will continue to be challenged. We think it will underperform or at least market perform for the rest of the year because I do think that the sort of tech sector kind of had a perfect storm of conditions in its favor, especially during the pandemic. And a lot of those things that were headwinds, sorry, tailwind for the sector are now becoming headwinds including the rising of race, which we know affect the multiples on tech. So we're, we've, we've been telling investors for quite some time to underweight tech in your portfolio. That doesn't mean to rush out of it. Like you said, we still see sectors where there are better opportunities such as manufacturing and semiconductors. Those are two specific ones. Um, but some of the more sort of higher multiple parts of that market you still want to avoid because of the rising rate environment. Finally, here, I wonder outside of tech, what industries do you see with some potential upside? Yeah. Look, we like the industrials, we like energy. I know it's been a great play, it's done very well, but you also have to remember energy was a poor performing sector for 10 years. So I still think this sort of structural bull market in commodities, which we've been calling for still has a bit to go. So I would use Pullbacks in the energy sector as opportunities to add risk. We also like financials, we think that they're going to be benefiting that the yield curve has steepened here recently. They've sort of taken a hit on some of the sort of Russian use and and over on the overall general market downdraft. So we think we see an opportunity there as well. Alright. I really appreciate your insight. Ahmed Rusko, chief investment officer at insignia.