Jay Hatfield, Chief Investment Officer at ICAP, says fears over the upcoming Fed decision are appropriate and the news could drag the market to new lows. Meanwhile, the Nasdaq experienced its worst month since October 2008 and shed more than 4% of its value during Friday's session.

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'Tremendous Fear' Pushes Major Indexes Sharply Lower

all right, turning back to the major averages joining us now is jay Hatfield, chief investment officer at Icap, jay, What were the biggest factors contributing to today's market meltdown? Please explain it for us, I can't thanks for having me on again. And the way we see it is that there's tremendous fear which we think is appropriate about heading into quantitative tightening, which is going to get announced next week. It's not going to be a surprise, but when that actually hits that could take the market to new lows and so, but what investors are waiting for, they don't want to get short to put hedges on before earnings got announced, particularly from mega cap tech. That could be obviously the guidance was very disappointing for Apple and both the earnings and guidance disappointing for amazon. So once that was out of the way, we're through the bulk of earnings, so we're really just looking ahead to the Fed and it's hard to come up with a bull case. The quantitative tightening is going to help the market now, it's been a super volatile week. We've seen it in both directions up and down. Why is that just because earnings are, is really the key driver during this season, we're in earning season. So you know, if there's a big miss, like a netflix that destabilizes the market when facebook beat a lot of short covering huge NASDAQ rally, anticipating amazon and Apple's earnings when those disappointed, then we have the crash below the support level that was established in february. Now all this is coming, as you mentioned days before the Fed meeting, that is due to happen next week. What are you expecting out of that meeting? What are investors keeping their ear? You're out for? The actual meeting itself could be a neutral to positive event. But the real issue is we have the most erratic Fed policy in the history of the Federal Reserve. They went from Quantitative easing of 120 billion in March and now they're gonna go two months later, 95 billion of quantitative tightening. That's that's obviously the most wildest swing. And we think that that we don't know investors don't know what the impact is in the market, but it's incredibly erratic. We think the Fed needs to be reined in. Treasury Secretary should really be chair of the Federal Reserve. So at least there's some accountability. Do you feel investors already pricing in expectations when it comes to this meeting? Absolutely. That was what I was trying to imply. There's no doubt that there's not going to be a lot of surprises. Probably 50 basis points, 95 billion of quantitative tightening, but just like the quantitative easing, where people knew about it the day to day impact of that reduction of liquidity. It's very powerful. We saw it on the other side where it drove irrationally drove um profitless tech spox meme stocks to bubble levels. The same thing can happen on the downside if they're sucking that 95 billion out every month, you could reach new lows in the market. That may or may not be rational now Bank of America Dimension a 123 chance of a recession, What are your thoughts on that? We actually think that the Fed will capitulate and not do all the increases their planning. We see inflation rolling over in the second half. We think energy is finding a top housing is going to cool off the reason that 33% sounds reasonable of the Feds track record is not good for engineering soft landings. There's been 18 tightenings, 11 recessions, seven soft landings, but The key staff that we would look at is the amount of homes for sale, both new and existing is only 1.3 million. That number was 4.5 million. It's a huge excess during the financial crisis. So we think that will cushion the downturn if we do have a recession will be very mild because the last thing housing is the most cyclical sector and we have a shortage of the home. So we think that will cushion the market and we the real GDP we won't have a recession. Well, as you know, we're in the middle of earnings season. So what trends have you been noticing with these earnings coming out? Well, generally speaking earnings have been strong because the consumer remains to be, remains strong. The real issue had been, you know, an apple and amazon are kind of the poster child for this. If the companies are not able to deal with shortages of materials and inflation and pass those costs along that. Have heard that's heard a number of companies, but the fundamental economy we believe is strong, even though GDP printed wheat, that's usually not very reliable indicator. So the consumer remains strong. So most earnings have been positive and particularly more old economy, obviously energy utilities, pipelines, real estate companies, there's been some violence in real estate companies. So we continue to recommend defensive dividends in old economy stocks this year. I want to put that graphic up one more time because that leads to my next question next week, we have some notable companies like Uber Airbnb Doordash, we have lift fighter. So what do you think investors should be doing to prepare for these earnings next week? Generally speaking, those companies aren't going to drive the market higher or lower like an apple or amazon or facebook will, so that's more, you know, if you want to trade those names, the only question really is in light of the Fed, how nervous are investor is going to be about this tightening and you know, we're normally fairly bullish, We're bullish through most of the pandemic, but we just don't know this hasn't really been done before the 95 billion or particularly going from 1 22 months ago and then in a month, negative 95 billion. So I think that's going to be the dominant theme and whether we find a bottom somewhere down here, 4000, the markets we think is reasonably priced, but that's unclear, like I said, this has just never been done before. Let's talk crypto for a minute because Bitcoin is sitting underneath $40,000 and you think that it could fall much further? Tell me why? Well, when, when there is quantitative tightening, so that means investors have to sell something because the Fed is taking capital out on the market, there is a little bit of support from overseas capital coming in, particularly buying Treasuries, but so investors have to sell securities or assets. So why wouldn't you sell a security? There's no Ecco intrinsic economic value like Bitcoin or Cryptocurrency, why wouldn't that be the first asset to sell in addition to money losing tech companies mean stocks and stocks that are overvalued, so usually the highest beta, highest volatility investments, which Bitcoin would definitely be probably the highest, would go down the most hatfill. It's always a pleasure having on the show. Chief investment Officer at Icap, thank you so much. Have a great weekend. I appreciate your wisdom