In this week’s Glass Half Full, Carson Group’s Ryan Detrick, Chief Market Strategist, and Sonu Varghese, Chief Macro Strategist, tackle the big question after the Fed’s surprise move: Will rate hikes kill the bull market?
The Fed raised rates by 0.25% to roughly 4%, its first hike since July 2023, at just Kevin Warsh’s third meeting as Fed Chair. Ryan and Sonu walk through the updated Fed projections, which show higher inflation and growth and a lower unemployment rate, now at 4.1%. They explain why the Fed’s “insurance cuts” from 2024 and 2025 may now be partly reversed, and why the median Fed member expects only about one more hike. They compare today to the one-and-done hike of 1997 and the brutal 2022 tightening cycle, noting that the S&P 500 was higher a year later after each of the five hiking cycles before 2022. They also dig into why inflation is about more than oil, with tariffs, steel, aluminum, packaging, AI-related bottlenecks, and services costs like vet bills all running hot. They close with the AI spending boom, as big tech capex has jumped from about $500 billion to nearly $800 billion this year, with $1 trillion expected next year, and explain why a hotter economy is a net positive for stocks.
Key Takeaways
- In our opinion, the Fed is still willing to let the economy run hot. Fed projections show higher inflation and growth and a lower unemployment rate, currently 4.1%, and the expected hikes would only partly reverse the “insurance cuts” of 2024 and 2025.
- History is on the bull market’s side: After each of the five rate-hiking cycles before 2022, the S&P 500 was higher one year later. We see 1997’s one-and-done hike as a better parallel than 2022, when rates went from near-zero to about 5% in a matter of months.
- Inflation is sticky and goes well beyond oil. Tariffs, higher steel, aluminum, and packaging costs, AI-related bottlenecks, and services inflation, such as vet bills up roughly 5% year-over-year, are all keeping prices elevated.
- AI spending is the engine of a hot economy: Big tech capex expectations have risen from about $500 billion to roughly $800 billion this year, with $1 trillion projected next year. Combined with record profits and margins, we believe a couple of hikes won’t derail a $32 trillion economy.
Jump to:
0:12 — The Fed Hikes After Three Years
2:03 — How Much More Tightening Matters
4:46 — 1997 vs. 2022 Market Parallels
7:11 — Sticky Inflation Beyond Oil
8:30 — AI Capex Boom and Bull Case
10:30 — Closing Takeaways and Share Request
Connect with Ryan:
- LinkedIn: Ryan Detrick
- X: @ryandetrick
Connect with Sonu:
- LinkedIn: Sonu Varghese
- X: @sonusvarghese
The views stated in this podcast are not necessarily the opinion of Cetera Wealth Services, LLC, or CWM, LLC. and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Ryan Detrick and Sonu Varghese are non-registered associates of Cetera Wealth Services LLC.
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