Journalist: The context is unique. We have already seen the last rise in the Federal Reserve (Fed) rate and the minutes that were released a week later. But now there are doubts: What should those who closely follow the evolution of the financial and stock market both in the US and Argentina be aware of?
Leonardo Chialva: The minutes turned out to be a continuation of what had already happened and was reported on the day of the Fed’s statement and the press conference. Therefore, they tend to only serve marginally, especially in the event that comments or information appear that contradicts what was properly evaluated. In this case, we see that the market has already “priced” three more Fed rate hikes.
Q.: Does that mean that the price of US assets has already incorporated the impact of future Fed decisions? Can you change the scenery?
LC: In principle I do not see greater risk on that side. There are three more rate increases that “price” the market. Regardless, I think we will be contingent on movements on the long end of the US curve, which “priced” a recession and therefore you will find yourself looking closely at the activity data going forward. What happened in recent days is a clear example of the risk on this front.
Q.: Does volatility increase as a result of that? And risk aversion? Is it a year to accumulate assets in the investment portfolio or to review decisions periodically?
LC: I see that 2023 will be a trading year. There is still no clear direction. Characterizing, 2022 was the year of strong adjustment, which is already behind us. But it is true that some excesses still need to be purged. And with the Fed still in tightening mode, markets are likely to move in no clear direction.
Q: I understand. The question should be, how does the investor have to act in this changing situation? Are stocks cheap for these rate levels?
LC: Good question. The moments to add risk in the portfolios should be those associated with panic. With some thought, adding some risk could also be considered after strong market adjustments. This is not a market to jump into after it has run long enough, because valuations, generally speaking, still remain high for a time of interest rate hikes.
Q.: With valuations at high prices, what is the relevance of the publication of the core Personal Consumption Expenditure (PCE) Price Index for investors? We saw last week that the figure came out 0.4% above the estimated 4.3% inflation for January in the US.
LC: PCE core inflation is the Fed’s preferred measurement, therefore it is closely watched by analysts. The impact on the market of these data is significant only in the case that they deviate strongly, always in relation to the expectations of the investors. The same thing happened with the estimated data for the Gross Domestic Product for the fourth quarter of 2022 in the US, which is information that would come more to confirm the inflationary decline priced by the markets than anything else.
Q.: How does the Fed’s rate hike forecast apply to Argentine assets, bonds and stocks?
LC: Argentine assets have been associated since October 2022 with a better global context. During the last few weeks we have been able to see how a price adjustment associated with the rise in the yields of North American and European bonds materialized. Therefore, the global context is what matters most. But this is also an electoral year in our country, so we will have the local seasoning that can add or subtract from the global framework. You have to understand it that way.
Source: Ambito
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