There's at least one big name investor who won't be fighting the Fed next year.
Between the central bank's high interest rates and plans to reduce its balance sheet, liquidity is draining from markets. That's bad news for stocks.
Happy holidays! It's great to be here with you. Strategists have been sounding the alarm that stocks aren't going to get their usual year-end Santa rally, so investors are unlikely to have much momentum moving forward in the near term.But Saint Nick's absence isn't the elephant in the room for markets -- it's the Fed.One programming note before we dive in: There will be no newsletter on Monday, December 26, but I'll be back in your inbox on Tuesday.If this was forwarded to you, sign up here. Download Insider's app here.
Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on December 14, 2022 in Washington, DC. The Federal Reserve announced that it will raise interest rates by a 0.5 percentage point to 4.5. Alex Wong/Getty Images 1.
Billionaire hedge fund manager David Tepper said he's "leaning short" on the stock market as the calendar changes. His reasoning? Don't fight the Fed. "Sometimes they just tell you what they are going to do and you've got to believe them. And I kind of believe them," Tepper told CNBC Thursday, referring to the central bank.In a bid to squash decades-high inflation, this year the Fed has embarked on a historic interest rate-hiking campaign. Last week, policymakers made their fifth consecutive outsized move, and indicated that more rate hikes will follow. "[The] Fed terminal rate will likely reach a peak of 5.25% and they're going to keep rates high for a while," Tepper said. Inflation has indeed fallen since its annualized peak at 9.1% in June, but as Jerome Powell indicated in his press conference, there's still more work to do.A critical detail that bodes poorly for stocks, too, is the Fed's plans to wind down its massive balance sheet by $95 billion per month.
With the bank letting these bonds run off rather than buying more, they're draining liquidity from the market, which weighs on stocks.And it's not just the Fed that's tightening things up. It's central banks all over. "I got everybody tightening and telling me they're going to tighten more, and I got markets that just don't believe it," Tepper noted.
"We don't have coordinated tightening around the whole world with everybody tightening at the same time too often." To Morgan Stanley strategist Jim Caron, investors are being too preemptive in pricing in odds of a Fed pivot, and markets are betting incorrectly in this case. "What the forwards in the Fed Funds futures are telling us is that it's increasing the probability that there's going to be a recession at some point," Caron said in a Bloomberg interview. "That's why there's a downward slope. "Barring a black swan event, Caron expects the central bank to hold rates high for an extended stretch of time -- and JPMorgan agrees. "The biggest mistake they've made was that they let the inflation gorilla out of the cage," JPMorgan Asset Management's William Eigen said in a separate interview Wednesday.
"And right now there's not enough bananas in the world to entice it back into the cage. "What's your best-case scenario outlook for the Fed and stocks next year? Tweet me (URL) or email me (EMAIL) to let me know.In other news: Traders gather on the floor of the New York Stock Exchange, Friday, March 18, 2016. Associated Press/Richard Drew 2. US stock futures edge higher Friday morning, raising hopes for a recovery from recent losses with the key PCE inflation data due later today. Meanwhile, oil is rising after Moscow said it could cut output soon.
Here are the latest market moves..
An investment chief at Goldman Sachs' $1.8 trillion asset management arm shared where to put your cash next year. The firm is expecting weaker growth in 2023, but remains optimistic about emerging markets and China. Ashish Shah named four strong opportunities for investors.5.
No, Sam Bankman-Fried and his parents didn't just shell out $250 million for bail. A federal prosecutor in the case called it the "largest-ever" pretrial bond. SBF didn't pay it upfront, but his parents' Palo Alto home helped secure his promise not to flee.
Here's how it works.6. The Armenian dram is the world's top-performing currency. The mass exodus of Russian citizens fleeing the war on Ukraine has helped neighboring countries' currencies soar against the US dollar.
Meanwhile, Russia is reportedly moving to further cut its dependence on the greenback by buying up Chinese yuan..
But Carson Group's Ryan Detrick said indexes could actually rally because a weakening dollar will juice earnings. Get the full details.8. Famed bearish strategist Albert Edwards said the Fed will extract a high price to tame inflation.
Societe General's global strategist warned that an oncoming recession will help bring down soaring prices -- but its success will only be temporary.9. This 28-year old owns 42 cash-flowing properties. He explained how he started investing in real estate without any cash.
Plus, he shared his top six tips for beginners looking to build their property portfolio. Markets Insider 10. AMC Entertainment stock plunged as much as 22% on Thursday. The faltering meme stock proposed a reverse stock split and a conversion of APE shares.
It needs the cash because, measured by net income, it hasn't seen a profitable quarter since June 2019.Curated by Phil Rosen in Los Angeles. Feedback or tips? Tweet URL or email EMAIL Edited by Max Adams (URL) in New York and Hallam Bullock (URL) in London.