Mortimer: Stocks Will Stomach One or Two Rate Hikes, Diversify from Mag 7

SPEAKER_1 (0:00)

Welcome back to Opening Bell, getting you ready for the Trading Day on this Wednesday, Fed Day. Jeff Mortimer, Chief Investment Officer, Elysium Wealth, is with me. And so this afternoon, crucial, because we may have our first rate hike since July of 2023 Do you think that we have this rate hike, and what does he say following at 2:30 p.m. Eastern Time?

Jeff Mortimer (0:22)

That's the, those are the issues. I think the 25 basis points is baked in. I think that hike will come as the markets expect. And the key, Nicole, will be kind of what statements are made both after this hike, because the market is going to be wanting to know how many are coming in the future and at what time period. We've got priced in now in general, a couple rate hikes this year.

So I think if, as long as he stays on that script, I think markets are fully capable of handling this and may welcome this. You've got, of course, rates on the long end moving upward because of the inflation fear, especially because of the high oil price. I think the market may look at this as a prudent step by Kevin to tamp down inflation, at least in the near term.

SPEAKER_1 (1:11)

Regardless of the 7 percent mortgage rates or anything else for that matter, there were some folks who say he might just do the one and say nothing much.

Jeff Mortimer (1:23)

That might be possible. I think markets might welcome that. But I think we're going to have to look at inflation as it plays out. It still remains stickier than many want in this marketplace. And you're seeing the long end of the curve certainly voice its opinion.

And so I think he has to walk a tight rope here of trying to be a hawk on inflation and not let it potentially get out of control.

But also not pushing rates higher than they need to be. Just as you mentioned, high refinancing rates, high mortgage rates, right? This will transfer into a lot of other loans. And certainly on the margin, 25 basis points is not a lot. But if you stack them together, I do want to remind viewers about an old adage, three steps in a stumble. It's historically taken three hikes by the Fed for kind of risk assets to really start to pay attention. So I think again, one or two markets have historically been capable of handling. It might be further, right, further rate hikes out the windshield where the markets may run into trouble.

SPEAKER_1 (2:30)

September seasonally is a tough month and it has proven to be true thus far. And we're already seeing that. What do you tell, as Chief Investment Officer, what do you tell the clients who say, hey, you're losing so much money, but we've had three great years, an incredible run up. And I don't know what kind of volatility you expect today, tomorrow.

What do you tell them? What do you watch for?

Jeff Mortimer (2:55)

These are wonderful questions because clients, right, they can get frightened, right? Investors can get frightened when these issues are sort of brought up. Inflation and Fed policy, right? Markets, bull markets tend to end because they are murdered by the Federal Reserve. That they don't end of old age, they don't end of a lot of other things. They end many times because inflation, pricing pressure becomes too much and the Fed must take the punch bowl away, right? These are all old adages. We don't think we are there yet. We believe, we continue to believe with all my quantitative work, going back 35 years, that we are in a mid-cycle bull run. This continues, that started in early 2023, continues to this day.

That bull markets don't go straight up, right? They have to pause, they rotate as you're seeing today into AI, out of AI, right? All these things transpire. But the key really is, you know, and again, another old adage, time in the market, not timing the market.

We will advise clients to reduce equity exposure, to reduce risk exposure eventually. But we are not there yet. We think it's at least 12 to 18 months from here, where markets may then perhaps start to run into trouble. You have an amazing earnings underpinning of this tape. And I think that continues to put a floor under these downdrafts, any downdrafts that we get, broadly, and will allow this market to sort of churn higher as we move into end of 26 and even into 27

SPEAKER_1 (4:26)

What do you think about, so obviously you think we're mid-cycle in the bull market, so it continues.