The data that’s powered the stock market rally is reversing and it’s still possible the Fed raises rates before it cuts, market vet says

Feb 8, 2024
  • It wouldn’t be out of the question for the Fed to raise rates again, market veteran Gregory Branch said. 
  • A hot jobs market will keep the Fed hawkish, Branch noted. 
  • Meanwhile, many of the factors that have powered the latest stock rally are fading or reversing, he said. 

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The latest stock market rally could soon fade as its biggest drivers start to reverse, according to Veritas Financial founder Greg Branch. 

Wall Street has been cheering the strength of the economy, with stunning GDP growth, robust labor statistics, and an improving inflation picture helping drive stocks higher so far in 2024.

Yet Branch says he still remains bearish, and in fact, it wouldn’t be out of the question for the Federal Reserve to hike interest rates again before they cut given the strength of the US economy. 

“Chasing the tape is not analysis, and when we start to look at the underlying data, all of the things that powered this rally, all of the things that kicked this rally off, are starting to reverse or have strongly pivoted,” Branch told CNBC on Thursday.

The underlying data that Branch is pointing to includes last month’s jobs report, which showed 353,000 jobs were added in January. That’s “way too hot” for the Fed, especially compared to the 150,000 jobs added last October.

And while inflation has come down from its highs in 2022, Branch sees problems there, too. He pointed to the latest increase in core consumer price index data in December that shows the Fed’s mission may not be over. 

“When we look at all the underlying data, we just can’t call the fight with inflation over,” Branch added. 

He said the latest data has bolstered his bearish outlook, and cautioned that investors hoping for rate cuts could in fact see the opposite before the central bank moves to loosen monetary policy. 

“There might be some possibility that they still raise before they cut,” he said, pointing to the strength of the job market and wages as a problem for the Fed. 

The timing of the Fed’s policy pivot has been top of mind for investors so far in 2024, and the Fed and Jerome Powell have mostly pushed back on expectations for imminent rate cuts. 

It is worth noting that Powell appears to have softened his view on the strong US job market, saying at the press conference following January’s Federal Open Market Committee meeting that the labor picture appears to be normalizing from the Fed’s perspective. 

Bulls on Wall Street still see big gains ahead for stocks and are predicting rate cuts from the Fed are around the corner. Among them is Fundstrat’s Tom Lee, who still sees a March rate cut on the table and has called for stocks to notch records in 2024. 

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