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  • the stock market is headed for a down week.

  • But let's look ahead to next week when we will hear from the Federal Reserve will.

  • Joining me is Kevin Nicholson.

  • He is the co chief investment officer for global fixed income at Riverfront Investments.

  • So, Kevin, um, we will hear from the Federal Reserve next week.

  • What should we expect?

  • Yeah, I think the market is expecting the Fed to pivot and start moved their bond buying further out on the curve.

  • And this should also help keep interest rates maintained at current levels or slightly higher on putting a cap on them.

  • Largely because, you know, the Fed does not want interest rates to go to high because the mortgage market has really taken off here.

  • And that has provided ah, consumers with a lot of their net wealth over the past few months, especially as we sit here waiting for stimulus for the economy.

  • And how much of a shift do you expect from for the Fed to shift the buying from, uh, to the long end?

  • Because I noticed the last two days we've seen Treasury yields come down.

  • I know earlier this week, you know, 10 year note was hovering around that 1% but we're not doing that anymore, right?

  • Well, I mean, a couple of things have happened, and when you look internationally, we have 18/18 trillion dollars worth of negative yielding debt out there right now.

  • And so you're going That is gonna put a cap on interest rates here in the US in itself.

  • Because foreigners, they're gonna want to shift and purchase Treasury.

  • Uh, here in the US because they have negative, you know, 10 year rates in their countries s.

  • So I think that that's part of it.

  • I don't think that you're going to see the Fed make a wholehearted shift all at once.

  • It will be something that will happen very gradually.

  • And so, since your global how is the the stuff that's going on with Brexit?

  • How is that likely toe impact Treasury yields here in the US?

  • Well, right now, I don't think that Brexit is really going to have a major impact on treasury yields right now.

  • I think that you know, Brexit has been going on since June of 2000 and 16, and I think that, you know, most people are just gotten so tired of Brexit that, um they've kind of put it on the back burner.

  • And that is not playing into their calculus is far as markets.

  • Um, in the fixed income space is concerned.

  • Okay, so we have the fed meeting next week.

  • We're still waiting to see what's gonna happen with Brexit.

  • We get some data points.

  • Um, retail sales.

  • We get some factory numbers as well.

  • How is that likely to impact investor psychology?

  • I think that those numbers will have a big impact on investor psychology.

  • A large part of it.

  • As you saw yesterday, you had a very weak job report.

  • You know, uh, jobless claims yesterday came in pretty weak.

  • Um, and continuing claims were higher than expected.

  • And I think that looking at retail sales, that will give us an idea of how the economy is healing and how the Christmas season is going along.

  • And if people aren't out there spending money on the holiday season, that means that Ah, lot of these folks that got this stimulus checks earlier they're running out of money now or they're starting thio or they're starting Teoh, you know, tighten their belts because they have toe have their dollars go further.

  • So I think that those that report next week is going to send a very important message of what's to come if we don't get further fiscal stimulus, and how is that likely to add?

  • I mean, you mentioned the jobless claims number was up up near three month high.

  • That came out yesterday.

  • And if we get a guess, uh, a nasty retail sales number.

  • How much pressure will that add on Washington to get a stimulus deal done before Christmas?

  • I think it will put further pressure on D.

  • C.

  • But the problem is, is that they're running out of time.

  • Um, you know, they really need to get it done by the middle of next weekend.

  • I don't know that we really have a lot of time left for them to actually work out the fine, finer details of where they're disagreeing right now.

  • And especially the market had built in stimulus priced in stimulus going into next year, more for when the Biden administration would take office and over the last week, or show it started pricing in getting stimulus in this lame duck session on show now I believe the odds of having you know stimulus happened in this lame duck session is now starting to tilt more towards the downside.

  • And it's gonna be a very close call whether or not we get it.

  • So it seems like the last couple of days the market has been stuck in between vaccine hopes.

  • And, uh, the Vassil ation has going on going on with the stimulus.

  • So where are we likely to break to the upside or break to the downside?

  • Well, it's all going to depend if we if we can get stimulus Prior thio year in, then you would I would we would get that Santa Claus rally, so to speak.

  • However, if we don't get stimulus, if we have coveted cases continue to rise, um, at record levels, then that's gonna put further pressure on the market.

  • The vaccine has already been priced in for 2021 as well as earnings expectations have been priced in for 2021.

  • What hasn't really gotten totally priced in is how much stimulus.

  • So we're going to get Andi.

  • That's the important wild card right now.

  • Alright, Great.

  • Thank you.

  • That's Kevin Nicholson.

  • He is the co chief investment officer off global fixed income at Riverfront Investment Group I'm Conway G kittens, and this is Reuters.

the stock market is headed for a down week.

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Wall Street week ahead: Fed meeting, stimulus talks

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    林宜悉 posted on 2020/12/15
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