Should investors ‘sell America’ on Fed independence concerns?

00:00 Speaker A

Question one to you. Do you sell America off this?

00:02 Matt

No, I don’t think you do. Um, you know, I I think uh the sell off this morning is a little bit of a reflection of kind of where valuation multiples are and kind of where credit spreads are. We’re at near 15-year tights in terms of where credit spreads sit today, meaning that there’s not a lot of systematic risk priced into the equity market. And you get a headline like this over the weekend and, you know, there’s going to be some adjustment to that valuation. But, you know, there’s a lot of positives still with the US economy. Earnings are rising across the equity landscape from small caps all the way up to large caps. and we’re heading into earning season where we’re likely to see another quarter of double digit earnings growth year on year. and so those are positives that I think can counteract some of the, um, let’s call them, you know, somewhat, uh, you know, discouraging headlines that we’ve seen over the weekend.

00:43 Speaker A

Question two, Matt. Uh, folks that I’ve talked to on this in the past, uh, in the in the morning so far have uh pointed out a potential rise in inflation expectations on the view that the Fed’s independence is now in question. If that’s the case, if we’re going to get a rise in inflation expectations, what stocks work and what won’t work?

01:03 Matt

You know, looking at um the longer-term risk, you you just underlined it well there, you know, the loss of independence from the Fed kind of comes with an unanchoring of inflation expectations. Uh on the positive side, what you’ve seen in markets the last couple of months is inflation expectations moving lower. uh as we’ve seen um you know, some of the uh outlook for inflation improve as some of the tariff announcements have been less than expected. But if you’re looking at a way to hedge the upside to uh maybe that changing uh if inflation expectations were to rise, um, you know, real assets are are your hedge there. So we think commodities, think energy stocks as a way to kind of hedge some of that inflation risk if it were to reverse and head the opposite direction.