"Does [Fed Chair Jerome Powell] have his usual Goldilocks stance at the FOMC meeting where we get a little bit of this, little bit of that, and the market can read in what it wants?" Sosnick ponders to Yahoo Finance. "Or does he go a little more Grinch... at the meeting and sort of say, 'Guys, you guys are wrong by thinking we're going to move this quickly.'"
MADISON MILLS: We've got a lot of labor data this week showing that things might be cooling off.
For more insight, we bring on the one and only Steve Sosnick with Interactive Brokers and he is their chief strategist.
You can really pick whatever data point you want right now to go with whatever narrative you have with this market.
STEVE SOSNICK: Well, we've always had that ability.
First of all, good morning, Madison.
Good morning, Brad.
BRAD SMITH: Good morning.
STEVE SOSNICK: But yeah, the market's always been somewhat malleable in that regard of, you know we'll pick the narrative that suits us.
And at this point, we've been able to morph pretty quickly from soft landing worried about hard landing to now soft landing worried about maybe we'll get no landing.
But the one thing I will say about the consumer sentiment numbers regarding inflation is they're typically pretty well tied to the price of gasoline at the pump.
And it's interesting because for the last couple of months, they were not coming down, even as pump prices were.
And I think it's as though this month people noticed, hey, wait a minute, gas got a lot cheaper.
And I do think that had something to play into it.
BRAD SMITH: So the prints that we got this morning, whether that be on the consumer sentiment front or whether that be on the employment situation, do any of these readings and the trend that we're seeing more broadly, does that signal to you recession?
STEVE SOSNICK: As of now, these numbers do not signal-- these numbers do not signal recession.
If you've got a buoyant consumer, if they have jobs, if the vast majority of people who want a job can get one or have one, we saw continuing claims fall, these are all positive numbers.
Now, the question for the markets to reckon with is, Fed funds futures had priced in five rate cuts for 2024.
This is not consistent with five rate cuts coming down the pipe.
Since the last Fed meeting-- the last Fed meeting was November 1.
On November 2, we were pricing in three rate cuts for 2024 and the first one probably starting in June, more likely July.
Now, as of yesterday, we were at five rate cuts with the first one likely starting in March and if not then May.
So things have changed a lot and now we have to see that narrative unwind to some extent.
And we'll see if Powell pushes back on that next week.
MADISON MILLS: What does that unwinding look like today for those that have gone with the five rate cuts pricing in narrative?
What are they doing today to rebalance?
STEVE SOSNICK: What you'll start to see-- and I'm surprised we're not seeing it a little bit more-- is a pullback, let's say, in shorter term rates, like the two year.
You'd start to see them back up as those rate expectations come out.
Those markets don't react quite as instantly.
When I looked before I came on air, they backed off some of those expectations a little bit, but not fully.
I still have to wonder whether how does Powell approach this.
Does he, sort of, have his usual, sort of, Goldilocks stance at the FOMC meeting where we get a little bit of this, a little bit of that, and the market can read in what it wants?
Or does he, kind of, go a little more Grinch at the meeting and, sort of, you know, you guys are not-- you guys are wrong by thinking we're going to move this quickly.
BRAD SMITH: I'm glad that there's more than one Grinch then because they've been calling me a Grinch for days and weeks now since I said that this is a Fed that's going to, through Fed speak, pour some cold water on the markets.
They did just that last week.
People got mad at me.
So now potentially we got another Grinch out there.
That's good.
STEVE SOSNICK: But they did it last week and the market heard what they wanted to hear anyway.
BRAD SMITH: Exactly, yeah.
STEVE SOSNICK: That was, kind of, it.
They gleaned the points in there that were, sort of, market friendly and ignored the vast majority of it, which was pushing back on this narrative.
So again, this is the market-- you know, right now we have a buoyant market.
We see it now, I guess, today with consumer sentiment.
But the market is buoyant and it just has this happy note to it.
And so why be bothered by inconvenient things like not-- do we have the Nirvana of rate cuts and a strong economy?
I think they're, kind of, mutually exclusive.
Right now the market wants to believe what it wants to believe and I will say unequivocally the news from the economic front today is solid.
It's good.
MADISON MILLS: Does the Fed care about the market consistently being in the green or do they only care if we're in the red?
Does the Fed care much about positive buoyancy in the market getting too hot?
STEVE SOSNICK: I think the Fed-- I think the stock market thinks the Fed cares about it much more than the Fed actually does.
MADISON MILLS: It's like a bad relationship.
STEVE SOSNICK: Exactly.
It's a dysfunctional relationship although it is working-- it has been working out for markets-- MADISON MILLS: Sure.
STEVE SOSNICK: --for the most part over time.
The Fed does get worried when market worries can spill into the broader economy.
And I do think on the flip side, when they say if they have to go in there wondering if they've got room-- if they've got room to adjust policy a little bit.
And they say, well, markets don't seem to-- markets don't seem to care, let's do what we're going to do.
I think they do worry a lot about fixed income markets because that's really their bailiwick, keeping banks-- the third leg of the dual mandate is making sure the bank system is stable and making sure-- that's their read on how the economy goes.
I think they, kind of, view the stock market as, sort of, noise or maybe some, sort of, backdrop as consumer sentiment.
But that's why we don't really see them getting involved unless things really start to spill over in a really negative way that could affect the actual dual mandate.
BRAD SMITH: Well, there's been a lot of noise this morning.
I mean, we're taking a look at major averages right now.
And even before we went into the employment situation print, we were down fractionally across the board.
We've essentially made a pivot in the exact opposite type of strength to the upside now for much of the US major averages.
Here across the board now seeing the hat tricker, the trifecta in the green.
As we think going into 2024 and some of the top ideas that you have, what are going to be the sources of hopium that the markets look to or perhaps your top idea for 2024 even?
STEVE SOSNICK: My top idea for 2024 is I do think volatility comes back a little bit.
I think this idea that we've just, sort of, abolished volatility is, I think, a little naive.
It doesn't go away for any length of time.
It does return.
And whether that starts next week with some negative comments out of Powell, or just the range of unforeseen circumstances, or the natural volatility that comes with an election cycle makes me wonder whether-- it doesn't make me wonder.
I do think volatility makes a comeback at some point in 2024.
BRAD SMITH: And what's the trade that initiates?
STEVE SOSNICK: Then that is keeping an eye on VIX if you trade the VIX products directly or it means the trade would be being opportunistic in terms of you can tend to buy options more cheap-- it behooves you to buy options when volatilities are low.
It behooves you to sell them when they're high just like any other-- just like any other financial instrument.
MADISON MILLS: Steve, before we let you go, just one word to describe the type of landing that you think we're going to get heading into 2024.
STEVE SOSNICK: Bumpy.
MADISON MILLS: Ooh, I like it.
Not soft, not hard, just bumpy and choppy.
STEVE SOSNICK: Exactly.
MADISON MILLS: I love it BRAD SMITH: I was on at least one of those flights recently.
Steve Sosnick, Interactive Brokers chief strategist.
Thanks so much for taking the time here today.
STEVE SOSNICK: My pleasure as always.
