The US Federal Reserve will not stop “talking tough” to markets until there are significant developments in inflation , which will perpetuate volatility until mid-2023, the chief investment officer at UBS Global Wealth Management said on Monday.
Mark Haefele noted at the Reuters Global Markets Forum that he saw the S&P 500 ending the year at 3,900 points and around 4,200 by next summer, compared to its current level of 4,057.
Fed Chairman Jerome Powell said Friday that the Fed will raise interest rates as much as necessary to restrain growth and keep them there “for some time” to reduce inflation that is well above its target for the year. two%.
Haefele expects the Fed to hike another 100 basis points this year, but he did not see a major recession in the United States.
“We think inflation is going to start to recede,” said Haefele, who heads investment strategy for the world’s largest wealth manager, with $2.8 trillion in assets.
Federal Reserve funds futures give a 73% chance of a 75 basis point hike and see rates peak at 3.75%-4.0%.
Haefele noted that value stocks have always outperformed growth stocks during inflationary periods, offering attractive valuations.
“(Value) is an area that we would focus more on,” he said, adding that many of these opportunities were outside the United States.
Although Haefele expects Europe to enter a recession.
Haefele expects emerging markets to be attractive once the Fed changes policy. “We’re very focused on when a catalyst happens, because a lot of emerging market stocks are so much cheaper than US stocks,” he said.
Greater toughness by the ECB
Euro zone markets see a greater than two-thirds chance that the European Central Bank will raise interest rates by 75 basis points in September, after monetary authorities defended a major measure to control inflation four times above its target. objective.
One particular focus of attention was Isabel Schnabel, a member of the ECB board, who argued that the risk is increasing that long-term inflation expectations become “de-anchored” from the bank’s 2% target, while polls suggest that the Inflation is taking a toll on public confidence in central banks.
Other monetary authorities stated that it would be reasonable to advance the increases and that the neutral rate, estimated at around 1.5%, should be reached before the end of the year or in the first quarter of 2023.
On Monday, traders were pricing in up to 67 basis points of rate hikes at the September 8 policy meeting, meaning they fully consider a 50 basis point (bp) move and a 67% chance of one of 75 bp, according to Refinitiv data.
With information from Reuters
