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So much for that recession chatter, that has been whipping around Wall Street trading desks. Markets continue to stabilize following another piece of less dire economic data, this time retail sales for July. So should you buy the latest market rip? Skyler Wine, uh, Reagan Capital chief investment officer, uh, is here, and so is Andrew Cecarowski, senior fixed income portfolio manager at Morgan Stanley Investment Management. Good to, uh, see you both. See you both here. I'm gonna jump all question here, uh, for both of you. We're seeing the markets, uh, stabilize here. But is that the calm before the storm? Either one of you, fire away.

Yeah, sure. I can start off. I mean, I run a bunch of bond funds, so I can I can speak to the bond market. I think the bond market has been very volatile, and one of those reasons is the data has been volatile. So they're they're not sure where the Fed's going from here. We've seen these pretty dramatic narrative shifts over the last couple weeks. If you just went back three months, we had people kind of putting hikes back on the table and then all of a sudden you flash back just a couple weeks ago and it's the Fed's gonna cut six times by the end of the year. So things have been volatile, but I think the important thing that we're seeing is that the general trend in inflation is going the right direction for the Fed. That's giving investors confidence to go back into the bond market. Bonds act as a great hedge on your your equity and risk portfolios when inflation subsides and that's why it wasn't a great hedge in 22, but you're seeing it kind of come back into into balance in 2024 and that there's a greater place for it in your portfolio again. So we think there's still a lot of value in the bond market, but that comes from the Fed kind of normalizing rates over time. And again, there's it's it's not going to be very very clean data over time. There's going to be kind of bounces along the way, but I think the general trend is going the Fed's direction, which give investors confidence to kind of move out of cash, move out of T bills, and kind of start going out the curve a bit.

Hey Skyler, I want to toss it over to you too, because, you know, it's interesting what we're hearing Andrew say about whether there might still be some wiggling in expectations for the Fed. I'm curious where you are on that question. Right? It does seem like inflation maybe is now somewhat a settled question, but the labor market is not. So where are the future kind of speed bumps we're looking for?

Yeah, there's eight to nine cuts already priced in in the fixed income market over the next 12 months. Four cuts between now and the end of the year and another four plus in 2025 through next August. Way too many cuts are priced in. Uh, I think you can actually stay on the front end of the curve still, whether it's in T- bills or floating rate bonds and benefit from that hugely inverted curve. Uh, but in terms of the economy, consumer balance sheets and corporate balance sheets are extremely strong. There's a lot of tailwinds that can lead us to a soft landing and lead the market to continue to roll on. And yeah, while it will be choppy, uh, I think you're going to look at a really good market return over the next 12 to 18 months and actually rates on the longer end of the curve between five and 10 years out could actually raise from here. if if we see that stability.

Skyler, clearly, you're in the camp that there's a lot of rate cuts priced in this market. Well, doesn't that beg, you know, doesn't it make a a good decision being that you back up the truck on some of these high beta names, like an Nvidia, like a Tesla. I mean historically, I mean some of these stocks have done very well, uh, during rate cut periods. Why not go in there and buy them off their 52 week highs?

Because it's already all priced in. Because you have eight or nine Fed cuts priced in. If you ask most folks, they're going to say, no, we're, you know, we can see four or five Fed cuts. We're at five and a half. We can see us going between four and 450. So that's four to six rate cuts, right? So if everything's already priced in, you might have already missed the boat is my point. Now, that doesn't mean that balance sheets aren't strong, doesn't mean that the economy's not going to do great, just means it might all be priced in.

Uh, Andrew, do you think it's, do you think it's priced in here? Eight to nine cuts?

Yeah, look, I I think one thing we have to consider is that monetary policy operates with long and variable lags. And so anything the Fed's doing today is not going to really impact the economy could be as long as kind of 12 months from now. So as the economy's slowing, the Fed's trying to execute this soft landing, but if you see that kind of iceberg ahead, it's already too late to turn the ship. Fed's operating this giant ship here. And so I don't think that that what the market's pricing in for kind of rate cuts is is too is too aggressive at the end of the day. I think what we think about where the Fed thinks neutral is, the Fed thinks neutral somewhere between 250, 275. Let's say that at the end of the day, um, there there has been a shift post-pandemic and we are in a kind of like slightly higher inflation world with near shoring and friend shoring, but at the end of the day, if if you're saying that the kind of the neutral rate is just jumped from two and a half to 4%, we just think that that's structurally just too, uh, we we've gone too far there. So I think that eight rate cuts to me is pretty reasonable. And I think when we're talking about neutral, we also have to price in the fact that there's the potential that we go through neutral at the end of the day. The Fed never just stops at neutral other than kind of, you know, the 96, 98 cycle. And so they're most of the time they're going through neutral. So I think that's also where the value of bonds comes in is that if we don't have that soft landing, then we're going to see rates much lower than that kind of potential neutral rate.

Uh, good chats here. Really good context. Skyler and Andrew, uh, thanks for bringing the heat for us today on this Thursday afternoon. We'll talk to you soon.