US Equities (^GSPC, ^DJI, ^IXIC) are trading higher on Wednesday morning, following a sell-off in large-cap tech names that pushed the Nasdaq 100 (^NDX) to its worst day in more than a month. Federal Reserve Chair Jerome Powell is also set to testify on Capitol Hill over the next two days, which could further affect movements in the overall market.
Academy Securities Head of Macro Strategy Peter Tchir joins Yahoo Finance to discuss why he believes the Fed chair needs to remain cautious in his testimony.
With looming monetary policy decisions, the Fed is still a "minor actor" in Tchir's estimation: "We're in that right sort of frame, where we know rates have likely peaked, and some time in the next year or two, they're likely to come down. If they go up, it's probably because the economy is doing well, jobs are great, so we can probably absorb that. I'm probably more nervous if they have to cut more than a couple times this year –– it's because the economy really slows, so we might not weather that storm very well. I think they're actually a minor actor and it's much more of figuring out is AI real? We all know it's real, and three or five years down the road, it will be better, but are people getting the cost-benefit right now, and do evaluations make sense?"
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
BRAD SMITH: While futures edging higher pre-market here as we're just about 20-plus minutes outside of the opening bell, this comes on the heels of a major tech sell-off, pushing the NASDAQ 100 to its worst day in more than a month here.
Now the market is already on a bit of shaky ground ahead of the Fed Chair Powell's testimony on Capitol Hill, set to kick off in just an hour. So how should investors be positioning themselves in the market?
For more on this, we've got Peter Tchir, who is the Academy Securities Head of Macro Strategy. Peter, great to get some of your insights, as always here. Perhaps, we start there. And with the day that we saw yesterday, how do investors who are trying to figure out, OK, is there something broader that's taking place? Or is this simply some profit taking, especially at the levels that we've been watching, and high and lofty valuations?
PETER TCHIR: So, I'm a little bit nervous about markets. I think the propensity is to have a 5% to 10% kind of move down, much more than another 5% to 10% move higher. We've seen some of these names stretched. I think, personally, it's a crusade to get rid of the Mag Seven moniker, because it really hasn't been working this year, right?
It's really been much more about AI, and what we've been calling AI deputization, where you see names like NetApp and Dell demonstrate that they have some value to the AI space. So they're doing very well.
So I think for this to really broaden, really continue, you're going to see-- you really need to see success stories on people using AI. And I think it's been mixed there whether you're getting that cost benefit.
So that's why I'm a little bit bearish. I think Powell is going to have to be very cautious. And I'm watching DC to see if it gets divisive at all, because this year, it does seem monetary policy is now also a political issue.
SEANA SMITH: Peter, you mentioned the fact that you think Powell has to remain cautious here in the testimony today. Is the Fed in control of the market at this point in the rally? And I bring that up just because the momentum trade obviously to the upside here, anything that the Fed does-- or is it necessary, I should say, for the Fed to cut rates in order for the market to keep moving higher?
PETER TCHIR: No, I don't think it is. I think we're in that right frame where we know rates have likely peaked. And at some time in the next year or two, they're likely to come down. If they go up, it's probably because the economy is doing well, jobs are going great. So we can probably absorb that.
I'm probably more nervous if they have to cut more than a couple times this year. It's because the economy really slows, so we might not weather that storm very well. So I think they're actually a minor actor. And it's much more about figuring out is AI real? How's it going? Where is it continuing?
And we all know it's real. And three and five years down the road, it's going to be better. But are people getting the cost benefit right now? And do valuations make sense?
BRAD SMITH: All right, so if generative AI is not the top theme of someone's portfolio, then what should be from your purview?
PETER TCHIR: So what I've been looking at for the last six months to a year-- and I think it's starting to take its toll on the market-- is what is China going to do? And my view-- and I work with 18 retired generals and admirals, so we have some pretty interesting geopolitical insight.
China's way out of their morass is going to be trying to sell their own brands. So we're calling it going made in China to made by China. And I think part of that is going to be an effort to suppress sales of US brands within China, elevate Chinese brands within China, but then start moving that beyond that.
And if you go back to the Super Bowl-- I can't even remember the name of the company. They had four or five Super Bowl teams, right?
BRAD SMITH: Temu.
PETER TCHIR: Temu, that's it. I was afraid I was going to pronounce it horribly. So but-- so I think that's all stretch. And it's I think where it's going to hurt is US companies selling into China first, and then also US companies selling into emerging markets. Because China has a lot of trade surpluses with these countries, so I think that's where they're going to make this push where they offer a, maybe it's a value versus quality trade-off and pricing. And I think that could be successful.
So I'm a little bit cautious on the news we've seen on a couple of the Mag Seven stocks seems to play that out, right? Their China sales are going weaker. That could be problematic.
