Christopher J. Wolfe, Chief Investment Officer of First Republic Private Wealth Management, appeared on Cheddar News to share his thoughts about volatility in the equities and fixed-income markets and the impact of rising interest rates.
Read our Market Volatility Update: January 24, 2022
Read below for a full transcript of the conversation.
Speaker 1:
Christopher Wolfe joining me now. Christopher’s a Chief Investment Officer of First Republic Private Wealth Management. Uh, Christopher, thanks for coming on the show. Uh, what does this mean? Today’s volatile market action for, uh, the stock market?
Christopher J. Wolfe:
Well, I think it means a couple of things and, uh, for our investor today, looking at today’s market action to see the big gains turn into big reversals into a loss is a bit challenging, but I think the stock market’s waking up to the fact that bond market volatility and just interest rates more broadly are on a path to rise, uh, and higher interest rates do lots of interesting things with higher interest rates, often equity investors start to reassess, well, why are interest rates going higher? And it turns out, at least in our view, in the very near term, energy markets seem to be leading the charge: crude oil near almost $90 a barrel, energy inflation starting to pick up in many of the headline numbers, and the greater that inflation moves up, because of things like energy, even though it may last several months and not several years, the greater the reality that the bond market needs to face that the gap between where interest rates are now (which is very low) and inflation (which is very high) is gonna stay high. And the bond market doesn’t like that; they wanna see a faster resolution, uh, to this gap, to closing the gap. And the Fed has basically said, “Nope, won’t take until 2023.” So that gap leads to the volatility in bond markets, stock market doesn’t like that, and I think you’re seeing excesses in the stock market being rung out right now.
Speaker 1:
Okay. So the fact, uh, Christopher, that we could not hold on to what were strong gains earlier in the session, uh, despite the NASDAQ, uh, still earlier today, being in correction territory, the fact that we couldn’t hold on to those gains, and we sold off into the close ending at session lows, does that signal, uh, further selling is to come?
Christopher J. Wolfe:
I think today was, uh, a bit of institutional selling. The tale of the tape is a lot of orders hitting the, uh, hitting the bid side. So markets were really just in a sell pattern, uh, starting in about, uh, 1:30-2 o’clock today. Uh, but that’s more of a trading mentality. I think the, the indications, not just for tomorrow, which I think will be pretty challenging, uh, but also for the remain of the quarter, until we get to a place where the Fed really starts to take action, it’s just gonna be a really rough ride. Uh, we’re just about in correction territory for, uh, technology stocks. It is possible that we see correction territory for some of the other, uh, stocks, uh, stock indexes. Keep in mind that the S&P, for example, which is technology heavy, still has about 60 stocks trading at 10 times sales.
Christopher J. Wolfe:
Now that’s not always a bad thing, but that sounds a lot like price to perfection. So I’ll go back to my point. We’re ringing out some of the excesses that I think have been built up in, in valuations at this point. Now all is not lost, because we’re actually in a place where inflation has a good side, and that’s all about the nominal profit growth in 2022. And it should be pretty good, but it’s gonna be more varied by sectors. It won’t be that “everything is good everywhere” story that the market priced in in 2021, it’ll be much more sector specific in our view.
Speaker 1:
Christopher, uh, great to get your take on again, a rough and volatile day here on the stock market. Uh, something that we have seen defined 2022 so far. Uh, we gotta leave it there because we have Netflix results. That’s Christopher Wolfe, Chief Investment Officer of First Republic Private Wealth Management.
This information is governed by our Terms and Conditions of Use.
This material is for information purposes only and is not intended as an offer or solicitation, or as the basis for any contract to purchase or sell any security, or other instrument, or to enter into or arrange any type of transaction as a consequence of any information contained herein. Securities referenced may or may not be continued to be held and are not representative of all securities purchased, sold or recommended by First Republic. First Republic Investment Management and its affiliates do not provide tax and legal advice. The opinions stated herein are subject to change. All investments contain risk and may lose value.
Read our Market Volatility Update: January 24, 2022
Read below for a full transcript of the conversation.
Speaker 1:
Christopher Wolfe joining me now. Christopher’s a Chief Investment Officer of First Republic Private Wealth Management. Uh, Christopher, thanks for coming on the show. Uh, what does this mean? Today’s volatile market action for, uh, the stock market?
Christopher J. Wolfe:
Well, I think it means a couple of things and, uh, for our investor today, looking at today’s market action to see the big gains turn into big reversals into a loss is a bit challenging, but I think the stock market’s waking up to the fact that bond market volatility and just interest rates more broadly are on a path to rise, uh, and higher interest rates do lots of interesting things with higher interest rates, often equity investors start to reassess, well, why are interest rates going higher? And it turns out, at least in our view, in the very near term, energy markets seem to be leading the charge: crude oil near almost $90 a barrel, energy inflation starting to pick up in many of the headline numbers, and the greater that inflation moves up, because of things like energy, even though it may last several months and not several years, the greater the reality that the bond market needs to face that the gap between where interest rates are now (which is very low) and inflation (which is very high) is gonna stay high. And the bond market doesn’t like that; they wanna see a faster resolution, uh, to this gap, to closing the gap. And the Fed has basically said, “Nope, won’t take until 2023.” So that gap leads to the volatility in bond markets, stock market doesn’t like that, and I think you’re seeing excesses in the stock market being rung out right now.
Speaker 1:
Okay. So the fact, uh, Christopher, that we could not hold on to what were strong gains earlier in the session, uh, despite the NASDAQ, uh, still earlier today, being in correction territory, the fact that we couldn’t hold on to those gains, and we sold off into the close ending at session lows, does that signal, uh, further selling is to come?
Christopher J. Wolfe:
I think today was, uh, a bit of institutional selling. The tale of the tape is a lot of orders hitting the, uh, hitting the bid side. So markets were really just in a sell pattern, uh, starting in about, uh, 1:30-2 o’clock today. Uh, but that’s more of a trading mentality. I think the, the indications, not just for tomorrow, which I think will be pretty challenging, uh, but also for the remain of the quarter, until we get to a place where the Fed really starts to take action, it’s just gonna be a really rough ride. Uh, we’re just about in correction territory for, uh, technology stocks. It is possible that we see correction territory for some of the other, uh, stocks, uh, stock indexes. Keep in mind that the S&P, for example, which is technology heavy, still has about 60 stocks trading at 10 times sales.
Christopher J. Wolfe:
Now that’s not always a bad thing, but that sounds a lot like price to perfection. So I’ll go back to my point. We’re ringing out some of the excesses that I think have been built up in, in valuations at this point. Now all is not lost, because we’re actually in a place where inflation has a good side, and that’s all about the nominal profit growth in 2022. And it should be pretty good, but it’s gonna be more varied by sectors. It won’t be that “everything is good everywhere” story that the market priced in in 2021, it’ll be much more sector specific in our view.
Speaker 1:
Christopher, uh, great to get your take on again, a rough and volatile day here on the stock market. Uh, something that we have seen defined 2022 so far. Uh, we gotta leave it there because we have Netflix results. That’s Christopher Wolfe, Chief Investment Officer of First Republic Private Wealth Management.
This information is governed by our Terms and Conditions of Use.
This material is for information purposes only and is not intended as an offer or solicitation, or as the basis for any contract to purchase or sell any security, or other instrument, or to enter into or arrange any type of transaction as a consequence of any information contained herein. Securities referenced may or may not be continued to be held and are not representative of all securities purchased, sold or recommended by First Republic. First Republic Investment Management and its affiliates do not provide tax and legal advice. The opinions stated herein are subject to change. All investments contain risk and may lose value.
