- The first Fed meeting with Kevin Warsh in command could be a big deal for markets.
- James Demmert of Main Street Research says volatility sparked by the Fed is a buying opportunity.
- In his view, the market will quickly shake off any negative momentum and resume its rally.
It's Fed day, and it's the first time in eight years that markets will hear from someone other than Jerome Powell.
With Kevin Warsh leading his first central bank meeting, markets will be hanging on his every word to get a sense of where interest rates may be heading. Importantly, if Warsh's comments spook markets, investors should be ready to pounce on the opportunity to buy the dip, James Demmert, chief investment officer at Main Street Research, says.
"Any stock market volatility caused by Warsh's commentary Wednesday is a buying opportunity in our view since the market fundamentals remain in place," Demmert, whose firm oversees $3 billion in assets, said.
He added that his firm shares the consensus view that the Fed won't announce any changes in interest rates on Wednesday. Concern that the new Fed chair will hike rates have faded recently following the US-Iran peace deal, which has been viewed as bullish for stocks.
Demmert noted, however, that even if interest rates remain steady in the near term, economic conditions could create new pressure to raise rates down the line, creating fresh uncertainty for markets.
"While the drop in oil prices helps to ease inflation, it can also spur more economic activity, which could warrant higher interest rates in the future," he added. "We would not be surprised to see Warsh mention accelerating economic growth and the potential for higher rates going forward, even with the political pressure he is facing to cut rates."
The CIO also said his team sees inflation cooling, but not to its pre-war levels. For that reason, Demmert maintains that stock market growth will continue after some Fed-driven volatility and that the S&P 500 will reach 8,100 before the end of the year.
"While details are still sparse on the U.S. and Iran memorandum of understanding, markets are looking ahead and are pricing in an end of the conflict and stronger global growth, even if there are fits and starts and additional headlines along the way," he said.
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