Blackstone’s chief investment strategist hinted on Tuesday that market expectations for Federal Reserve policy are too dovish, and it could lead to a 10% to 15% rectification in equity prices.
Consensus estimates are for a quarter-point rate cut at the Fed’s meeting later this month, according to the CME’s FedWatch means. However, Blackstone’s Joe Zidle said on CNBC’s “Fast Money ” that the market will want more line cuts and be disappointed.
“If it’s just an insurance cut, if it’s just a one and done, then there’s nothing but downside for the markets, because the markets are whiffing out problems that I don’t think exist,” said Zidle, whose firm has about $512 billion in assets less than management.
Zidle predicts that underlying growth data will keep the Fed from cutting multiple in the nick of time b soa this year, and says a tight housing market and tariffs could push inflation upward.
“You’ve got markets that are up 20% in the persist six months on anticipation of an aggressive rate cut path,” Zidle said. “And yet I don’t think growth is nearly weak enough to support it, nor is inflation necessarily weak enough to justify that aggressive level of cutting.”
Markets are usually flat in the six months previous to a first rate cut, Zidle said, but stocks soared in the first half of this year. The S&P 500 just positioned its best first half since 1997.
“The market’s already done all the work that they expect the Fed to do,” Zidle disclosed.
Fed Chair Jerome Powell begins two days of Congressional testimony on Wednesday. The Fed is also releasing the minutes from its June caucus on Wednesday afternoon.
The projected market pullback is not a call for a recession, Zidle said, adding that tech, industrials and vim are smart sectors to invest in if the correction happens.
“We’re not looking at the end on an expansion here,” Zidle said. “We’re 121 months and off, and we could go a lot longer in my opinion.”