Christopher J. Wolfe, Chief Investment Officer of First Republic Private Wealth Management, appeared on CNBC to share his investment insights about the Fed, inflationary pressures and equity market volatility.
Read below for a full transcript of the conversation.
Interviewer 1:
Chris, uh, the GDP number yesterday, uh, Chicago PMI this morning. I mean, are there, is there any inkling at all that that 50 basis points next week might not happen?
Chris:
I don’t think so, at this point. The GDP numbers were too strong underneath. We had some, I, I think, issues with respect to exports. I think everybody knows that, as well as inventory build or slack of inventory build, that contributed to the weakness in GDP. But the consumer’s in a decent place and that consumer spending number. And I think more importantly, the perniciousness of inflation throughout the system, uh, really has the Fed in a bind. They’re gonna have to go 50 basis points at this meeting, and it may set them up for a few more after this. I think to Benicia’s point earlier, the bigger message may be: the market’s looking at this as if Chairman Powell may have to think about what his Volker moment is with that inflation data. You mentioned the PMI, we saw the ECI, the employment cost numbers also up; it’s really crept throughout the system. And I think the stock market’s reacting to that; it’s being led around by the bond market and the anticipation that the Fed’s gonna have to do, have to have a much stronger, um, inflation-fighting story.
Interviewer 2:
Again, to your comments, a few moments ago, I mean, we’ve been seeing just incredible intraday swings within the equity market, not to mention on a day-to-day basis. It’s raised a lot of questions about really how healthy is this market. Um, given the fact that it is so volatile, how investors, how should investors be positioning themselves right now? I mean, are equities still the way to play this, or should, should they be looking at other asset classes?
Chris:
Yeah, I think from a longer-term perspective, we still would wanna have equities capture that equity risk premium in portfolios. I think right now we wanna be very careful. Our messaging to clients and to our wealth managers has been oriented towards: if you have extra cash, hang onto it. If you’re underweight, now is not the time to rebalance. We wanna be a bit more careful. I think there’s more turbulence ahead as we get through the summer. Where we may get a turning point, and this will lead to how you think about asset allocation now, is when the inflation numbers start to roll over. We don’t anticipate energy numbers coming down ’til this summer; that may give the Fed a little bit of breathing room and maybe it stabilizes the bond market, which should stabilize the stock market. In the meantime, it’s more defensive. It’s a bit on the energy side for us. It’s more in healthcare, less in the consumer, less in financials, given that the Fed’s gonna have to move more aggressively. At the big picture level though, equities, as I said, we’re still there, but we’re opportunities to manage for inflation, add commodities, which we’ve done uh, in a last us several months, as well as for clients that are qualified, there’s lots of interesting stories in private markets because of the symmetry between public and private: public credit, private credit, public real estate, you get it. So the opportunities there look still compelling to us.
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