If the Federal Reserve continues to raise rates and tighten monetary policy, U.S. equities will decline to new lows, said Phil Streible, Chief Market Strategist at Blue Line Futures.
“I believe that U.S. equities are going to have a small recovery,” he said. “But I think the lows are probably not in, especially if energy prices remain high and… the Fed combats inflation going into 2023.”
Stocks have performed poorly this year, with the S&P down 12 percent year-to-date, despite a rally of 7 percent over the past month.
Market participants are anticipating Fed Chairman Jerome Powell’s Jackson Hole Symposium speech on Friday. Powell’s speech will be taken as an indicator for how the Fed views monetary policy moving forward.
Streible said that he would be watching for whether Powell signals hawkishness, using keywords like “cautious” or “data dependence.” If however, the Fed Chairman says “we are watching the economy,” then Powell might be “slightly dovish in his tone, and that’s what could accelerate risk assets.”
Streible spoke with David Lin, Anchor and Producer at Kitco News.
Gold and Inflation
Gold was up 0.58 percent on Thursday, apparently not reacting to anticipation of Powell’s Jackson Hole speech. The current spot price is $1,771.
“A $1,800 [gold price] is definitely a critical level,” said Streible. “I have a year-end target of $1,950, but it’s based on a lot of different things [such as] the Fed pivoting… I’d say have some cheap call options onto the upside.”
Gold reacts to negative real interest rates, or nominal rates minus inflation. If inflation rises significantly, then gold’s price could rise even further.
“Pockets of inflation are decelerating,” said Streible, referring to food, housing, and vehicles. “The energy aspect of [inflation] has got me a bit scared. They say that one in six people is behind on their utility bills. You’ve got Goldman Sachs with a crude oil price target at year end of $130… So that energy aspect is definitely going to be stickier [as a component of] inflation, a long longer.”
To find out Streible’s price forecasts for oil, watch the video above.
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