On the Trey Ware Show this morning, Karl & Trey discussed the recent stock market volatility and the Fed’s role. Karl explained that the main problem has been the Fed’s lack of communication skills, not necessarily their actions.
Trey Ware: Karl Eggerss from EggerssCapital.com joining me on the Stevens Roofing Newsmaker Hotline to talk about our markets that really had an incredible day on Friday, didn’t they Karl?
Karl Eggerss: They did. How you doing, Trey?
Trey Ware: Good. Very well. Happy New Year.
Karl Eggerss: Yeah. The markets were up a lot for a couple of reasons. Number one, the Jobs Report was much, much better than expected. We added almost, I think, 312,000 jobs. Estimate was for like 185,000 in the month of December, so that was one reason.
Karl Eggerss: But the biggest reason was the Fed changing their language. See I don’t have a problem with what they’re doing in the last several months, but I do have a problem with their communication which is all over the map. They’ve changed their tune. They sound like they’re going to be real tough. Now what they’re saying is, “You know what? We’re going to be data dependent.” Basically what they’re saying is if the economy continues to slow a little bit, we’re not going to necessarily keep raising rates. When they said that, that’s what the market wanted to hear and we saw this huge day, almost 750 DOW points on Friday. That language is very different from what they’ve been saying the past several months. The past several months they’ve been basically saying, “We’re going to keep raising rates. Everything is great and we’re just going to keep doing that.” And the market…
Trey Ware: Why do you think they changed the language? Did the President finally get through to the Fed or what?
Karl Eggerss: No. I think the economy is slowing. I mean they’re not looking at the team leads here. The economy, again, was rip roared before. It’s slowing a bit. I’m not saying it’s going into recession. I’m not fearful of that right now. What I’m saying is that it’s slowing enough to where they should pause and reassess. They hadn’t been saying that, and now I’m saying, “You know this year-“
Trey Ware: The first quarter’s always a soft quarter anyway, right?
Karl Eggerss: Well, not necessarily. I don’t think that’s always the case, but certainly, again, when you raise rates as many times as they have since December of ’15 and they haven’t been raising them aggressively, but they’ve been raising them consistently. When you keep doing that, at some point those increases in rates are going to start having an effect and we’re starting to see that. Now is the time to say, “Hold on, guys. We’re going to stop and see what’s going on here.” Because remember, their job is full employment and also to basically control inflation and we don’t have a lot of inflation right now.
Karl Eggerss: Having said that, they should pause and reassess. Now that they’ve communicated that to us and everybody else, the market likes that. That’s really what’s been going on. There’s a slowing economy and the Fed raising rates. That was a bad combination.
Karl Eggerss: Now, I think we’re going to have the economy slowing a bit. Hopefully it stabilizes and we have the Feds saying, “We’re going to pause.” That combination is what could get stocks continuing to go up. Look, they’re up about eight percent from their low on Christmas Eve.
Trey Ware: Very cool. Karl Eggerss, EggerssCapital.com. As always, thank you Karl. He’s with us every Monday morning right here on KTSA.