Goldman Sachs' Tony Pasquariello Discusses Market Trends and Federal Reserve Moves

On 27 October 2023, Tony Pasquariello, the Global Head of Hedge Fund Client Coverage at Goldman Sachs, spoke with Scott Wapner about his market expectations, the Federal Reserve’s potential interest rate hike, and the recent tech earnings reports.

Pasquariello noted that investors are currently cautious due to a fragile geopolitical landscape and the bond market’s behavior. He also mentioned that the tech earnings have had a significant impact on the market but clarified that the overall earnings quality for the quarter was satisfactory. He stated that the market’s reaction to tech stocks was influenced by broader risk factors and that companies failing to revise their 2024 guidance upward faced market penalties.

Pasquariello expressed hope that bonds and yields are in the process of peaking. He suggested that a slowdown in growth could ease the rate market, allowing the equity market to breathe more easily. He emphasized that the back end of the bond market is where investors have been most nervous.

When asked about potential market catalysts for the remainder of the year, Pasquariello pointed to strong but not overly robust growth as a positive factor. He mentioned that if growth slows down a bit, it could lead to a more favorable environment for the market. He also highlighted that market sentiment is currently quite negative, but he expects the corporate bid to be strong in November and December.

Regarding the Federal Reserve’s upcoming FOMC meeting, Pasquariello believes that the Fed is likely done with its current rate hike cycle. He noted that the market’s backup since the summer has been equivalent to approximately 75 basis points of rate hikes, which might be appropriate given the strength of the economy.

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In a recent appearance on CNBC’s “Squawk Box,” Raphael Bostic, President of the Atlanta Federal Reserve, discussed various economic issues, including the contrast between public sentiment and economic data, his perspective on Federal Reserve policy, and the current state of the economy. Bostic acknowledged the complexities of the current economic environment, citing factors like fluctuating inflation rates and a robust broader economy. He stressed the need to focus on future economic projections.

Bostic noted that his interactions with businesses have led him to anticipate an economic slowdown. He takes these real-world observations seriously and integrates them into his economic analysis. Given this feedback, Bostic revealed that he doesn’t foresee the Federal Reserve cutting interest rates until at least mid-next year. He added that his colleagues share similar concerns about an impending economic slowdown and that the full impact of policy tightening has yet to be felt in the economy.

On the topic of inflation, Bostic highlighted that the current rate stands at 3.7%, which is significantly above the Federal Reserve’s 2% target. Controlling inflation is a top priority, he emphasized. Despite anticipating an economic slowdown, Bostic clarified that he does not expect a full-blown recession.

Regarding recent comments from Federal Reserve Chairman Powell, Bostic indicated that the committee is adopting a “wait and see” approach. He cautioned that signaling a policy relaxation could be risky, especially given that the inflation rate remains well above the target.

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