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As stocks slid following Fed Chair Jerome Powell's remarks Thursday, Crossmark Global Investments' Victoria Fernandez tells Reuters' Fred Katayama investors wanted to see him "take a little bit more accountability" on inflation.
FRED KATAYAMA: Stocks falling sharply on Wall Street as Fed Chair Jerome Powell spoke publicly this afternoon. Let's find out what unnerved investors this Thursday. We're joined by Victoria Fernandez. She is Chief Market Strategist at Crossmark Market Global Investments in Houston. Welcome back, Victoria, good afternoon to you.
VICTORIA FERNANDEZ: Hello Fred, good to be back.
FRED KATAYAMA: So Victoria, we've got the 10-year yield spiking to 1.55%. It was 1.47% before Powell spoke. So what was it that he said that unnerved investor sentiment?
VICTORIA FERNANDEZ: You know, it's interesting, Fred, because as I was sitting there listening to Powell, and then watching the market move higher, I was trying to make the two actions mesh together. You have Powell saying again, we're not going to do anything any time soon, we're going to stay accommodative. This is what was supporting the market up until probably the last month or so.
I think what may be happening, is that the inflation fears that the market is seeing right now, you have Powell saying they are going to be transitory inflation rises and so they're not going to move based on those. And perhaps the market is losing a little bit of confidence in the Fed, and that they're going to be able to control rising inflation. So the bond market is reacting. And actually, I probably shouldn't say bond market, I should probably say the Treasury market, because the credit market actually is not moving and is staying pretty steady at this point in time.
FRED KATAYAMA: Right. On a Powell pledge, a repeated pledge, rather, to keep credit loose, but he did say he did not see the rise in Treasuries, Treasury yields as a disorderly move. Could it be that? Was it something that investors needed to hear more of or stronger?
VICTORIA FERNANDEZ: It could be it could be that they really want to hear Powell say, we see the move that was made, we see how quickly rates moved higher, and we're paying attention to that. I think the fact that he says, yes, I saw that, it caught my attention, I think were the words that he used, but that they're still not going to do anything about it at this point in time, is bringing a little bit of worry into the Treasury market.
FRED KATAYAMA: What, they wanted him say that, hey, we're going to keep buying more bonds or booster purchases? Is that what it was?
VICTORIA FERNANDEZ: They always love to hear they're going to buy more bonds, right? They like that phrase. I think they want to see that the Fed is paying attention to what many in the market see are true inflation pressures that are coming, and not just maybe some people say sweep it under the rug is transitory at this point in time. They want to see them take a little bit more accountability in regards to what they would do with inflation moving higher.
FRED KATAYAMA: So looking ahead, Victoria, in the next few weeks, how much higher do you see Treasury yields rising?
VICTORIA FERNANDEZ: Yeah, it's interesting, because we look back at where we were a year ago. We were higher than this, right? Right before the pandemic hit, we had the yield curve actually higher than this on the 10-year part of the curve, and people weren't really concerned about it. And now we're very concerned that we're moving higher, but not even back to that point.
So I think we have a little bit of room to go. I don't think we're going to hit a 2-handle on the US 10-year Treasury. I think that really would unnerve the markets, and really cause more volatility in the equity side of the market. But I wouldn't be surprised to see us go another 15, 20, 25 basis points. But just not at the same speed that we've seen this current move.
FRED KATAYAMA: Conversely, what about the equity markets? The NASDAQ is now officially in correction territory. How much lower or deeper do you see NASDAQ or say, S&P 500 falling from this point?
VICTORIA FERNANDEZ: So much of this move is really this knee jerk reaction to Treasury rates moving higher. Because especially those NASDAQ names, those tech names are kind of what people consider longer duration equity names. And so those longer term cash flows are really affected by higher rates. And you also have that old adage, the TINA. There is nothing else that you can go to besides the equity market. And maybe that's being called into question a little bit as Treasury rates move higher.
So how much further can the equity market move? I don't really have a number on that, but I'm not surprised to see it have a pullback. I would anticipate now maybe we're getting closer to some consolidation within the markets both on the equity and the fixed income side. So perhaps we start to have a little bit of a lull. And that might allow investors to take advantage of the pullback and get into some tech names they'd missed previously.
FRED KATAYAMA: That was my next question. So how should investors reposition themselves or take advantage? Should they be buying, for example, big cap tech stocks on these dips?
VICTORIA FERNANDEZ: So we actually see any kind of major pullback like this as what we call an upgrade opportunity. So maybe coming out of some names that we've held for a while that we think there's better opportunities and we've been waiting for a good price movement to get into those. Nvidia is one of those names.
So you see the huge pullback. But you look longer term, because you know we're longer term investors. These are still good growth names in the tech sector that we think are going to continue to do well, and even do better perhaps than what they did over the past five years as we move more and more into tech in our everyday lives. So we think there's good growth opportunity in some of these names. And this would be an opportunity to get into those.
FRED KATAYAMA: All right, thank you, Victoria, for sharing your analysis on this big, big day. Our thanks to Victoria Fernandez of Crossmark Global Investments. I'm Fred Katayama in New York. This is Reuters.