What are your thoughts on tech stocks? There was a global IT outage a week ago that took down banks, airlines, hospitals, etc. Is this also affecting investor sentiment right now, beyond what we’re seeing in Alphabet and Tesla earnings?
Peter Cardillo: Let’s go back a little bit and see what happened in the market. Artificial intelligence has skyrocketed, and for good reason. It’s a new technology that’s paving a new path in terms of technology. A large technology group called the Magnificent 7 have been the leaders for years now. So the market got a little ahead of itself.
Google’s earnings beat expectations, but other factors were a bit weak. So the market needed an excuse, and they found the perfect excuse to criticize this excess speculation that we’ve seen in the market. But if you look at the fundamentals of the stock market, especially now that we’re in earnings season, if you look at the big picture, there were only a handful of stocks that disappointed expectations. Every other company and sector exceeded expectations.
We’ll also talk about domestic tech stocks and our outlook on growth and inflation in the U.S. and the expectation of interest rate cuts. So, taking all of these factors into account, how should we look at the U.S. market right now, because we have the GDP numbers and we’re seeing some decline in terms of consumption patterns. But is that enough to perhaps get us to a rate cut in September?
Peter Cardillo: Yes, I can be confident that there will be no rate cuts next week. There has been talk of that in the market, but today we got strong GDP numbers. The economy grew 2.8% and the consumer was the driving force behind that strong growth. Why did that happen? Because inflation was low. PCE averaged about 2.6% in the second quarter. This tells us that consumers will continue to spend as long as inflation continues to move in the right direction. That’s why I expect rate cuts in September and December.
However, as weakness in the Chinese economy slowly emerges, which will ultimately hurt the global economy, I believe it is entirely possible that the Fed will make a surprise rate cut in September of 0.5% instead of 0.25%, as China has cut rates almost every day for the past week and nothing seems to be working.
