A whipsawed Wall Street can expect to see even more volatility ahead as the Federal Reserve gears up its first rate hike campaign of the pandemic era, one investor told Yahoo Finance this week.
The Dow dropped 200 points Friday, as markets closed out a volatile week with its second consecutive weekly loss. The new year has gotten off to a rough start, following underwhelming earnings reports from major banks and lackluster economic data — adding to the risk of higher rates as inflation surges worldwide.
“Well, what we're seeing right now is a repricing in the markets given anticipated rate hikes,” WealthWise Financial CEO Loreen Gilbert told Yahoo Finance Live in a recent interview.
“And as long as the Federal Reserve is on track with the interest rates that we're now expecting - moving from maybe three interest rate hikes this year to four… we still think it's going to be a risk-on market,” he added
This week capped off a somewhat disappointing start to the year for investors, just as the fourth quarter earnings season gets underway. Bloomberg released economic survey data finding that retail sales declined in December by the biggest margin in the past ten months, dampening economic prospects.
Separately, the consumer price index, released Wednesday by the Bureau of Labor Statistics, found a 7% surge in headline prices in December.
As a way to rein in high inflation, the Fed has said that they will be raising rates, which markets expect will happen three times this year. However, an increasing number of experts are predicting that even more tightening is in the offing, because inflation is running hotter than expected.
“Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks,” Goldman Sachs’ (GS) chief economist Jan Hatzius wrote in a note released Sunday.
“We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022,” he added.
Federal Reserve Bank of St. Louis President James Bullard also said that a March rate rise is very likely amid high inflation. “I actually now think we should maybe go to four hikes in 2022,” he told the Wall Street Journal this week.
As markets adjust to the rapidly spreading Omicron variant and take higher rates into account, January’s turbulence may only be the beginning of a volatile year, Gilbert said.
“It's a matter of riding that bull,” she said. “It's going to be a wild ride, and there will be people who are thrown off the bull and who's going to stay on the bull.”
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.