Business Editor-at-Large Liam Dann talks to Pie Funds CIO and founder Mike Taylor about signs of hope in global markets.
Video / NZ Herald
For investors, it’s starting to seem like we are trapped in a never-ending wait for inflation to fall and interest rates to peak.
But there are some signs that the economic cycle may be starting to turn, says PIE Funds chief investment officer Mike Taylor.
Yesterday the US Federal Reservehiked the cash rate by another 25 basis points but signalled that this could be the end of the hiking with softer language about the outlook.
On Wall Street, the tech sector has rebounded from 2022 lows raising the prospect that other more traditional stocks may follow, Taylor says.
US consumer data also seemed to have stabilised at a relatively strong level.
One was simply that tech stocks are coming off the back of a terrible run through 2022.
“The other thing driving some of that move is AI,” he said.
There had been a lot of buzz around the progress of artificial intelligence this year and the big players were perceived as the best ones to exploit the benefits.
But ultimately tech stocks were likely to lead the way as the rate hikes slowed down, he said.
“Maybe there’s a sort of flight to quality, people are perceiving big tech now almost like an infrastructure-type position and actually earnings have been better than expected.”
That was painting a positive picture, he said.
There was a divergence now, between the Nasdaq and the more traditional indexes - the Dow Jones and S&P.
“You would probably expect the rest of the market to catch up at some point,” Taylor said.
But the big overarching trend was that investors were starting to see the light at the end of the tunnel on interest rate hikes, he said.
The US Fed hiked the official cash rate again but there are hopes it may be the last hike in the cycle.
Taylor has been running the US Fed’s releases through an AI “natural language processing model” to get a sense of what it is really saying.
“It’s telling us that the Fed is becoming more dovish, in their language and, you know, possibly this week is the last hike of this cycle.
“Who knows what will be after that, but it’s a high likelihood that they’ll be on pause and I think the Fed is indicating already that, that, you know, they’re more concerned now about, sort of the credit market and what’s going on with the banks and less so inflation. I feel like they can almost say, without publicly saying it, that they’ve beaten it.”
Meanwhile in New Zealand.
Stronger immigration numbers could mean we’re nearing the bottom of the cycle for the property market, Taylor said.
Mike Taylor, founder and chief executive of Pie Funds. Photo / NZME
Net migration gains have surged with a record 21,400 Non-New Zealand migrant arrivals in February - exceeding the previous high of 21,100 in February 2020.
“If that number is sustained through for the next couple of months, I would expect that the property market is probably hitting a low now and it would start to uptick slowly, through the second half of the year,” Taylor said.
All these things were positive signals for investors but needed to be kept in context for the time being, he said.
“We have to see inflation keep ebbing away for this to play out in the more positive scenario. I suppose the downside is that, if you want the economy to stay strong, it does mean that rates will be higher for longer.
“What could derail this? I suppose if the banking sector in the US got into real trouble, if more of those sort of mid-tier banks or even one of the largest ones got into trouble, that’s contagion and it’s always bad for markets.
“We have to be alert to the possibility of some sort of external shock, but the overall trend is probably not tracking too badly right now.”
- The Market Watch video is produced in association with PIE Funds
