Market got 'ahead of itself' pricing in rate cuts: Strategist

Market trading has been mixed as the most recent jobless claims were at the lowest level in 16 months. Many on Wall Street were expecting the economy to slow, leading to interest rate cuts from the Federal Reserve by the middle of 2024, but Fed leadership has warned against early rate cuts if the economy does not warrant it.

BMO Wealth Management US CIO Yung-Yu Ma joins Yahoo Finance to discuss potential rate cuts from the Fed and how markets may have been too hasty in pricing in cuts before waiting for certain results.

"I think it's fair to say we'll see some mixed data over the next couple of months, but let's keep that in perspective that if we're going to have a soft landing, the first word in soft landing is 'soft.' So we're not expecting all of the data to come in strong, but we do expect the overall trajectory to be relatively stable here," Ma says.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video transcript

RACHELLE AKUFFO: Well, stocks are mixed this morning as the latest initial jobless claims report comes in at the lowest level in 16 months. Now, this is just the latest piece of data showing that the economy remains strong and aggressive rate cut bets may have been overstated. With that in mind, we also heard from Atlanta Federal Reserve President Raphael Bostic warning against cutting rates too soon, saying the worst thing for the economy would be to cut rates and then have to raise again.

We'll hear more from Bostic at noon on his economic outlook. Well, joining us now is Yung-Yu Ma, BMO Wealth Management US Chief Investment Officer. Thank you for joining us this morning. So Yung-Yu, as you look at some of this latest data that we're digesting, especially on the heels of what we saw with the still spending consumer, what does this economic outlook then mean for how markets should be interpreting it?

YUNG-YU MA: It's great to be here. Thanks, Rachelle. Yeah, we have had some strong economic data generally, but a few mixed data points as well. We see consumer spending is strong. We saw today's print for jobless claims really come in at a very surprising level, especially when we're expecting a soft patch here with some of the economic data that we saw such as the New York manufacturing index. So I think it's fair to say we'll see some mixed data over the next couple of months.

But let's keep that in perspective that if we're going to have a soft landing, the first word in soft landing is soft. So we're not expecting all the data to come in strong, but we do expect the overall trajectory to be relatively stable here. So we think investors can take comfort that we're in the later innings of the soft landing and that this year as we look forward into 2024, we expect a reacceleration of growth in the back half of the year. So we think that's what investors should be focused on.

AKIKO FUJITA: So the later innings of a soft landing, what does that ultimately mean for how quickly the Fed cuts rates? It feels like we've seen sort of a pullback of expectations here as we heard more from Fed officials this week saying not so fast.

YUNG-YU MA: Yeah. We think the markets really got quite a bit ahead of itself in terms of thinking of when and how aggressively the Fed would cut rates. If we think of the Fed's job description, the Fed has a dual mandate. One is maximum employment, and one is price stability. And if the maximum employment box is well checked off, really, the Fed is going to focus on price stability.

And as you heard the Atlanta Fed president talk about, the Fed definitely does not want to find itself in the position of having to raise rates if inflation were to pop back up toward the end of the year or even next year. So it really wants to play the long game here. And I think the market was really looking for sort of a quick fix, but the Fed is really looking on a longer trajectory.