Now, the S&P 500 and Nasdaq are both at record levels. Let’s talk about these first. Given this, what does this rally really signal? Do you think, in the long term, the market will be able to absorb the uncertainty caused by tariffs—especially with respect to China—and, to some extent, India?
Andrew Ferris: It signifies, in fact, that we all look at the same statistics and come to completely different conclusions. The markets apparently were very pleased with the inflation numbers in the United States. Well, I’m afraid I’ve got my Bloomberg in front of me, and let me read out for your viewers and listeners the following: CPI, which is a straightforward, plain-vanilla index, was 2.3% in April, 2.4% in May, 2.7% in June, and 2.7% again in July. That’s 2.3, 2.4, 2.7—clearly accelerating.
The core inflation rate, which is very important, has also been rising. The numbers were 2.3%, 2.2%, 2.4%, and 2.6% over the last four months. In fact, to clarify, the other core measure I refer to went from 2.8% to 2.8%, then 2.9%, and finally 3.1%. The PCE index, which is the Fed’s favourite measure, also rose from 2.3% to 2.2%, 2.4%, and then 2.6%. All these numbers have gone up in the last quarter.
I do not see inflation getting better—it’s not improving; it’s accelerating and remains above the Fed’s 2% target. So this idea that the Fed will cut interest rates in September—I have no idea what it’s based on. The S&P may be at an all-time high, but I keep telling my clients: stay away. It’s superbly overvalued and based, if I may say so, on a nonsensical interpretation of the data.
But given this inflation trend, the Street is still pencilling in a rate cut from the Federal Reserve next month. What’s your expectation, and how many cuts do you foresee for the rest of this calendar year?
Andrew Ferris: I don’t need to repeat myself. I hate reading numbers to an audience—it’s dreadful. When someone does that to me, I switch off completely. But here, the numbers are blatantly obvious. For me, it means the Fed is not going to cut interest rates in September, period.
Whatever Trump says or threatens to do to Powell, Powell is a very decent person and will not be pressured just because the president threatens to fire him or sue him. What a performance—what behaviour from the leader of a major country towards its own central bank, simply because the bank isn’t obeying the president. Constitutionally, the president has no role in setting monetary policy.As far as India is concerned, inflation is coming down. The RBI held interest rates at its last meeting and said the situation is improving. If their next move is to cut rates, it won’t be because Mr. Modi called the governor and threatened to fire him. India is a good example of how democracy works—something the United States often claims to exemplify, but in this case does not.
You were just talking about how the S&P 500 has rallied, but you think it’s overvalued. Are there any other asset classes apart from equities, or equity markets outside the U.S., that you find attractive right now?
Andrew Ferris: Simply looking at markets where indices are up year-on-year in U.S. dollar terms—which is important, because whether we like it or not, the market still runs on U.S. dollars—we see several doing well. The Sensex in India is performing well, as are South Korea and Taiwan. Even Hong Kong has done well, though that’s due to the performance of Chinese companies listed there, not Hong Kong-based firms.
Most of the European Union markets have also been strong. And here’s where I sound like a broken record: defence stocks. They’ve been doing brilliantly and will continue to do so. I know it’s controversial to suggest investing in companies that produce the means of war, but that’s the reality.
Given that discussions over Ukraine are unlikely to yield quick results, the war will persist. Israel, regardless of global opinion, appears intent on fully occupying Gaza, meaning that conflict will also continue. I’m not gloating—it’s tragic that people are dying—but I’d be failing my clients if I didn’t point out that defence stocks have been performing well for more than two and a half years. This includes Indian and several other Asian defence companies. Their performance is driven not by interest rates but by rising defence spending, and that’s why they remain strong buys.
