Important cues to watch out for this week include the Jackson Hole meeting. This will also be the last Jackson Hole meeting for Fed Chair Jerome Powell, where he is expected to emphasize the Fed’s independence. We are currently penciling in a 25 bps rate cut. Now, as we enter the second half of the year, with US markets sitting at record highs, how do you see the US markets shaping up, considering the ongoing tariff news, which has not yet reached any conclusion? Additionally, we will start seeing the potential impact on US inflation. By the end of this year, how do you see the markets panning out?
Andrew Ferris: First, we need to separate two things. What is happening now in the talks between Ukraine, Russia, and the European Union does not have any direct economic effect. In other words, it makes headlines, but I do not consider it a guide to what will happen in the market.
Second, while the S&P is at an all-time high, it is underperforming every major European and Asian market in relative terms. The S&P is up only about 1.37% year-to-date. Most indexes in Asia and Europe have outperformed, though not every single one—for example, the Sensex is about 2% up. Obsessing only about European and Asian markets can overlook that they are strong places to invest.
I am advising my clients not to add to their US holdings; in fact, they should consider progressively reducing them because I do not expect the Fed to cut interest rates anytime soon. I am looking forward to the Jackson Hole meeting, where Powell will likely reiterate his previous stance. For now, inflation remains solid, stable, and slightly rising—these are the actual numbers, not impressions. While the labor market may not be as strong as expected, the Fed is primarily focused on inflation. Therefore, despite political pressures, they are unlikely to cut interest rates in the near term.
Now that we have discussed interest rates, you mentioned cues to track from Europe. We are awaiting outcomes from Trump’s meetings with the Russian and Ukrainian presidents, but so far, there is no concrete information. Despite this, US markets have not been very volatile and ended close to the flatline yesterday. What do you think the markets are pricing in?
Andrew Ferris: Let me reiterate what I said earlier. Forget the Ukraine situation when considering markets—they are two completely separate things. I look at markets based on overall performance. Despite concerns about the S&P, it is underperforming every major market in Europe and Asia.
Quick word on the Indian markets. They have been fairly resilient even with the tariff news. We have seen very little volatility, with no strong drawdowns even after the 50% tariff news. By the end of this year, what do you project for Indian markets, given that FIIs continue to sell? Could the tide turn?
Andrew Ferris: Not really. Considering the overall performance of the Indian economy and a favorable inflation outlook, I do not expect the RBI to cut interest rates anytime soon. However, we can look forward to minor boosts from Diwali-related tax reductions on certain consumer expenditures, particularly small cars and health insurance.These should not be confused with tariffs—they are taxes on local spending, not imports. Regarding small car taxes, I would need to analyze them in more detail to assess the impact of Diwali tax cuts. For now, I do not know the precise effect, but any government tax cuts are generally positive news.
