Federated Hermes CIO Stephen Auth on Market Volatility and Investment Milestones

Market Outlook and Investment Strategy

• 🎯 Stephen Auth of Federated Hermes is waiting for market stabilization before making new stock purchases, despite having invested two weeks prior during a significant drop.
• 💡 The firm recommends a moderate overweight to equities, employing a barbell approach combining defensive dividend-paying stocks with offensive growth stocks.
• ⚖️ Defensive picks include stable, broad-based companies like Southern Company, Exxon Mobile, and Amgen, which are less affected by economic downturns or tariffs.
• 🚀 Offensive plays focus on beaten-down tech stocks, such as Google and Amazon, which are expected to navigate current challenges, including Amazon's China exposure and its AWS segment.

Federal Reserve and Economic Indicators

• ⚠️ Auth agrees with concerns about Fed Chair Jerome Powell's backward-looking approach, suggesting he was late to hike rates in 2021 and is now reacting to past inflation.
• 📉 He anticipates a soft patch in the economy in the latter half of the year, partly due to tariff uncertainty, leading to softening employment and potentially a Fed rate cut by June.
• 📊 While acknowledging the market's focus on indicators like the University of Michigan sentiment survey, Auth views them as lagging indicators, not predictive of future performance.

Bond Market and Future Prospects

• 📈 A key milestone for market stabilization is the 10-year Treasury yield, which Federated Hermes believes should be around 4% and is currently too high, indicating instability and lack of confidence in the Fed.
• 💰 The firm forecasts the Fed making six rate cuts over the next 18 months, aligning with a lower 10-year yield.
• 🌟 Looking ahead to 2025-2027, Auth is optimistic about the economy and corporate earnings, suggesting the market may become attractive for investors who waited.