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Blackstone strategist: Market is too dovish on Fed policy, will lead to up to 15% correction

Key Points
  • Consensus estimates are for a quarter-point rate cut at the Fed's meeting later this month, according to the CME's FedWatch tool.
  • "If it's just an insurance cut, if it's just a one and done, then there's nothing but downside for the markets, because the markets are sniffing out problems that I don't think exist," said Joe Zidle, chief investment strategist at Blackstone.
  • Fed Chair Jerome Powell begins two days of Congressional testimony on Wednesday. The Fed is also releasing the minutes from its June meeting on Wednesday afternoon.
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Blackstone's Joe Zidle says the market is usually wrong about what the Fed will do next

Blackstone's chief investment strategist said on Tuesday that market expectations for Federal Reserve policy are too dovish, and it could lead to a 10% to 15% correction in equity prices.

Consensus estimates are for a quarter-point rate cut at the Fed's meeting later this month, according to the CME's FedWatch tool. However, Blackstone's Joe Zidle said on CNBC's "Fast Money" that the market will want more cuts and be disappointed.

"If it's just an insurance cut, if it's just a one and done, then there's nothing but downside for the markets, because the markets are sniffing out problems that I don't think exist," said Zidle, whose firm has about $512 billion in assets under management.

Zidle predicts that underlying growth data will keep the Fed from cutting multiple times this year, and says a tight housing market and tariffs could push inflation upward.

"You've got markets that are up 20% in the last six months on anticipation of an aggressive rate cut path," Zidle said. "And yet I don't think growth is nearly weak enough to justify it, nor is inflation necessarily weak enough to justify that aggressive level of cutting."

Markets are usually flat in the six months before a first rate cut, Zidle said, but stocks soared in the first half of this year. The S&P 500 just posted its best first half since 1997.

"The market's already done all the work that they expect the Fed to do," Zidle said.

Fed Chair Jerome Powell begins two days of Congressional testimony on Wednesday. The Fed is also releasing the minutes from its June meeting on Wednesday afternoon.

The projected market pullback is not a call for a recession, Zidle said, adding that tech, industrials and energy are smart sectors to invest in if the correction happens.

"We're not looking at the end on an expansion here," Zidle said. "We're 121 months and counting, and we could go a lot longer in my opinion."

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Autos

Mexican-made autos stream across border at record rate in first half of 2019

Key Points
  • Mexican factories sent 1.37 million vehicles north of the border during the first half of this year — making up 16.3% of the U.S. auto market
  • Mexico's leading auto industry trade group, the Asociacion Mexicana de la Industria Automotriz, released new data this week.   
  • A record 2.6 million vehicles were imported from Mexico to the U.S. in 2018, making up 15% of the U.S. auto market.