Markets

Blackstone's Byron Wien to the Fed: The stock market and economy don't need a rate cut to thrive

Key Points
  • "If you look at the market over the past week, stocks don't need any help. They are roaring ahead, without the Fed doing anything," says longtime strategist Byron Wien.
  • He feels OK about the economy because "the consumer is spending; unemployment is low; wages are rising."
  • Wien also downplays last week's brief inversion of the 10-year Treasury yield and the 2-year yield as a recession signal.
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Blackstone's Wien: No recession in 2020

The U.S. stock market and economy do not need another Federal Reserve interest rate cut to advance, longtime market strategist Byron Wien told CNBC on Wednesday.

"If you look at the market over the past week, stocks don't need any help. They are roaring ahead, without the Fed doing anything," Wien said, referring to the recovery since last Wednesday's 800-point decline in the Dow Jones Industrial Average, the worst single-session performance this year. The S&P 500, which dropped a near similar 3% the same day, has also been rebounding.

In a "Squawk on the Street" interview, Wien conceded that some of the recent stock gains could probably be attributed to expectations for a Fed rate cut at its next policy meeting in September. "But I think the stock market is fine." Central bankers in July reduced the cost of borrowing money for the first time in more than a decade, after hiking rates four times last year.

Wien, vice chairman of private wealth solutions at Blackstone, also feels OK about the economy. "This is a 70% consumer economy — and the consumer is spending; unemployment is low; wages are rising."

To support his case for the economy and stocks, Wien points to the strong second-quarter results from many of the nation's biggest retailers as a sign that Americans are spending. Target and Lowe's on Wednesday both beat expectations with their profit reports. Shares of Target were surging 18% and Lowe's shares were soaring 10%. Home Depot on Tuesday topped forecasts with its earnings, while Walmart's earnings, released last week, exceeded what analysts had projected. Both of those stocks, which popped on their earnings, were modestly higher Wednesday.

"So the situation right now is very favorable" for the stock market and for economy, Wien concluded. He did acknowledge, "It may change. It could change abruptly," but stressed that "right we're in pretty good shape."

Wien also downplayed last week's brief inversion of the 10-year Treasury yield and the 2-year yield as a recession signal.

"When the yield curve inverts, you have to pay attention," he said. "But it inverted this time because the long end went below the short end," meaning long-term rates falling were more than cause of the cross than short-term rates rising.

"This time it inverted from the back end and I think that is different," he said, adding that long-term yields were falling in their inverse relationship with bond prices because investors were piling into fixed income for safety when stocks were really selling off earlier this month.

In July, Wien told CNBC that he thought the S&P 500 would consolidate around 3,000 for the rest of the year, which would be about a 20% gain for 2019. The S&P 500 closed Tuesday at 2,900. While still down for in August, the Dow and S&P 500 were holding on to double-digit percentage gains for all of 2019.

In January, Wien included a more modest 15% increase in the S&P 500 for the year as one of his 10 surprises for 2019 — a list that he's been compiling since 1986 when he was a chief strategist at Morgan Stanley. He joined Blackstone in 2009.