CNBC ‘Squawk Box’: Michael Landsberg: The Fed Should Stay on the Sidelines

January 16, 2025

Summary:

“Higher inflation and growth mean some stock sectors can still thrive, but it’s clear the Fed is not delivering what the market wants,” says Michael Landsberg, Chief Investment Officer at Landsberg Bennett Private Wealth Management, during his appearance on CNBC’s Squawk Box. Landsberg discussed market trends, the Federal Reserve’s approach to inflation, and portfolio positioning for 2025 amidst expectations of persistent inflationary pressures and elevated interest rates.

Landsberg voiced skepticism about the Federal Reserve’s inflation outlook and policy direction. He emphasized that while the Fed has signaled it won’t cut rates further in 2025, underlying inflationary pressures from shelter costs, food prices, and energy markets are likely to push inflation higher over the next six months.

Key Takeaways:

1. Inflation’s Upward Trend: “We still see inflation heading higher, likely toward 3.5%, with no signs of it dropping to the Fed’s 2% target anytime soon,” Landsberg stated. He noted factors such as sticky shelter costs, rising food prices, and natural disasters as contributors to sustained inflationary pressures.
2. Fed Missteps and Policy Impact: Landsberg criticized the Federal Reserve for repeatedly misjudging inflation trends, saying, “They were wrong at 9%, calling it transitory, and they’re wrong again predicting 2%. The Fed’s track record on inflation has been poor.” He added that their reluctance to act decisively could lead to increased pressure from the incoming administration.
3. Small-Cap Underperformance: Higher interest rates and slower growth spell trouble for small-cap stocks, Landsberg explained. “The Russell 2000 has been flat for three years, and with rates staying higher for longer, small caps will likely continue to underperform.”
4. Focus on Large-Cap Leaders: Landsberg highlighted strong earnings growth in large-cap sectors such as technology, stating, “NASDAQ earnings are up 20% year-over-year, and S&P earnings grew by high single digits. These are the areas investors should focus on, sticking with what works.”
5. Natural Disasters and Inflation: Landsberg pointed out that events such as wildfires in California and hurricanes have further exacerbated inflationary pressures. “Ad hoc events like these add another layer of inflationary impact, regardless of who is in office,” he said.
6. Bond Market and Interest Rates: On the outlook for Treasury yields, Landsberg remarked, “The 10-year and 30-year yields have risen about 100 basis points since September as the bond market senses inflation is coming back. Rates are going to stay higher for longer, and investors need to be positioned for that.”

Landsberg concluded by emphasizing the resilience of the corporate sector, which continues to drive markets higher despite inflationary headwinds and the Federal Reserve’s cautious stance. He reiterated the importance of disciplined portfolio management, saying, “Focus on earnings, stick with what works, and be prepared for an inflationary environment that’s here to stay.”