Nasdaq Composite up 7.0% in two days: ‘the rally is temporary’

Nasdaq Composite has recovered more than 7.0% over the past two sessions, but Bleakley Advisory Group’s Peter Boockvar warns the gain is unlikely to be sustainable.

Monetary tightening is a bigger headwind

Boockvar does see the geopolitical escalation as a headwind but says inflation and the upcoming rate hikes are a bigger, more lasting challenge for the financial markets. On CNBC’ “Closing Bell”, he said:

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To me, the rally is just temporary. The biggest risk to the market is not Vladimir Putin, it’s Jerome Powell, it’s Christine Lagarde, it’s Andrew Bailey in the U.K., to the extent of we have this synchronized monetary tightening that we’re really just entering the teeth of.

On Friday, the U.S. Bureau of Economic Analysis said the core personal consumption expenditures (PCE) price index was up 5.2% YoY in January – the hottest reading since 1983. Estimates were for a 5.1% increase.

Rate hikes likely to mean pain in the near-term

Boockvar agrees that rates hikes are a positive in the long term as they help control inflation, maximize employment, and drive sustainable growth, but expects rising rates to mean pain in the near-term. He added:

Ever tightening cycle in the last forty years ended at a rate below the previous peak, which implies that the Fed will get the funds rate to 1.50% – 2.0% before something breaks. The problem is, something may break while inflation is still very high, which would create a real problem.

Boockvar doesn’t see a 50 basis points increase next month as too aggressive, but only “prudent”. Earlier this week, however, economist Mohamed El-Erian said such an increase in March is completely off the table now that Russia has invaded Ukraine.