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Market only wants to hear from Fed's 'lead actor': Strategist

With a majority of the stock market indexes (^DJI, ^IXIC, ^GSPC) resuming their record-high runs this year in May, how is investor sentiment shaping up for the month of June? Investors are attentively awaiting Friday's Personal Consumption Expenditures (PCE) Price Index — the Federal Reserve's preferred inflation gauge — and whether the Fed could give the go-ahead for an interest rate cut as early as September.

Interactive Brokers Chief Strategist Steve Sosnick sits down with Yahoo Finance's The Morning Brief to discuss the market's volatility levels and what Wall Street wants to hear from the Fed, most notable Chair Jerome Powell.

"The market... [doesn't] want to hear from the supporting cast, they only want to hear from the lead actor, and the difference is Powell always skews dovish. Powell tends to skew dovish... even if he's got bad news he'll temper it with some sort of decent sounding out," Sosnick explains. "The others basically come back come out and tell you what they see is going to happen. This is not new."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

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This post was written by Luke Carberry Mogan.

Video transcript

We've got the NASDAQ, the NASDAQ 100 the S and P 500 are all having their best run that we've seen since November and the Dow nearing its best month since 2023.

So here to break this all down, put it into context for us.

We want to bring in Steve Sosnick, he's interactive brokers, chief strategist here to discuss that in a lot more.

So, Steve Brett was just talking about everything that we have on deck here this week for the markets and obviously, we came into the month of May talking about the sell in May go notion that doesn't really seem to uh have really taken place just yet.

So how are we set up here in this final month of May?

Well, first of all, Good morning, Shana.

Good morning, Brad.

One thing to keep in mind is you don't know if sell in May works until, until June, right?

I mean, sell in April didn't work.

We know that sell in early May didn't work.

We kind of know that, but we don't yet know if sell in May didn't work.

We're coming into this month.

We're ending this month I should say on a very exuberant note, um, stock, you know, basically, no matter how you measure it, there's, there's very little fear and a lot of greed that's not necessarily bad.

I'll quote Gordon Gecko.

Greed can be good.

But, um, you know, that, that sort of does make you wonder, have we seen, have we seen all the good news, how much of it is priced in and how much is left to price in?

And so with that in mind, I mean, how much volatility should we be expecting off of and coming off of the May performance that we have seen this far?

You know, it's tricky here because the volatile because if you measure volatility by VX, there's VX is getting, I I hate to say it, I sound conspiracists but it's really not the case.

VX is getting suppressed by heavy volatility selling from, from the pop from the now popular ETF S that routinely sell volatility covered call strategies, collars, et cetera.

That does put a damper on Vicks because if there's, if those funds are are systematically selling volatility that that's go, that's gotta go somewhere and that's gonna be reflected in the price of volatility indices like Vicks.

But that's what the markets theoretically is the best prediction of volatility over the coming 30 days.

The market is not predicting much market can get surprised though.

And that's always the risk of selling VX when you're talking about low levels you know, below the teens, that's the problem is you make very incremental gains on that.

And then one day the vi, you know, one day you find Vick, you know, 20 or something like that because people get, you don't know when that happens though.

That's, you know, that's sort of the minefield of the markets.

Could be some fed speak, could be anything or it could be nothing.

And that's really, that's really going to be the trick going forward.

Stephen, I'm curious how you've been looking at the recent fed speak that we've gotten out, even Kashkari this morning making some interesting comments just about the fact that he needs to see a lot more data when it comes to inflation, when it comes to those inflation prints just in terms of that steady improvement before he feels comfortable with rates being cut.

And then he also essentially the notion or left the possibility of a potential rate hike on the table given if, if that were to eventually at least be necessary in his mind.

How is the market looking at this just in terms of some of that volatility that that could add or maybe some of that surprise element that you were just talking about that maybe isn't already priced in at this point.

Here's the problem is the market really only want, they don't want to hear from the supporting cast, they only want to hear from the lead actor and the and the difference is Powell always skews bull Dovish, I guess is really the right word.

Powell tends to skew dovish.

You think about his press conferences.

You know, he's the cla he, even though he's not an economist, even if he's got bad news, he'll temper it with some sort of decent.

Sounding out.

The others basically come back, come back and tell you what they see is gonna happen that this is not New Nestor has been saying negative things.

Bostic has been sort of hinting it at no rate cuts higher.

There, there's a whole, there's a whole litany of them.

But until you hear it from Powell, you know, the market got a little spooked when they read it in the minutes because, ok, it made it to the minutes.

But until you, you know, I think the market is just sort of ignoring the, the, the other, the other people, even though they're sending a very consistent message and even though somehow the fed seems to be unanimous in all its decisions, but again, they, like, they, like they wanna hear from Powell.

Not so much the others, despite the fact that the others have a lot to say, that's very interesting.