Wall Street MISSED the Fed's BIGGEST Signal....

🚨 Bank of America just made a stunning reversal.

After expecting no Fed moves this year, economists are now forecasting three interest rate hikes before year-end. Meanwhile, markets are still pricing in something much less aggressive.

In this episode of Wall Street Truth Bombs, we break down why the market may be underestimating inflation, what Kevin Warsh's first Fed press conference revealed, and why higher interest rates could create another wave of pressure for growth stocks and AI.

If Wall Street is wrong, investors may not be prepared for what's coming.

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Truthbombs videos are for informational and entertainment purposes only. The views expressed by Mark Malek or guests are their own and do not necessarily reflect those of Siebert Financial. These videos do  not constitute investment advice, an offer to sell, or a solicitation to buy any securities. Past performance is not indicative of future results. Listeners and viewers should consult a qualified financial professional before making any investment decisions.

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Transcript

SPEAKER_00 0:00

Bank of America just called three Fed rate hikes by December, and the market is still priced like it's not going to happen. By the end of this video, you'll understand exactly why the rate backstop that has been holding this bull market up is already gone. The new Fed chair's body language actually told Wall Street on June 17th, and why your growth stocks have not quite finished repricing that just yet. Here's the story as most people heard it. On June 17th, Kevin Warsh walked into his first FOMC press conference as Fed chair. The committee held rates steady at 3.5 to 3.75%. Stock futures, they bounced around a bit, but ultimately they came back and they barely moved. The mainstream read was pretty simple. The Fed's on hold, nothing to see here, just relax. Then Monday morning happened. Bank America chief economist published a note that reversed his entire 2026 forecast in a single document. A week earlier, just a week earlier, Bank of America, Bova, had expected rates to stay flat through the end of the year. In that Monday note, that economist called for three consecutive 25 basis point hikes: September, October, December. Fed funds going from the current 3.5 to 3.75% range, all the way to 4.25 to 4.5% range by the year end. And no rate cuts at all until 2028. Let me say that again. Bank of America, a major financial institution, is now saying no rate cuts until 2028. That is a complete reversal in just one week. The catalyst for the flip. Well, the economist cited what he called unambiguously worse inflation. Core PCE potentially hitting 3.5% in May, nearly 70 basis points higher than a year ago, combined with a labor market that has firmed up enough to remove justification for staying easy. He also upgraded BOFA's Q2 GDP tracking estimate to 2.8% annualized off a strong May retail sales print of $763.7 billion. That was up nine-tenths of a percent from April. Okay, the market is currently pricing roughly 36 basis points of tightening for 2026. That's based on Fed funds futures. Call it one hike, nearly certain. A second hike, roughly a coin flip. Three hikes, almost completely off the table in market pricing. Wall Street hears BOFA and says, probably not. That's exactly where I think the market is underestimating the risk. Not on the direction, but maybe on the magnitude. Before we get further, if you like this type of content, please click like and don't forget to subscribe. It's important to me to know. This is how you do it. Now, here is the part of this story I think most of Wall Street missed. And I want to give you the read you did not see elsewhere. Warsh's June 17th press conference was not a neutral hold. Count how many times he invoked the phrase price stability in that room. You would have run out of fingers. His exact words, the commitment to delivering price stability, is strong, unanimous, and unambiguous. And then he added, This is an important message we have missed for five years, and we're going to fix it. Now, those are his words. He stripped forward guidance out of the policy statement entirely. He called the new statement Kurt, declined to submit his own dot to the dot plot. He launched five task forces, wow, to rebuild how the Fed operates from the ground up. Most people heard all of that and interpreted that as a quiet hold. I heard something quite different. Here's the shadow data, the stuff that you know I love. One analytical tool trained on decades of Fed communications scored Warsh's June press conference at a plus 1.3 on a hawkish scale. That is a meaningful and measurable shift. Not an opinion, not a vibe, a score. And the dot plot backed it up. Nine of 18 FOMC participants now project a 2026 rate hike. The Hawks didn't need to hike on June 17th. They needed a new sheriff to walk in, establish credibility, and put the market on notice. Well, my friends, that is exactly what Warsh did. The body language was loud and to me, overt, or in his words, unambiguous. Even Goldman Sachs, which is not calling for hikes at all, has quietly pushed any rate cut expectations all the way out to 2027. Let me be direct here. The rate backstop that this bull market has been leaning on has been pulled out from under it, literally. And the market has not fully processed that just yet. Now look, I've been doing this for 35 years or so. The scars I carry are from the times that I forgot to ask what can go wrong before I thought about expected returns. Those scars taught me to listen to body language, not just headlines. Horse's body language on June 17th was pretty loud. And I'm not the only one who heard it. Now, let's talk about your portfolio for a minute, because this is where the math gets direct and actually pretty uncomfortable. Growth stocks, technology, artificial intelligence names. The math here is not complicated, but the market keeps pretending it doesn't apply. When the risk-free rate goes up, the present value of future earnings goes down. That is not an opinion. That is just plain old arithmetic. Growth companies, particularly in technology and artificial intelligence, are valued on earnings streams that stretch years into the future. When you discount those streams at 4.5% instead of 3.5%, they're worth less today. Full stop. It's just math. That number goes in the denominator. It's math. Okay? All right. The NASDAQ already told you this on June 5th. It dropped more than 4% in a single session on rate hike fears. It's worst day since April 2025. As of this morning, futures are pointing to another roughly two percentage point declines as that reassessment continues. Even with yesterday's sell-off, the Nasdaq is still up roughly 10% year to date. Those gains were built in an environment where rate cuts were pretty much on the menu. Bank of America is now telling you the next move is three hikes. Rate backstop, it's pretty much gone. Markets have not finished processing that yet, believe me. But here's the layer underneath what nobody is leading with. The BOFA thesis only works if the consumer and labor market hold together long enough for the Fed to hike three times before now and December. And I am not sure the foundation is as solid as the headline numbers suggest. You've seen my videos on that. May retail sales came in at $763.7 billion. That was up nine tenths of a percent from the April strong number. But the biggest driver was gasoline stations up 3.4%. That is not consumer confidence. That is consumers paying more at the pump because of Iran. Strip out gas and sales still rose a solid seven-tenths of a percent. I'm not arguing that, but here's the context the headline hides. Real disposable income in April was running below where it was a year ago. The personal savings rate has collapsed to 2.6%. That was down from 6.2%, boom, in early 2024. The American consumer is not spending because they feel wealthy. They're spending because they have no cushion left. And the bills, they just keep coming. Credit card balances stand at $1.252 trillion as of Q126. The serious delinquency rate accounts at that accounts 90 days or more past due, just hit a 15-year high. That number hasn't been that bad since the wreckage of 2008. Total household debt is right now at $18.8 trillion. Three rate hikes into this environment would not be routine Fed tightening. It would be kicking someone who is already on one knee. So here's where I actually land on all this. I buy the direction of the Beaufa call. One hike is nearly certain, two is a reasonable bet. Three cannot be dismissed the way it was a month ago. What I am watching more closely than the Fed is the consumer. You know I am obsessed with the consumer as well. Why? Because they make up two-thirds of GDP. So goes the consumer, so goes the U.S. economy. Okay, if the if the consumer cracks before September, Walsh may find himself holding his hiking pen over a very, very different economic picture. If the consumer holds long enough for three hikes to land, the cracks, well, they come after. Either way, the era of the market being rescued by easy money is well over at this point, my friends. So your truth bomb for today is this the Bank of America may be too aggressive on three hikes, but the direction is right. The market is underpricing that risk, and the rate backstop that powered this bull market has already pulled whether the Nasdaq has fully priced it in or not. Join me every day for Wall Street Truth Bombs, where I drop them here every day for the market.