On this edition, Kelly Kowalski, Head of Investment Strategy at MassMutual, joins the show to break down market reactions following the latest Federal Open Market Committee decision and remarks from Jerome Powell. Despite expectations for potential rate cuts, markets turned red amid a hotter-than-expected CPI print, geopolitical tensions, and a cautious tone from the Fed. Kelly highlights that while the Fed maintained some optimism, revising growth higher and keeping unemployment steady, the bar for rate cuts remains high. The conversation also dives into rising Treasury yields, with the 10-year hovering within a critical range, and what a potential breakout could mean for equities in 2026. Looking ahead, Kelly outlines key investment themes shaping portfolios, including persistent geopolitical uncertainty, the rise of “hard asset” strategies, energy sector strength, and the ongoing impact of AI on markets and business models.
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Let's bring in our first guest in the broadcast.
Kelly Kowalski joins the show now.
She is head of investment strategy at MassMutual.
It's great to have you here for Fed Day.
Hey JD, thanks for having me.
Of course it's really nice.
Unfortunately, you and I wore our shades of red and pink, and there's lots of red on the big board.
Is this the market reaction you had expected after not just Jerome Powell, really the FOMC's announcement, but then additional commentary from the chairman?
Yes, look, the day didn't start off great, right?
We had a hot CPI print.
We had development.
In the Middle East and then the press conference wasn't what we investors wanted to hear, right?
We like seeing that one cut still in the dot plot, but if you listen closely to his comments, there's a high bar for that cut if it comes this year.
On the positive side, the Fed seems to have some confidence in the economy, right?
They revised up growth.
They kept unemployment steady.
I'll take that.
Yes, of course, because we did get the dot plot, the summary of economic projections.
We only get these 4.
Meetings a year and they give us some sense, not that what the Fed always thinks is going to happen necessarily happens.
In fact, it rarely does.
I want to get your take on this.
He did say he would stay on and serve as chairman pro temp until Kevin Warsh is concerned.
I don't remember the Fed ever being this political.
How are you thinking about some of the palace intrigue behind the Fed, which is probably top of mind for a lot of investors as well?
It is top of mind for investors.
I think there was always a chance that he may stay on, and if he does stay on, That that that's that's sort of how it goes, but I think more importantly, it's looking towards Warsh, who is ultimately going to be chair and what that means.
And I think you still have several members, you know, despite what Warsh, you know, may want to cut or maybe a little bit more dovish, he's got to convince 6 other people.
Kelly, I wonder, yeah, right, it's FO with a C and FOMC stands for committee, doesn't stand for chairman.
I try to remind people that.
I want to get your take on Treasury yields.
The 10 year moving up 6 basis points, 427, elevated for the 10 year, elevated for most of the curve in reaction to the announcement today.
What's on your radar for yields and how they may move the rest of 2026?
Yeah, so tenure has moved up, but it's still within the range that it's been over the past several months, right?
We've been kind of watching this 4 to 4.5, 4.6.
I think what will be really key is if we see a breakout.
Out of that range, that's what could cause some further discomfort to equity markets, right?
If you see growth hold up, if you see some hot inflation prints, which, hey, it looks like we might with oil prices where they are, we could see further pressure on Treasury yields this year, which I think has caught the market by surprise.
There was steepening expected, the exact opposite has happened.
We've seen flattening this year.
Kelly, some of the most dominant investment themes that you think are shaping portfolios and will continue to shape investors' portfolios between now and the end of the year?
Well, I want to believe that Iran is the last geopolitical shock that we see this year, but I don't think that will be the case.
So I think we've got to be prepared for more geopolitical noise, more political noise.
Especially as we enter a midterm election year, another sort of theme that we're seeing is halo, the halo trade, which is hard asset, low obsolescence.
We've been hearing a lot about the SAS apocalypse, this trend towards, you know, durable, hard assets.
Energy was outperforming even before the Iran crisis. so, you know, what does that tell you?
I think we'll see that.
And along those lines, AI, it's going to be a theme, both how are companies investing in it and what's it going to disrupt.
Yes, of course we saw that big softwareApocalypse level soft.
We kind of went sector by sector and that was kind of before the Iran strikes.
That's sort of an old running narrative that may reemerge at any point.
Kelly Kowalski, head of investment strategy at MassMutual, really great to have you here.
Come back anytime.
Thank you.
Nice to have you.