NewEdge Wealth's Cameron Dawson Talks Prolonged High-Interest Rates On PreMarket Prep

Cameron Dawson, the chief Investment Officer of NewEdge Wealth, joined Benzinga’s PreMarket Prep Friday to discuss interest rates and other topics amid today’s uncertain economic environment.

Interest Rates: Dawson predicted the 2-year Treasury’s yield will be stuck within an approximate range of 4.5% and 5%.

“We think it’s hard for the two year to move a lot more over 5% unless we see a meaningful reacceleration in inflation which puts great hikes back on the table,” Dawson said. “A rate above 5% on the two year effectively is saying that the Fed is only going to do one or two interest rate cuts over the next two years, so much above 5% is effectively pricing in further hikes.”

Dawson believes that the bar for further rate hikes will be higher than the one for rate cuts.

“The Fed will react to weaker unemployment data far faster than they will react to hotter inflation data. That keeps the two year in this elevated range, the inflation data is not soft enough for them to suggest that they will need to be cutting but it’s not hot enough to suggest that they need to be hiking, so we’re stuck in this high elevated range.”

Implications of Rate Environment: Dawson noted that a prolonged high-interest rate environment would be “fantastic” for large tech companies with large cash piles.

“Higher for longer is great for them because they earn a big return on their cash and they can either use it to increase dividends or buy back shares.”

The future is bleaker for smaller cap companies whose balance sheets are dependent on debt.

“It’s terrible for companies that have to refinance their debt,” Dawson said. “If you go back to the Russell 2000, you had a massive Russell 2000 rally in November and December of last year based on one thing and one thing only: falling interest rates that would relieve pressure off of the balance sheet of these companies that have a lot of floating rate exposure as well as very high debt levels that will have to refinance.”

Changing Outlook: Dawson believed non-farm payrolls are the most important metric to signal an inflection point in the economic environment.

“If you look at last month’s non-farm payrolls, you saw a big deceleration in cyclical parts of the jobs market — things like leisure hospitality, construction, all of those areas saw a big slowdown versus the prior month of job additions,” Dawson said. “They didn’t actually shed jobs, they just slowed a great deal. If we get into the shedding of jobs, that’s where the Fed will have bigger concern.”

Also Read: Fed Minutes Raise Risk Of ‘Higher-For-Longer’ Interest Rates: ‘Bears Would Normally Get Excited, But…’

Photo: Cameron Dawson/NewEdge Wealth lolo/Unsplash