U.S. equities are in a ‘very dangerous’ spot – Cole Smead warns

S&P 500 has gained nearly 6.0% since its low in early January. Still, the chief executive of Smead Capital Management says the equities market is in a “very dangerous” position.

What could hurt the U.S. stocks ahead?

Cole Smead sees continued strength in jobs data as evidence that rate hikes have failed to deliver the desired effect.

His comment arrives only days after the Bureau of Labour Statistics said the U.S. economy added 353,000 nonfarm payrolls in January – well above the Dow Jones estimate for 185,000.

Unemployment remained unchanged at 3.7% (historically low) last month. The “real risk”, therefore, is just “how strong the economy has been”, Smead said this morning on CNBC’s “Squawk Box Europe”.

Last week, Fed chair Jerome Powell signalled no rate cut in March.

Smead expects rates to remain higher for longer

Cole Smead is concerned also because average hourly earnings were up 0.6% in January – way more than 0.3% expected.

Inflation currently sits at 3.4% (annual rate) in the United States versus its pandemic-driven peak of 9.1% in June of 2022. But the Smead Capital expert attributes much of that progress to good luck and factors beyond what the central bank controls like the decline in energy prices.

All in all, the incoming data is in favour of the higher for longer narrative which is unlikely to spell good news for the stock market, he concluded.