Why the Federal Reserve hasn't spooked the stock market... yet

Brian Sozzi

This is The Takeaway from today's Morning Brief, which you can sign up to receive in your inbox every morning along with:

  • The chart of the day

  • What we're watching

  • What we're reading

  • Economic data releases and earnings

Corporate America isn't being frightened by a Federal Reserve that may have one more interest rate hike in its inflation-busting arsenal.

And that could be a prime reason why markets — broadly speaking — are shaking off a setup of higher interest rates well into 2024.

"I don't think so," Cisco CFO Scott Herren told me when asked if the potential for another rate hike from the Fed was a worry to his capital allocation.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

Herren's comments on Yahoo Finance Live came about an hour after Cisco revealed a $28 billion deal to buy security player Splunk. The purchase price will be funded with a mix of cash and new debt.

If Herren and his CEO Chuck Robbins were terrified of the Fed, the dynamic duo wouldn't be paying more for that new debt versus one year ago.

Nor would they be risking paying a 31% premium to buy Splunk into a Fed-fueled economic slowdown. Nor would they be putting their own jobs on the line by signing off on spending $28 billion.

"As I talk to my peers, CFOs at other companies, I think we are all monitoring the environment. It's time to be prudent. But they are not stopping. They are not shutting down business. By the way, you can't ever time what's going to come with the FOMC. I would never try to do that," Herren added.

morning brief image
morning brief image

A few weeks removed from losing out to J.M. Smucker to buy Twinkies king Hostess Brands (at a big premium, too), General Mills CEO Jeff Harmening doesn't sound like an executive going back into the cave.

Quite the contrary.

He would still like to pull the trigger on a deal if the price is right.

"We're also disciplined as to how we do it. And we've always been disciplined. We've got a good balance sheet. We like our core business. But we will still be on the lookout for assets that we think can accelerate our growth and things that we will be particularly capable of doing well. But we'll be disciplined as we do that," Harmening told me on Yahoo Finance Live.

Meanwhile, new IPOs continue to arrive on the market, from a chip player in Arm to a food delivery outfit in Instacart.

Both stocks have sucked wind following their IPOs, but execs at these companies pushed forward in getting their companies to market.

Experts have told me the deal activity and IPO activity aren't yet done for 2023, despite the unknown quantity that is the Fed.

I think that says a lot about economic resilience and how maybe, just maybe, markets won't fall off a cliff in 2024 as the last round of rate hikes filter through civilization. Dare I say this is the soft landing so many pundits think could happen?

"This is a Fed that sees an opening for a soft landing and will try not to blow it," Evercore ISI strategist Krishna Guha said.

Execs and investors are betting on that, full stop.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

Click here for the latest economic news and indicators to help inform your investing decisions.

Read the latest financial and business news from Yahoo Finance

Advertisement