Dan Niles: We're going into a rate hike cycle so don't fight the Fed or the bond market
Speakers
Dan Niles
— Founder & Portfolio Manager, Niles Investment Management
Summary
Dan Niles of Niles Investment Management warns that investors should not fight the Fed, the bond market, or midterm seasonality. He expects rates could rise toward 6% and sees a roughly 10% equity drawdown into the midterms, leaving him with many shorts on. He still favors Meta as a long because of improved AI monetization prospects and a valuation below the S&P and peers.
- Dan Niles says don't fight the Fed, bond market, or midterm seasonality.
- He expects a hiking cycle and sees 10-year Treasury yields potentially reaching 6%.
- He cites high deficits, debt-to-GDP, and hyperscaler debt issuance as pressures on rates.
- He warns of a median 10% equity drawdown from late July through the midterms and has many shorts on.
- He is long Meta, citing legal settlements, AI monetization progress, and a discounted valuation.
- He remains cautious on the overall tape despite liking select names.
Ideas
Rates may rise to 6 percent
Niles thinks rates could go to 6% and says investors should not fight the bond market. He points to historically low rates, 6% deficits as a percentage of GDP, $40 trillion of debt against $33 trillion of GDP, hyperscaler debt issuance competing with government supply, and a Fed that lets the market dictate rates.
Rates may rise to 6 percent
Niles thinks rates could go to 6% and says investors should not fight the bond market. He points to historically low rates, 6% deficits as a percentage of GDP, $40 trillion of debt against $33 trillion of GDP, hyperscaler debt issuance competing with government supply, and a Fed that lets the market dictate rates.
Expect 10% equity drawdown into midterms
Niles is concerned about a roughly 10% drawdown between late July and the midterms, citing midterm seasonality, risks around the AI trade, and a tape that can get hit hard. He says he has a lot of shorts on and does not want to fight the Fed, bond market, or seasonality.
Meta long on AI monetization, valuation
Niles likes Meta on the long side because it settled the AG lawsuits, addressed its AI monetization gap with new AI model/API/agent products reaching 3.6 billion daily active users, and trades at 17x calendar 2027 earnings, below the S&P and peers trading in the low-20s.
