Expect more market volatility until inflation, Fed rate hikes stabilize: Citigroup executive

Citi's Institutional Clients Group Chairman Leon Kalvaria warned Wednesday that more market volatility should be expected until inflation and the Federal Reserve’s rate hikes stabilize. 

Speaking on "Mornings with Maria," Kalvaria also argued that market sentiment has not changed amid the recent rally. 

U.S. stocks were trading higher Wednesday morning as investors awaited earnings reports from companies including Tesla due after the bell. Netflix shares continued to gain Wednesday after the streaming giant lost fewer subscribers than expected. 

Ticker	Security	Last	Change	Change %
I:DJI	DOW JONES AVERAGES	44296.51	+426.16	+0.97%
SP500	S&P 500	5969.34	+20.63	+0.35%
I:COMP	NASDAQ COMPOSITE INDEX	19003.651134	+31.23	+0.16%

"People are looking at the earnings season right now and the reality is that it is less bad than people thought," Kalvaria told host Maria Bartiromo. 

"So from an earnings standpoint, people are getting comfortable with what I call the ‘new normal.’"

Kalvaria warned that "days of unbelievable volatility," like what happened in recent trading sessions, "will continue on here for a while until we settle out," noting rates will continue to move higher and consumers are evaluating the pressure in terms of energy and food prices. 

"And until we see some stabilization we will probably have a more volatile market." 

The Labor Department revealed last week that inflation accelerated more than expected to a new four-decade high in June as the price of everyday necessities remains painfully high, exacerbating a financial strain for millions of Americans. 

The department said last Wednesday the consumer price index, a broad measure of the price for everyday goods, including gasoline, groceries and rents, rose 9.1% in June from a year ago. Prices jumped 1.3% in the one-month period from May. Those figures were both far higher than the 8.8% headline figure and 1% monthly gain forecast by Refinitiv economists. 

The data marked the fastest pace of inflation since December 1981. 

Price increases were extensive: Energy prices rose 7.5% in June from the previous month, and are up 41.6% from last year. Gasoline, on average, costs 59.9% more than it did one year ago and 11.2% more than it did in May. The food index, meanwhile, climbed 1% in June, as consumers paid more for items like cereal, chicken, milk and fresh vegetables. 

The Federal Reserve has been raising rates as a way to try and tame red-hot inflation.

On Friday, Fed officials signaled they will likely stick with a 75-basis-point rate increase at their July meeting next week, although the recent inflation data could still warrant larger increases than anticipated later this year, Reuters reported. 

Markets have experienced volatility in recent months amid the uncertain economic picture. 

Kalvaria noted that in the U.S., "corporate balance sheets are in very, very good shape right now." 

"Obviously we’ve had the supply chain pressure and inflation, that is easing up in some places here right now, which obviously actually indicates recessionary issues, but in fact, the earnings numbers are pretty good so we think from a U.S. standpoint right now, the banks are in good shape, as evidenced by the results that all of our competitors put out," he continued. 

"But, at the same time, the marketplace is looking at these companies and saying, ‘Your cash flowing well, your dividends are going out correctly right now, you are not overleveraged’ so this is a reasonable position here right now to any kind of downturn."

FOX Business’ Megan Henney contributed to this report.