Fed’s inflation rate and PCE data ‘look stubborn’ ahead of 75 basis-point hikes: Strategist
Huntington Private Bank Director of Wealth Strategy Dan Griffith and Zephyr Market Strategist Ryan Nauman join Yahoo Finance Live to discuss October's market performance, inflation, and Fed interest rate hikes.
Video Transcript
- Here's the closing bell at the New York Stock Exchange.
[MUSIC PLAYING]
[BELL RINGING]
[CHEERING AND APPLAUSE]
- Certainly some reason to cheer, the close on this Friday ahead of Halloween a spectacular performance-- let's check out the numbers on the markets. The Dow-- you got it-- four straight weeks in the positive and 828-point close-up, 2.6%.
Look at the NASDAQ. It's been a wild and tumultuous week in big tech, up 2.87%, more than 300 points. And the S&P also turns in a winner, up nearly 2 and 1/2 points. We had a string of brutal Fridays, now in the rear-view mirror.
Let's talk about it with Dan Griffith, Huntington Private Bank director of wealth strategy, and Ryan Nauman, Zephyr market strategist. Good to see you both. So Ryan, let's just start with those numbers we just saw. What do you make of that rally to close a wild week?
RYAN NAUMAN: At first, thanks for having me on. And Happy Friday. It was really kind of a surprise because over the past, you know, three weeks, equities have performed very well. But-- and a lot of that was due to 10-year yields declining. If you follow yields, yields have declined and equities have rallied. Well, that was opposite today. When yields rose at one point above 4%, the 10-year did. And typically, that's bad news for equities. But that wasn't the case today, as equities, as you said, had a really strong day. And that could be with the US dollar, as you mentioned earlier. The US dollar came down a little bit. So that also was a relief to equities. But I found that big rally today a little bit of a surprise considering that yields also rose.
- And Dan, what do you make of the fact that the market is still rallying today despite the weak earnings that we got from Amazon yesterday, when we saw massive losses in Meta? The Dow actually ended the day in the green, really showing that stocks are becoming less reliant on tech. But what does this signal to you as we look at the current quarter and then out to 2023?
DAN GRIFFITH: Well, I think, you know, we are in the midst of earnings season. And although we've had some really big headline numbers come in a little bit lower, or significantly lower in some cases, one thing to remember is almost 70% of the folks reporting have come over and have beaten estimates. And I think that shows a real underlying strength in much of the-- many of the sectors out there-- obviously, we saw green in all of them today-- but including those outside of the technology area. I think a lot of them have a really good story to tell, even if it's not one that always makes the headlines.
- Ryan, $550 billion shed from big tech in a week-- it's been a stunning one. I want to kind of give you free-for-all, whether it's Amazon or whether it's Apple or whether it's Alphabet, Meta, or even the GDP number on Thursday. What was the biggest story of the week that tells you what's coming next?
RYAN NAUMAN: Yeah. For me, I look at the economic stories. We had, you know, a solid GDP for third quarter coming in at 2.6% on a resilient consumer spending. You also have the employment cost index. While remaining historically high, the growth has slowed a little bit, rose 1.2%. And then you have the PCE index, or the Fed's preferred inflation rate today. It remains stubborn. And when you take those three into consideration, you're looking at the Fed supporting its 75 basis point hike next week and potentially another 75 basis point hike in December. When you look at these economic data points that they follow, that inflation isn't going to be coming down materially anytime soon.
- Dan, what do you think? I think the 75 next week is pretty much a sure thing. But looking out into the December meeting, Bank of America saying that they expect maybe the Fed to signal that it's going to slow in December, what are your expectations?
DAN GRIFFITH: I think we agree that 75 is definitely something that's going to happen here next week. But beyond that, I think we still think we're looking at some strong numbers. You know, obviously, the Fed's done some stuff this week to and last week to point towards, you know, a 5% number, which ultimately could be a good place to land. There's a lot going on in the economy that kind of points both directions towards a little bit of a slowdown next year. Obviously, unemployment numbers are really good. And the consumer numbers, Ryan, you just mentioned are both bright points. But a lot of increasing inventories are a little bit of a problem. And some of the other leading economic indicators still would leave some area for the Fed to continue to raise.
- So Ryan, all the factors that we just took into consideration, what's the strategy you move forward?
RYAN NAUMAN: Yeah. That's the million-dollar question, right? And I think you have to build portfolios that are resilient to a recession. Like Dan said, I think 2023-- we're looking at a slowdown. And most are expecting a recession, whether it's mild or a moderate recession. I think you have to focus on high-quality, dividend-paying stocks that have a quality balance sheet free cash flow. You know, look at those high-quality names. Also look at sectors that are a little bit more defensive, like consumer staples, health care. And also, if you have a really conservative investor, maybe focus on utilities. But you have to look at building a resilient portfolio that can withstand an economic slowdown.
- Dan, what about you? What are you looking-- in this environment?
DAN GRIFFITH: Well, I think a lot of good points there, Ryan. Obviously, we're talking to clients a lot about kind of nibbling a little bit, taking those names that they feel very comfortable with and being patient, really looking at what they believe in longer term. So we're doing a little bit of bond buying right now and, obviously, a little bit of very strategic stock purchasing. As I mentioned before, there are plenty of really good stocks that have performed really well. And a lot of people out there, especially in that middle market, small-cap area who are very optimistic about what their numbers look like long term-- so we're not jumping in. But we're certainly telling people not to stay entirely on the sidelines.
- And Ryan, when you take a look at the strength of the consumer right now, obviously, we've had a couple of mixed results, especially when you take a look at Amazon, Amazon warning-- or really coming up short when it comes to fourth quarter guidance, raising some concerns here because it's a very important holiday season. What does this tell us about the strength of the consumer and maybe the weakening that we're starting to see on that front?
RYAN NAUMAN: That's a great question. And, you know, interest rates, as we know-- it's a lag on economic data, the consumer, and so on. And that's what we're seeing here. Third quarter-- consumer was strong and showed a willingness to continue to spend. But we're seeing the impacts of inflation. And higher-- or higher interest rates are tightening financial conditions. And that's what these corporations are starting to foreshadow moving forward-- is that, you know, economic growth-- their earnings are going to slow because the consumer is going to start feeling it due to inflation and higher interest rates moving forward. And I think that's where you see Amazon, Apple, and some of these companies giving some warnings for quarter four.
- Ryan Nauman, Dan Griffith, great to have you. Have a great weekend. Thanks so much for joining us this afternoon.
