Carson Group Chief Market Strategist Ryan Detrick joins Yahoo Finance Live to discuss inflation, the September CPI print, major indices rising, and how investors are bracing for the midterm elections.

Video Transcript

DAVE BRIGGS: Markets in rally mode despite a hotter than expected inflation print this morning. The Dow now trading above 30,000. Look at that, 900+ points up. What a rally. Ryan Detrick, Carson Group chief market strategist, is with us.

Ryan, this is quite a day. This is quite a year. We're going to talk to Wall Street plenty. Let's just speak to Main Street for a minute, who's just confused because we get a bad inflation print, we get a good reaction from the market. We get a great jobs report, and the markets do the opposite. Tell Main Street what to make of today.

RYAN DETRICK: Yeah, well, first of all, thanks for having me on a day where things are green-- actually something to talk about here. It's a nice change. But just today, right, we had the disappointing number. Obviously, markets were lower.

But you look at what happened. We just corrected 50% of the overall bull market that we had off those 2020 lows, OK? 3,500. That's a normal type of retracement. So we found some buyers there-- wasn't shocking. The VIX, the fear gauge, it didn't-- surprisingly, didn't spike massively higher this morning. And then that was maybe a clue the options market knew something, and the rally came on.

Last thing for Main Street, people are really worried. Believe me, you're not the only ones confused. This year is very confusing for a lot of people. But think about this. In June 16, we made those lows. 200 approximately, 200 stocks in the S&P made a new low. Just yesterday, we made new lows. Less than 80 stocks made 52-week lows. What does that mean? Price is making new lows, but less stocks are. That, Main Street and everyone listening, is an improvement. That's how major lows can form. There's less stocks going down, and that's a real positive sign.

SEANA SMITH: Well, Ryan, speaking of that positive sign, with the Dow up over 3%, S&P not too far behind, NASDAQ up over 2 and 1/2%, do you think today's gains, does this rally that we're seeing have legs?

RYAN DETRICK: Yeah, we think it does. I mean, there's lots of ways we can look at this, right? I mean, I mentioned the VIX. You look at sentiment polls. We're nearing some of the most bears we've seen, guys, since major lows. March 2009, March 2020. Expectations are so low. It's not like things are great, believe me. We're going to see this earnings season, how corporate America is looking. We're optimistic earnings are still going to justify this economy growing. But expectations have just simply gotten so low.

And let's not forget this. Over the last 17 bear markets, six of them bottomed in October. Believe me, it could be random, maybe not. October is more of a bear market killer. The worst two starts year ever, other than this year-- this is the third worst start-- '74 and 2002, all right? Bottomed in the first two weeks of October. Did we just do it again? Believe me, tune in and watch later.

But we think we're optimistic that we can have another pretty good low in October. And then those regular fourth quarter strong seasonals that take place in a midterm year can take over, and we can have a pretty good sized rally the rest of this year before the year is all said and done.

RACHELLE AKUFFO: And, Ryan, how about the fact that it's a midterm election year? What are investors hoping for in this sort of environment?

RYAN DETRICK: Yeah, great question. So let's put it this way. I think gridlock, right? You don't want too much power one way or the other. And you look at the way the election, how it might swing. You know the incumbent party that won the presidency tends to lose some seats. But we don't think there's going be too much power one way or the other. And that could be what matters.

But for the average investor listening, just know this. We say do not invest in your politics, right? Just invest in the fundamentals. But think about this. If you look at what the S&P did the day of the midterm elections, go back to World War II, all right? One year later, the S&P was higher every single time up 14.1%. So whatever happens, markets hate uncertainty. Get that election out of the way, the uncertainty out of the way, then markets tend to do pretty darn well.

Last point on this, the second year of a new president, so this year, historically, extremely weak. Believe me, this year is weaker than we expected. At the same time, this isn't abnormal to see weakness the second year of a new president. And things get a lot better that third year, and the economy can keep growing. In our view, it should lead to pretty good-sized gains into this year and into next year.

DAVE BRIGGS: Don't get me wrong, man. We love to see the rally. We love your positivity-- you know that. But if I said dinner on the S&P being higher in one month than it is today, you'd say what? And that's an offer.

RYAN DETRICK: Where are we going? Where are we going for dinner, is what I would say. I mean--

DAVE BRIGGS: OK.

SEANA SMITH: Somewhere expensive.

RYAN DETRICK: Yeah, a good steakhouse? No, higher. I mean, believe me, so let's put it like this. October and November are the top two months in a midterm year. We talked about some of those things. I mean, I know-- we know inflation is high. But overall, this beach ball is really low, right? Really, really low. Once you let go and that momentum go up, we think this time, next month, you can buy me a steak. I'll come to New York. And we think the S&P is going to be a decent deal higher.

DAVE BRIGGS: I'll be happy to buy you dinner, man, if I lose this bet. And that is a bet. It's on tape.

RYAN DETRICK: There we go.

DAVE BRIGGS: Is there anything that you see, then, that tells us inflation might be cooling?

RYAN DETRICK: Yeah, I mean, believe me, this number is disappointing. Yesterday's number is disappointing. But yes, you look at some of the individual surveys like rents, rents are actually down month over month last year. The government data doesn't show that because government data takes like nine months for it to get in there. Used cars have really started coming back down. Government data doesn't show that because, again, they're not as real-time when it comes to this. So those are some potential positives. Just look around, right? Commodity prices have come back significantly.

Again, so those are some shining-- I don't know how to word it-- some potential bright spots in a really dark sea when it comes to inflation. But at the same time, what's priced in, and what's not? The market is pricing in massive inflation, massively higher rates. The Fed is not infallible. This time, 15 months ago, the Fed saw one rate hike this year, all right? I'm not calling them out. I'm just saying that's what it was. Six months from now, I doubt if the Fed's going to be nearly as hawkish as they are right now.

SEANA SMITH: Well, Ryan, when you take a look at, I guess, what we're going to see play out in the markets over the next several weeks, a big important factor here is going to be earnings. We're starting that tomorrow-- we're starting a number of the bigger earnings with some of the bigger banks.

We heard from Pepsi earlier this week. They were actually able to weather this uncertain environment, high inflation very well. What are some areas-- or do you think-- do you spot any trends, just in terms of companies that are best positioned to weather some of the downturn that we could see, even though you have a pretty optimistic outlook here?

RYAN DETRICK: Yeah, that's a great point. So earnings coming up-- energy is supposed to have massive earnings growth. We know that. But the number two is industrials. Industrials will see over 20% year over year earnings growth. You don't usually have a recession when that happens. Then you look under the surface of industrials.

On a relative strength basis versus the S&P 500, industrials are breaking out to, like, 1 and 1/2-year highs on a relative strength. So to see industrials that strong under the surface with small caps, which didn't violate the June lows, with healthcare hanging in there, with regional banks actually making new highs in relative strength, things aren't perfect. We get it. But these are some shining lights and some positives that are under there. And industrials, to me, is a really good-looking group that could be a big winner this earnings season.

RACHELLE AKUFFO: So, Ryan, then, for investors watching this, wondering what to make of this period between now and November, how should they be viewing the market? Where are the opportunities?

RYAN DETRICK: Yeah, kind of hinted at some of them. So we like value over growth still, your industrials, your energy, those materials. I mean, those are some groups that still look pretty good to us. We haven't liked big cap tech for a while, more neutral at best. I just look at this multi-year running growth, right, in technology. Some of these names still look kind of top-heavy, honestly.

So we like kind of small caps look pretty good and value. Those are some areas we still like. But just big picture, this big bear market that we've had, we think this time, 6 to 12 months from now-- I know it's cliche to say, but there are some really good opportunities. And honestly, look at small caps. Small caps are historically cheap, relative to the large caps. That's another positive, we think, there.

RACHELLE AKUFFO: All right, lots of great stuff. A big thank you, Ryan Detrick, for joining us this afternoon. Have a good one.