Well, let's turn back to the major indexes strong
start to a monday ahead of this. Very important
. Consumer price index, reporter inflation data that will
get tomorrow. So joining me now is ross Mayfield
investment strategy analyst at baird ross, thanks for coming
on the show. So we've seen actually several days
of gains in the stock market. What is behind
this turnaround for stocks? You know, we're kind
of trapped in a range here and so in absence
of really good news or really bad news, I
think you're gonna get bounces when things feel a little
oversold and a little bit negative, but you're gonna
have a lot of trouble sustaining, uh, you
know, momentum to the upside as well, barring
some piece of really, really good news, you
know, right now that just means something on the
bed and inflation. So, you know, I
think we're bouncing around. I think we were probably
um, you know, a little too aggressive on
the rally in in late summer, but I do
think the recent selloff has probably been a little bit
much as well. So I think we're gonna be
trapped in this range for a little bit and something
to get used to. Okay, what's your expectation
for the inflation report tomorrow? I I do see
different estimates, but certainly at least a little bit
of a tick lower from what we saw in july
Yeah, I think that's right. It's gonna be
, you know, lower, but still far too
high for the Feds comfort for consumer comfort. So
, you know, probably somewhere around 88.1% would make
sense. Um I think that the Cleveland Fed now
cast is right, about 8.2%. But again,
you know, it's it's kind of semantics at that
point because you're heading in the right direction, but
you're still a long ways away from it. So
, you know, especially with core inflation looking to
remain pretty hot, things like housing, things like
, you know, the labor market, which hasn't
really cooled off at all. Um you know,
the Fed is still going to be very diligent.
I think the odds are still probably in favor of
a 75 basis point rate hike in september they want
to front load and then see where we're at at
the end of the year, but uh lower but
still too high. What would it take ross to
move stocks out of this range bound trading that you
said you anticipate at least here for the next few
weeks or so. You know, really there are
a few things I think that you can get really
good news on that might provide some lift to the
upside, I think geopolitically um, resolution in Ukraine
um would certainly be something that would give kind of
a risk on move to two stocks, but really
on the, on the Fed and inflation side of
things. It's really hard because we see where this
story is going, but there's almost, you know
, nothing that can that can make it happen quicker
, right? So things like housing are rolling over
but we know that takes you know a bit of
a lag time to get into C. P.
I. We see commodities are lower but they're still
you know largely um too high. You know things
like the labor market, it might be cooling on
the margins but it's still too hot for where the
Fed wants to be. So I don't think there's
a scenario right now where the Fed has to get
more aggressive than they've laid out. But a scenario
where they're getting their easing earlier than they expect is
probably not you know, risk on either probably means
that you know, a recession has come something like
that. So it feels range bound for now.
But there are a few things on the margins that
could that could change that. They're just not high
probability events interesting. We do see that results from
oracle will be coming in after the close. Haven't
gotten them just yet, ross but when it comes
to this technology sector of course higher rates have been
putting downward pressure on the technology names are their sectors
within technology, semiconductors, you know, big name
stocks like Apple or even individual companies that look attractive
to you at these levels. I think this environment
and particularly in a sector that's not necessarily working like
technology or communication services, you just want to go
with quality. So higher rates tighter financial conditions probably
gonna be in that sort of environment for the foreseeable
future. Again, if the Fed is cutting rates
next year, it probably means something has broken within
the economy. It's not, in my opinion,
a good thing if the Fed is cutting, so
if we're looking at, you know, 4% or
higher on the Fed funds rate and they're gonna hold
that pat and you're gonna see tighter financial conditions,
I just want to own the higher quality stuff,
the things that can um you know, self fund
that have a lot of cash on their balance sheets
that don't have a lot of debt, um particularly
floating debt. So, you know, you can
decide what that means to you, but companies that
have a lot of free cash flow have wide modes
and can operate in that sort of environment, maybe
that already have, it's been a long time since
we've seen an environment like that. But a lot
of those kind of tech behemoths have been around for
long enough that there might still be some muscle memory
there. It is interesting because we were covering at
the start of the show the potential strike that we
could see when it comes to real workers and what
that might mean for the supply chain ross. I
don't know in terms of the data, if you're
looking at some of the supply chain pressures out there
, if they've shown that they have been easing over
time and what you think potentially could be a risk
if this strike does indeed happen to me. Supply
chain pressures at the exact same answer as inflation right
there easing, they're heading in the right direction,
but there are still kinks in all parts of the
supply chain. Um you still have issues in china
Covid zero. So kind of at the start of
the process, you still have issues as you,
as you've been covering with track transportation across the country
at the ports. It's all using by most of
the metrics that we look at some of the official
metrics that the Fed puts out. Um but it's
still very well elevated from pre pre pandemic. And
so it's just gonna be a thing that probably slowly
works out over time. But um, as we
still have geopolitical issues as different countries pursue different policies
, it's gonna be really hard to get um everything
back in unison, especially with, you know,
the labor shortages and some of the stoppages that you're
talking about right now. So getting better but a
long way to go. What about energy prices?
I mean, energy stocks have certainly been the gift
that kept on giving, I would say at least
this past year and a half, maybe even two
years and Russia unfortunately is still invading Ukraine. How
do you look at the energy space and some of
the commodities out there? Sure. So you think
about something like oil that is kind of, you
know, broken down lately. Um, but the
energy stocks have not necessarily followed in suit. So
this is a point that our partners have bared at
strategic company have made is that you see oil prices
breaking down, but the energy stocks not necessarily following
in suit, it might be the energy prices telling
you that there still is a structural supply issue in
the oil markets and that, you know, there's
not necessarily a reason for the energy stocks to sell
off, you know, kind of in concert,
these companies can still make a lot of money with
oil around 80$90 a barrel. It's still a
lot better than the environment we saw over the last
78 years. So they've certainly been one of the
ascendant sectors. I think they've taken a pause,
but there's still some structural reasons to like that space
as we go forward. Um, I think there's
still a lot of issues on the supply side and
on demand. You know, you've had all this
kind of tightness in the market without china really online
in full if they ever kind of, you know
, ease their pursuit of covid zero policy and and
kind of re enter the market and bring that demand
to the table. It could be another leg higher
prices. So, my last question, ross is
the dreaded r word, right, will we have
a recession or do you think we can get a
soft landing? What's your expectation and what's the long
term impact of the stock market? Yeah I'm I'm
still in the camp that a soft landing as possible
I think um There's plenty of job openings out there
so that the Fed can kind of engineer a soft
landing in the labor market that they want basically removing
job listings without removing jobs and causing unemployment to spike
The consumer. And aggregates still has a ton of
savings. They've started to tap that they've started to
move into revolving credit uh to fund their spending.
But inflation is already on the way down. Important
inflation things for the consumer like gas prices are coming
down you know meaningful e. And so I think
there's still potential to get you know 4% on the
Fed funds rate fish the Fed holds pat and it's
tighter. It's not necessarily kind of the you know
25 30% returns we've seen in the S. And
P. 500 in years past. But you know
I don't think we have to enter a recession to
get inflation where the Fed wants it to go.
I think the consumer is still in a pretty good
place. They don't have a lot of you know
debt in the consumer space right now cos it's kind
of the same picture. Um So I'm still pro
soft landing. I still I think it's possible I
still like their odds unless something outside of the US
breaks in a way that kind of spills onto our
shore's um it's not impossible, but we still like
the odds. Okay. Pro soft landing? Yes
. I think a lot of people would like that
to be the case as well. Ross Mayfield investment
strategy analyst. Is there, too? Thank you --> .