well ken it was a rough week, not just
for target for the major indexes alike. We do
have the numbers in from our executive producer, the
S. And P down 5.1% for the week.
The dow off 4.6%. The NASDAQ shooting 5.6%.
This is the worst week for all three of the
major indexes Since the week ending January 21. So
clearly here a lot of pressure to the sell side
after. We have seen one of the best weeks
for the stock market. All three of the major
indexes toward the month of May, the end of
that month, going back to November of 2020.
So still a choppy market but generally the direction on
the downside again as U. S. Investors question
whether or not we are headed for a recession.
So joining me now is Mike Zigman, head of
trading and research at harvest volatility management firm and investment
company mike thanks so much for coming on the show
. What is your take on the consumer price index
data that we got this morning and what it means
for the U. S. Economy christian boy.
The date is a little disappointing. I don't think
it's as awful as the equity market. Um thought
today, I think today is a bit of a
Overreaction Fear 1st. Instead of serious consideration of the
situation. Um you know, the the Fed has
suggested that they want to hike 50 bits per meeting
for the foreseeable future for at least the three the
next three meetings and then make judgments from that point
going forward and this kind of a C. P
. I surprise while disappointing because it's higher um doesn't
seem like a situation where you need to break the
glass in case of an emergency A 75 bit pike
or 100 dip hike, which to me is what
the equity market is fearful of would not be necessary
at this stage unless the C. P. I
were really screaming higher. I mean the Fed only
started hiking in March and they were signaling for tighter
interest rate conditions in late december, early january.
So those effects have not had a chance to be
felt in the economic system yet we have a serious
lag between Fed policy policy implementation and US economic observation
. So when do those, when do these rate
hikes start to be felt in the system. When
do we finally get to see peak inflation and hopefully
an improving economy one that can avoid stagflation and low
growth. I think we're there. I think if
it's not this month next month because you know,
the rule of thumb is six months of lag time
and the Fed signaled before the Fed actually hiked.
So the actual market did a lot of the hiking
for the Fed in anticipation of actual Fed policy changes
. So if you take a look at interest rates
, they started climbing at the beginning of the year
and if you just tax six months on from january
, you should start to see slowdown effects from higher
interest rates now. So in terms of the consumer
obviously Main Street and Wall Street hurting in different ways
, but both hurting mike for main street, low
income earning americans needing to dig into savings in case
many americans actually doing that to pay for higher prices
across the board and stocks down because of higher interest
rates ahead. How does this end? Do you
think the U. S. Can avoid a recession
? Yes, it's going to be difficult. I
think it's not an easy task to engineer a soft
landing. But you know, if you think practically
about the state of the economy, We have very
low unemployment. We have a very productive economy and
the Fed is looking to hike rates to around 3%
. Now if you think that 3% is an interest
rate environment that chokes off economic activity in this country
, then you would be in the camp of a
recession or a contraction of some kind. I don't
think that those rates are prohibitive to our economy.
The issue is that the financial markets are Getting shocked
by these changes and they are not concerned so much
with whether the economy will handle the final interest rate
state, that's going to come 6 to 12 months
from now. They are worried that the changing of
expectations is going to rattle components of the economy,
the consumer, the business, the investment community all
into a contractionary behavior and it becomes sort of a
negative self fulfilling prophecy. So, you know,
if people get scared out of their wits, then
they stop spending and then it causes a recession.
So I think that if people sort of slow down
and pay less attention to their stock prices and more
attention to the general economic engine that we are all
part of and we think okay, we need to
increase interest rates to reverse inflation. Can we do
it while still growing the economy? I think the
answer is yes, especially 3% or 2% is the
destination. I guess my question though, Mike is
we already saw the economy contract in the first three
months of this year and with prices through the roof
and consumers really starting to feel the pain if we
do contract in the three months and in june that
technically would be a recession, I mean we are
right on the brink Of a recession, some actually
saying we're not going to get a recession now,
but we could get one come 20, What are
the factors that matter going forward to this economy?
And the American consumer? I think confidence, confidence
is the number one thing, you know, the
sentiment that we saw today was not so great.
So that bodes poorly from my expectation that we have
a soft landing. But I think that if inflation
starts to come down in certain places like the most
attention right now is being focused on the energy sector
. So if you can get a pullback in energy
prices, whether or not inflation across the entire economy
is coming down, people will perceive that we have
survived the worst of it because the gas tank is
what they pay attention to every week every day.
And that will change attitudes and I can see a
resumption of positive economic activity as a result of that
, just from positive retail, um, experiences at
the pump. Um You know, food prices would
be another example, but I don't think that food
price changes will happen as quickly as energy price changes
and food prices, I guess up just about 1%
month over month that we saw here, Mike in
his latest inflation read in the month of May,
even though we know shelter prices, travel prices,
certainly gas and fuel prices. Uh much more significantly
. We got to leave it there. Rough day
, rough week for stocks. We'll see if next
week will bring us any good news. That's Mike
Zigman, head of training and research at harvest volatility 00:07:36.220 --> Management