Right. Let's get another quick check of the markets
in the early moments of trading. Before we bring
in our guests. We got all green all across
the board here. The NASDAQ up almost 7/10 of
a percent. We have the S and P 500
up about a half a percent and looking at the
dow up almost a half a percent as well or
about 160 points. I want to bring in Sam
ST now, Chief Investment Strategist at C F R
A. Sam. Thank you for joining us.
Welcome to the show. What's your reaction so far
to how markets have opened this morning? Well,
certainly it got good news before the opening with the
C P I numbers coming in better than expected.
I think that there was an awful lot of negative
news, negative forecasts regarding inflation and also regarding the
earnings that will be coming out later this week.
And I guess with the bar set so low,
the only way that the market could go would be
higher. Yes. And your point consumer price index
coming in cooler than the street was expecting that year
over year number coming in about 5% for March.
So what could this mean for fed interest rate hikes
in the future? Well, I think what it
means is that the fed will raise rates by 25
basis points in May, but then takes off of
the table, the potential for another final rate hike
in June. I still don't see the fed cutting
interest rates in 2023 mainly because they have told us
numerous times that they don't want to repeat the mistakes
of the 19 seventies. So while they probably will
end up with one more rate hike, they probably
won't start cutting until the first quarter of 2024.
Now you mentioned big bank earnings kicking off at the
end of the week, you know, given that
you're expecting another rate hike. What could this mean
for banks moving ahead? And also what are you
expecting to see from these banks in general on Friday
? Well, on Friday, in terms of the
diversified banks, we're looking for about an 8.5% year
on year decline, which is actually pretty mild compared
with many other sectors and expectations for red ink to
flow for this quarter. Our belief is that a
lot of the large bank could end up surprising because
with the concern with the regional banks, we've had
depositors shift funds into these larger banks and so we
might end up with a bit of an upward surprise
. So again, I think that the bar was
set very, very low and investors could be encouraged
by what they hear. Now, of course,
you know, this 25 this rate hike cycle,
some attribute the collapse of Silicon Valley Bank and Signature
Bank to strategies moving into when they were investing in
bonds at a lower interest rate. So if we
continue to see rate hikes, if we get another
25 basis point hike, do you expect more bank
failures? You know, we've heard from the likes
of Warren buffet that there could be more on the
horizon. Well, certainly there's the possibility of additional
bank closures. But the real question is, what
kind of reverberation will that be in the marketplace?
Because the fed, the treasury have already told us
that they will backstop depositors funds. And so while
I'm sure that the banks are doing whatever they can
to make sure that they don't go under, should
we end up with a couple of more that do
I think investors might just end up yawning because they
know that it's not going to have a cascading effect
on other banks and on their own portfolios. Sam
, you've noted that the shift from people spending on
services rather than goods could be slowing down. We
also know that we have retail sales data coming out
on Friday. How does this set the stage for
the economy moving forward? And what does it say
? Well, our economists are saying no recession,
they are saying a very weak 2nd and 3rd quarter
with gains of only about 0.20 point 3%. So
that leaves us precariously close, I think to an
overall slowdown. And when you look to traditional measures
such as year on year percent change in CPI leading
economic indicators, the fact that we are likely in
an earnings recession, the steepness of the inverted yield
curve, all of those have pointed to a recession
. The real question is whether the market has already
discounted that and whether it is actually looking toward 2024
right now, expectations are for a 12.5% rise in
earnings next year versus the 1.1% decline anticipated for this
year. Sam Quickly here, you said our lending
and credit is tightening. So what does this mean
for your outlook for a recession? Are we in
one already? And how deep would it possibly be
? Well, we'll find out from the N B
er, about eight months after the fact as to
when the recession actually started, I think there is
a good possibility that the N B er business cycle
dating committee will say that the recession started sometime in
the second quarter of 2023 but could like in 1990
be a relatively short recession and a fairly mild one
. All right, Sam Stovall Chief Investment strategist at
C F R A. Thanks so much for your
time today.