stocks ending with confidence, that's good to see investors
with a little bit of confidence on this friday heading
into the weekend on the hopes of smaller rate hikes
ahead after this november meeting. So joining me now
scott wren senior global market strategist at the Wells Fargo
Investment Institute scott, it's great to see you and
Kristen, can we call it confidence? This feels
good on the friday, the stock market game,
you know, it, it does, it feels
pretty good and I've had a long, hard week
and probably a lot of people that are watching this
right now have two. So it's great to see
the market finished strong on the clothes. But you
know, let's face it, this market trades on
a day by day. Economic report fed comment by
, you know, comment kind of basis. So
today was a good day, but I think you're
going to see certainly some downside testing and you're gonna
see some back and forth here in the coming months
. Uh, so more volatility ahead scott is what
I'm hearing. And we even saw that on display
this week, even though thankfully we were able to
notch some gains for the week. The major indexes
up anywhere between four and 5% officially on the week
. We are expecting another 75 basis point rate rise
come november, but it is a seasonally strong time
for the stock market. So even though it might
still be chopping, what is your outlook for the
stock market over these next three months. Well,
if you look out to the end of the year
, we have a 39 100 target out there.
So we think we're going to be a little bit
higher than where we are right now. You know
, you know, you know, you'd like to
think, I tend to be a glass half full
kind of guy, but you know, you get
a couple of comments out of the Fed and some
, we'll see what happens in november and december.
Certainly there's going to be some rate hikes and who
knows, maybe we're slightly conservative, but I think
3900 is good expectation for the end of the year
. And, and you know, we're not going
to get there in a straight line, we're gonna
get there with a bunch of down days, a
bunch of updates. But clearly we're looking forward to
be at least a little bit higher than where we
are right now, You know, how do investors
make sense of what's happening in the bond market scott
and what really should they be on the lookout for
? Because the days that we do see the market
turn lower, we do see that 10 year treasury
yield rise. And in fact, midweek we saw
atop its highest level since 2008. Well, if
you're a day trader on bonds, you're having a
great time because you have lots of opportunities. But
I think for investors right now you have to think
about, where do you think the peak is in
terms of, let's say the 10 year yield,
um where do you think peak inflation is, you
know, for us, we think the 10 year
yield to be somewhere right around here, maybe touch
lower at the end of the year. Um Now
, if it trades a bit higher than this,
we've been pretty neutral in terms of bond duration,
but I think that, you know, if yields
are here a little bit higher, you know,
we're going to get more interested in longer term bonds
moving, you know, out on the time frame
to lock in these higher rates. So in the
meantime though, you know, days like today,
you know what, we have a 15 basis point
range in the, in the yield on the 10
year. That's a lot. It's happened quite a
bit lately, but I think, I think in
general Kristin, the thing is we don't think rates
are going to go much higher than where they are
now. And if you look out to the two
year and 2023 we think they're actually going to be
a little bit lower. The 10 year yield,
maybe down to 3 75 something like that by the
end of next year. Is that enough to boost
the stock market scott? I think I think that
is going to be, you know, next year
. If you think the Fed is going to stop
hiking rates, we do. We actually think in
the second half of the year that they're going to
, they're going to maybe cut by a total of
75 basis points. I think the outlook is going
to be better. We think we'll see a recession
that starts late this year ends in the middle of
next year. That the market will start to anticipate
that. And we think the second half of the
year both in performance in earnings and certainly in market
anticipation is going to be better. So we think
the market will be about 4400 for the S.
And P. Is our target out at year in
2023. And we don't have any 24 numbers out
there yet. But I think the market is going
to be looking ahead to some decent economic performance in
2024. Okay. That's definitely some good news I
guess. Maybe we just need to be patient.
Yeah. It's gonna it's gonna be dicey right now
. Kristen you gotta be patient. You have to
know what you want to buy. You want to
take the opportunity to buy things when stocks are down
there down now and we'll probably have some more opportunities
before the end of the year. Okay. We'll
be waiting on that. But let's talk about what
is going on truly around the world. Right?
I mean one thing that this pandemic the past 2.5
years has shown us is that globalization is real.
It's a global economy, there are not gone effects
. And even though we have vaccinations and treatments here
in the U. S. And the U.
S. Might be doing better than the rest of
the world. We can basically turn a blind eye
to what is happening around the globe. And so
what particularly in the U. K. With the
resignation of Liz truss and the ongoing invasion of Ukraine
, what might that portend for investors down the road
lessons that we can learn from that? You know
, I think that um you know the U.
K. And europe in general have not done a
good job whether it's the coronavirus, the stimulus,
uh the the the central bank intervention and actions.
And so you know I think it's gonna be slower
. We prefer the US over international. Um you
have to pay attention to international because the S.
And P. 500 gets about 40 40% 35 40%
of the revenues from overseas. So what goes in
the U. K. Makes a difference. We're
expecting recessions. We think it's going to take a
while for those economies to climb out of that.
But um you know I don't think we can count
on a lot of help over the next 12 months
whether it's the UK, whether it's the eurozone or
even the broader EU um you know these economies have
really lagged and they're likely to do so they're slow
to react to what's going on. They usually have
high unemployment Low productivity low economic growth relative to the
US and I think that's going to be the story
over the course of the next year at least.
So what's the timing of a recession? Are we
seeing Scott a global recession right now? And if
the US is not already in a recession, when
do you think that might start? And how deep
or shallow might it be? Well what we've been
calling it is a moderate recession. So we have
a little bit economic growth this year. 1.6% for
us GDP were looking at a minus 1.3%. So
1.3% contraction next year. If we had to map
it out of the recession would start late this year
, which is later than what, you know,
nine months ago. If you would've talked to us
we would have said hey it would have started maybe
around the middle of the year that's been pushed out
so late this year lasting into the middle portion of
next year. And if history is any example,
usually the market bottoms out, you know, maybe
halfway through the recession, something like that. So
whereas defense as we wanna be right now, we've
we've tried to desensitize portfolios to the ebb and flow
of the economy expecting the slowdown. So really for
us the conversations have been, when is it going
to be time to get more assertive, more aggressive
looking for early cycle types of things like small caps
which were underway, consumer discretionary, which were underway
all the things that will benefit from a recovery.
So we're not there yet. But our convoy are
about the timing of when we will get interested,
not how are we going to get defensive? How
are we going to hide more? Here's another question
. Once we see a turn in the stock market's
got interest rates, those rises starting to ebb,
perhaps a healthier economy down the road, if we
can get there, is it just gonna be a
straight rip for stock? So we're gonna see a
big bounce given how much we've already fallen so far
. Well, I think we've fallen a good amount
. We could fall a little bit more. I
don't think we're gonna fall. You know, our
estimates are that we're going to fall a lot more
. You're gonna get some rips and you know,
kristen if you look at history um, a lot
of the big up days, they have happen when
you're right at the bottom of the market, people
are panicked, they're fearful and you get big jumps
. And I think that as this market bottoms and
eventually finds the bottom, um the same thing is
going to happen. So that's why you have to
really stay invested. It's hard to, you know
, have half your portfolio sitting in cash because um
, you know, it's hard to jump in when
, when everything's really panicky and time the bottom.
So we've tried to stay invested to less sensitive economically
sensitive things right now, but certainly when we come
out of this, we're gonna have some big,
big up days and we want to make sure that
we're in ahead of those, um not sitting in
cash and missing them. Yeah. Alright, scott
wren, senior global market strategist at the Wells Fargo
Investment Institute on a solid day for stocks in a
pretty nice week as well.