Both the Nasdaq and S&P 500 slid on Wednesday, as investors assessed disappointing earnings from tech giants Microsoft and Google parent company Alphabet. Cheddar News speaks with Jordan Kahn, CIO of ACM Funds, who breaks down the market action.

Alphabet Earnings Weigh on Stocks, Points to Looming Recession

but let's turn back to the major indexes joining me now is Jordan Kahn, chief investment officer at ACM funds, Jordan thanks so much for coming on the show. We see a mixed market today, I would say mostly lower. Um, of course on some disappointing performance from Microsoft and alphabet, what's the takeaway from these technology earnings that we've gotten so far? You know, I don't think it should be all that big of a surprise. We've been talking about, you know, an economic slowing for months. Now, if you look at the revenue growth for both, um, google and Microsoft, you see the revenue on a year over year basis has been slowing for about four or five quarters now. So it's not really all that big a surprise. You know, the stocks have bounced recently after, after the market made that october low. And so, you know, I think it was really just kind of a cell. Well, certainly we've seen super pessimistic sentiment out there Jordan but kind of the reprieve at the start of this third quarter reporting season, was that the banks, some of these other consumer stocks like american Airlines Visa, showing that the consumer has been resilient at least during that back to school shopping season. The consumer was resilient. How would you rank sentiment right now? And what that might indicate about the path forward for stocks? Yeah. You know, to your point, I think sentiment did get very bearish. Especially I mentioned that the recent low that the market made, I think around October 13 when sentiment when bearish sentiment really kind of peaked. And so since then the market has had about a 10% bounce off of the lows and that has allowed some of that bear Sentiment to unwind. I would say sentiment is still cautious, but probably a little bit more towards the neutral end of the specter. Just just going to that bounce that we've had off the loads. We do know the Fed expected to raise rates by another 75 basis points come this November meeting Jordan with the expectation, I will note, which was the case just kind of a few months ago that it will slow the pace of rate rises after that as it does look to rein in inflation. How should investors navigate their portfolios amid a Fed that still is aggressively raising rates to combat higher prices? Yeah, I mean there's that old adage about don't fight the Fed and we're still in don't fight the Fed environment. And so the expectations had been for a seven, another 75 basis point rate hike next week. And then, You know, hopefully something a little less like a 50-point rate hike there are there after today, there was a surprise when the Bank of Canada raised rates. They were expected to raise rates by 75 basis points, but only wound up going 50 basis points. And that's one of the things that that caused the market to rally a bit this morning. But overall, you know, I think that we still need to be cautious because while people are really micro focused on the pace of rate hikes on the part of the Fed, there's a second component to the equation of this current monetary tightening and that's the balance sheet, right? What they're calling this quantitative tightening and the pace of quantitative tightening just picked up recently in september and even if the Fed does kind of slow the pace of rate hikes, they're still gonna be, you know, keeping their foot on the brake in terms of reducing that balance sheet. Um and the quantitative tightening, I'm just curious Jordan's your perspective on whether or not a recession might be in the cards. Some saying we're already in one technically, I think in the first six months of this year we actually were according to the GDP data, even though the jobs market has held up quite well. I mean extraordinary Well, in fact throughout this high inflationary environment, do you think a recession is on the horizon? And how should investors prepare their portfolios for that? Yeah, I am in the in the camp of those that do think a recession is on the horizon, if we look at the degree of inversion in the yield curve right, with Um two year rates trading above 10 year yields of the market, that's usually a pretty good indicator of recession. And we've seen that the yield curve has reached its steepest inversion since the year 2000. Um So I think that that's pretty important. You know, we're starting to get more and more reports talking about slowdowns in various parts of the economy. I think we're starting to see a little bit of a pickup in terms of layoffs and the likes. And so it is something that that is on our, on our radar. And I think to your point about what investors can do. You know, it's easy when the market has these rallies for people to get sucked back into the growth areas, the areas that had performed the best, you know, in past markets. But I think, I think now the focus should be really to be more defensive. And so, you know, we're still looking at those defensive areas, whether it be utility staples, healthcare, You know, things that can act a little bit more defensive in an economic slowdown. Do you think the low is behind us Jourdan that we've seen a bottom in the stock market or that this volatile downward trend will continue into the end of the year and perhaps into 2023 as well. You know, if you if you look at a longer term chart of the market since it topped earlier this year, what you see is a very defined pattern of lower highs and lower lows. And so I think even though the market made a new term low in october it's still too early to say that that pattern has been broken. So earnings estimates have only just started to be revised downward. And I think we're going to see a continuation of that. So you know, my guess is that even though we might have more of a rally here to go that there's a good possibility that we haven't yet seen the ultimate lows for this market interesting. And in terms of the percentage losses that we could see from here, Jordan, are we talking another 10% decline or do you see something perhaps even more dramatic than that? No, not more dramatic than that. I think maybe something in the 10% You know, picture could could be realistic. Um you know, we kind of did some projections early on looking at where earnings estimates might get revised down to and putting some sort of reasonable multiple on that. You know, I'd say a projection maybe could be as low as 30 200 and the S&P. But you know, it's not something that's set in stone Jordan. I'm just curious, are there specific stocks that you like on your radar that you would advise investors perhaps from a defensive standpoint, take a look at. Yeah I mean definitely, you know, picking individual stocks in this market is a much more difficult task since most stocks go down and follow the general trend of the market. What we try to do is look for stocks that are holding up better than the overall market. And especially try to find ones that maybe are hitting new highs within this, this context of a down low and so there's a couple of names that fit that bill recently. One is Quanta Services. They are an infrastructure play a play on upgrading the grid in America, which is, which is aging and badly in need of some upgrades. And another one that's kind of in a similar area is Dycom Industries, which is more of a high speed, high speed telecom play five G wireless and the likes. All right, Jordan, we're gonna leave it there. Thanks so much for joining with your insight, jordans and chief investment Officer of funds.