David Wright, president and owner of Wright Financial Group LLC, joined Cheddar News to discuss Thursday's trading as stocks closed higher amid strong tech profits. But Wright says banking stress could sway markets down as the Federal Reserve could weigh more rate increases.

Closing Bell

Analyst Breaks Down Thursday's Market as Stocks Climb Amid Strong Tech Earnings

Joining me now is David Wright president and owner of right Financial Group, a financial services firm. David. Thanks so much for coming on the show. Good day for investors. But I think still questions about the overall trend and direction of this market going forward. What's your take away? My takeaway is that day to day. Everything is changing rapidly based upon sectors of the economy. The biggest takeaway that I have so far this year is in the first quarter, consumer discretionary led the way people were still spending a lot of that money that they got during COVID shut offs and booking those cruises, spending the money. I'm on the boots on the ground here in Toledo Ohio and I'm seeing a change, a shift in the wind, so to speak with consumer spending, becoming less discretionary and more on consumer staples. So I think we have a market right now that could very easily be trading downward in the next 2 to 3 quarters as far down as 34 to 3200 points. I know that comes on the heels of a wonderful day like today, but that's my belief. So let's walk through that, I mean, a lot of, a lot of people think the October lows maybe was the low of this cycle. But other people have said certainly at least in the banking crisis that we saw last month that we could re test those October lows. What do you see playing out? Do you think the lows are behind us? They're ahead of us. And what specifically is driving that thesis? Well, my thesis on, on why we're not at the lows yet is basically part of a part of it is the banking crisis. I don't think it's a contagion. It's certainly not the banking crisis that we experienced back in 2008. It's not credit issues. It's the Federal Reserve issues. The Federal Reserve had to know by raising short term interest rates, the stress that was going to create on bank margins, et cetera. So what that's going to do for a lot of these corporations that have to refinance their debt, they're going to have to refinance their corporate debt in the summer and in the fall at maybe double the price that interest rate that they had their corporate loans. So that's going to impact the bottom line. The other thing that we're seeing also in corporations is rising, inventories, rising inventories means products not being sold more job layoffs. So we believe that the Feds aren't going to stop raising, they're going to do another quarter basis, but they might pause for a while, but there's still not going to pause permanently until they see job layoffs in more of the two million range. You mentioned 100,000 in the tech sector, we're going to have to get closer to that million and a half two million jobs of layoff before I think they're going to lay off the short term rate hikes. So basically, I believe that's where we are. Ok. So let's talk about the financial sector, David because the fed has broadcast that it expects credit to tighten. Of course, that's going to impact consumers to businesses as you were laying out there. But the whole premise of these banks, right is that they were supposed to make more money on the loans that they lend out in a rising rate environment. And so what's gone wrong there? Because I think wisdom history would show that these banks should do well in a rising rate environment. Well, I think the problem is the rising treasury rates banks had this. I think a secret from consumers that treasuries are at 4.5%. And what we're seeing here locally is that a lot of the depositors are shifting out of their bank accounts, which is creating a lot of stress on banks because depositors are pulling their deposits out, putting money in treasuries or short term guaranteed insured contracts, which in turn banks to sell their loans, their treasuries at a lower price as interest rates rise, prices fall of course. And the same is true with mortgages, mortgages normally don't have to be shown on their balance sheet at their actual value. But when they're forced to sell some of their loans to raise money, to pay out depositors, that's a problem that puts extra stress on banks. And I think that's what's created a lot of that banking crisis. I think the Feds are going to step in and they've made it clear that they're going to back regional banks, like they've bailed out Silicon Valley and First Republic, etcetera. But I don't think the end of that pain is over yet and a lot remains to be seen with the debt ceiling crisis that we're all going to be talking about in the summer. So David, let me ask you this. Is there any place that you would recommend investors? Americans put their money to work right now? Well, our whole play since the beginning of this crisis is, first of all, investors need to know what their money is for what their time horizon is. Understanding that if their money is for retirement and they're close to retirement is not make any major mistakes with their portfolio balances right now. So we have clients investing a lot in treasury short term duration treasuries and also so playing the long end of the spectrum knowing that probably if there's a flight to safety before the end of the year, the US 10 year treasury yield may drop as low as 2.5%. And at that point, you take the appreciation of the 10 year treasury and you start to nibble at the edges of the market. But most of our clients are invested for purpose for income in investments that are more value based, more value oriented companies in our portfolio that generate dividends and or interest from income securities. So understanding what your money is for understanding that it's for a purpose to retire you and then the money you don't need for income, for retirement, that money can be positioned in things that are more growth oriented and there will be some generational opportunities in that market with small cap a tech companies. But I don't think that opportunity will be until more towards the end of this year or even maybe Kristen into the first quarter of 2024. Ok, David, we're going to leave it there. That's David Wright, president and owner of right Financial Group.