Melissa Brown, managing director of applied research with Qontigo, joined Cheddar News to discuss a new start to the trading week as the market edged lower in a mixed-performance day. Investors also await the meeting between President Joe Biden and House Speaker Kevin McCarthy to look to resolve its debt ceiling debate.

Closing Bell

Analyst Discusses Monday's Mixed Market Performance Ahead of Key Inflation Data

Joining me now is Melissa Brown, managing Director of Applied Research at Contigo, a Market Analytics firm. Melissa. Thank you so much for coming on the show. My pleasure to be here. Lots to talk about. Certainly in the stock market as our viewers see today, mixed market. What do viewers need to know? Well, I don't think it's that surprising. We've seen a market that has really been characterized by low trading volume, low volatility and relatively narrow breath. So I think it's as it goes up a little bit, it's really kind of on a shaky foundation. Ok. So let's talk more about that. There is that famous saying, sell in May and go away. But I think some traders, at least down here, they would say, you know, generally the stock market does do a slow melt up during the summer, but it is on light volume. What should they prepare themselves for what might be to come? Well, we've already seen very light volume is, you know, probably 25% lower than it was the same time, the same time last year. And so I expect that we might not see a huge dip in volume. But we'll really be looking at very low trading volume. I would also just add to the to the sell in May and go away that typically you're right, the market is up just not as much as it is in other months of the year. So I know you've been mentioning light volumes. I see only light volume down on the floor of the New York Stock Exchange today. That big board that I often reference for our viewers. What is light volume mean? Does it mean a lack of conviction? I think, I think it means either a lack of conviction. It's just that there's still so much certainty out there on the economy, on inflation, on corporate earnings, investors don't know what to do. So they're just not doing much of anything. And I think a third possible reason is that bond yields being what they are today are much more attractive than they've been for years. So rather than trading in stock markets, investors are in bond markets, we have a busy week of earnings as well as some inflation data, both for consumers and the producer price index. What does that mean for markets? Well, I think the inflation number is going to be particularly important to try to get a view on whether the fed will actually ease or they will just stay the course or you know, it's possible they could have to raise rates if we see a high inflation print and earnings, I think are going to tell us what the impact of that inflation is on corporate profits, you know, both on the revenue side and on the cost side. So as I mentioned earlier, you work at a market analytics firm. And so is there any time in history? I mean, that looks similar to what we're seeing now, anything that investors need to know as they try to prepare themselves for what might be ahead. Well, I mean, there's always uncertainty in the market. I don't know that there is a particular time where we've seen this exact confluence of events, but you know, things like inflation rising lower volatility concerns about the discussions on the debt ceiling. Those things have all happened before and you know, have generally been reasons for concern this regional bank crisis. I mean, any way to make sense of it, of course, more banks certainly vulnerable as we speak, questions about the viability. Now, I think of Pacwest and even some concerns about Western Alliance. Yeah, and, and those concerns kind of feed on themselves so that the more the concerns come up, you know, you know, the more it impacts stock prices and what the company says. So I, you know, I don't have a crystal ball into what's going on in those particular banks or any other banks. But, you know, I do think that we have seen higher volatility and you know, possible reasons for concern. What is the data showing you at your firm about the state of stocks. The, well, you know, again, we've got this kind of triple whammy of low volatility. And that's according, you know, we run models that model volatility so that, you know, the lower volatility, the lower volume, the low breath. And you know, I think those and one other thing that we look at is market sentiment and maybe the one bright spot we're looking at is that sentiment which has been negative for probably 14 months or something is finally starting to see the light of day and look a little bit better. Yeah. And I think we can't be, you know, remiss to not mention that there's a lot of money on the sidelines. Right. So any sort of way to glean what that might mean for stocks, I mean, can the markets melt up simply because people want to put their money to work? I think if we start seeing some good news with sentiment the way it is. Yeah, we could certainly see that money coming back into the market. I think it's a very fine line though, particularly when you think about the fed because they, you know, on the one hand, if they lower, if they cut rates, it probably means they're seeing a recession ahead. So that's not good news. If they raise rates, they're worried about inflation. So they've got a very, you know, kind of thin needle to thread there. To keep them, keep equity investors happy. It is always very delicate, that's for sure. And a very important job. Uh The Fed chair, Melissa Brown, managing Director of Applied Research at Contigo and Melissa. Thank you. Thank you.