Assessing the State of the Economy Ahead of May Jobs Report

<div class="block">Sam Stovall, chief investment strategist at CFRA Research, joined Cheddar News to assess the state of the economy after stocks closed higher on Thursday following news of the House passing measures to raise the debt ceiling.</div>

Closing Bell

Assessing State of the Economy Ahead of May Jobs Report

Joining me now is Sam Stovall chief Investment strategist at CFRA Research. Sam, thanks for joining me on this first day of June, very solid day for the markets. Of course, on the back of some debt ceiling optimism and continued earnings that keep rolling in. What should our investors and viewers know about the state of the stock market? Well, I think investors are now feeling a little bit better since the congressional drama has largely been passed and now the focus will come to the Federal Reserve when they meet June 13 and 14 and questions still abound as to whether they will or will not raise by 25 basis points when they meet again. Our belief is that they will be raising rates because economic data of late has come in stronger than expected. And also we've been hearing more hawkish fed speak and have been seeing stickier inflation data. Certainly, I think the jobs market data that we get tomorrow might give us some indication to just as to how inflation is sparing with that average hourly earnings number. Sam, I know you follow the history, the numbers very closely any sort of market moves that investors can expect from here based on the data. Well, historically, if we do end up finding that the fed indeed did pause in May, then historically, the fed starts to raise rates nine months after. And in that nine month period, on average, the market has gained 13% with all, all styles and all sectors posting advances as well as a majority of the sub industries. So investors tend to breathe a sigh of relief and look upon this as a good buying opportunity should indeed this end up being the pause period. Interesting us, stocks obviously in focus international stocks as well as we continue to track the dollar sam anything that our viewers need to know about international names? Sure. Well, from an international perspective, you know, you're looking at a relative pe ratio on the developed international that is between one and two standard deviations below the mean or in other words, very enticing from a relative valuations perspective. Also you look at pe ratios on an absolute basis that are below their long term averages. You also look at earnings growth that is expected to be higher overseas than here in the US because GDP growth is likely to be a bit stronger and we typically see higher dividend yields for many of the international indices. So a group that's been out of favor for a very long time could finally come back into investors favor. Yeah, it's interesting to see some of the momentum that does appear to be building in those stocks as we speak. Sam. There is the famous saying, sell in May and go away. Is that something you expect to play out this summer? Well, I always advise investors to rotate, don't retreat because the average gain since 1990 has been 2.2% for the S and P 500 May through October and annualized. That's a lot better than we have been getting in the past for cash. And also you would experience a taxable consequence. Historically, the defensive groups, consumer staples and health care tend to do better in this volatile May through October period. But I think possibly coming out of this bear market environment, let's face it. We're only about a percentage point away from hitting a new 20% threshold implying that we are in a new bull market for the S and P 500. I think investors are going to be looking upon that as a reason to buy not bail. So a question that I have for you, Sam based on what you're telling me, I mean, it seems like the October lows have been put in, they are behind us with momentum, trending to the upside. But we did hear recently from the fed meeting minutes that they expect a mild recession this year and for the end of the year and we know recessions do usually see in some cases, a double digit percentage drop in stocks. What do our viewers need to know about that? Well, the stock market is an anticipated and typically the market tends to precede recessions by a good seven or so months. And we've already experienced a 25% decline from peak to trough January 3rd of last year through October 12 of last year. Now we're working our way higher. The point that we see for this year is a 0.6% gain in GDP in the third quarter. So we keep wondering, where's this recession everybody is talking about and fearing. So even though history does imply that because of a variety of factors like inverted yield curve inflation levels, leading economic indicators being negative, et cetera that a recession is likely. I think certainly a mild recession has already been factored into share prices, not a deep one and we might indeed ending up missing one altogether. Ok. Great to get your market insight. I know a market watcher for many, many years and currently the Chief Investment strategist at CFRA Research, we appreciate it.