All three major indexes posted the worst percentage drop since June 2020. Chad Oviatt, director of investment management at Huntington National Bank, joined Cheddar News to discuss the stock market plunge on the heels of the inflation data. “This is one of those market environments where the range of potential outcomes for next year is so broad that your best defense is just staying balanced,” he said.

Closing Bell

Dow, S&P and Nasdaq Post Worst Day Since June 2020

uh, let's turn back to the major indexes joining me now is chad ov it. Uh, Director of Investment Management, Huntington's National Bank chad. Thank you for coming on rough day for the stock market. In fact, the worst day for the dow since june of 2020 more than two years ago, shedding close to 1300 points. The S and P. And the NASDAQ. I do believe seeing their worst day this year and it's been a really volatile year. So what is the path forward for stocks? Yeah, that's a great question today. Obviously the inflation numbers, pushing a lot of re pricing in the risk assets, bond market kind of coming to the realization that the Fed is gonna really stick to what their rhetoric has been and that is being more aggressive, being more hawkish in the next year. So Fed funds expected to go to some On the order of 4.3%. Now when you have that kind of move and you expect the Fed to remain hawkish and take rates higher those longer duration or rate sensitive equities are going to feel the pain of that as well. So you're seeing particularly those growth names like the technology names, where the discount rates are being re priced forcing the re pricing of those stock prices as well. So really difficult day today. What do we see going forward, What are we recommending for our clients here at Huntington's, we've been talking for the last several weeks about staying balanced. This is one of those market environments where the range of potential outcomes for next year is so broad that your best defense is just staying balanced. Don't get out over your skis one direction or the other. Whether that's fixed income or equities were really kind of neutral to our long term targets right now. Probably always, um, some good advice stay balanced. Try to stay balanced chad. So it is interesting. I know you mentioned and obviously we see on the screen here the NASDAQ underperforming down five point 2%. Of course these technology names act this way as rates rise, higher inflation reports come in. The Fed is prepared to raise rates again, we do see undue pressure or underperformance by the tech names. So I actually see the 10 year treasury yield a measure of rates today rising to its highest level since 2007. Is this the beginning of a new low for the stock market? That's a good question. Are we looking at lows in june did we put in the lows, have we not? You know, that's yet to be determined. Obviously today's numbers mean the Fed will continue to be aggressive. You go back to the fact that when we're looking at inflation, our team here at Huntington, we like to kind of bucket it in three different buckets. One is commodities to, is the rents component and then wages. When you think about those three components commodities, we've seen some movement you mentioned earlier in the segment about gasoline. Yeah, that's coming down. But food prices moving up by almost 11.5% year over year? That's the highest movement we've seen since the late seventies, the rents component, again, a little stickier part of inflation moving up to a year over year number we haven't seen since mid eighties, 1986 to be exact. And so when we think about history doesn't necessarily repeat itself, but it rhymes a lot. And when we're looking at some of those parallel occurrences throughout our history, we look back to the early eighties and we think the Fed could actually put us into a double dip recession. If we all agree that the first half of this year was a technical recession, then we could potentially see something like we saw in the early eighties. And so then you, you're gonna want to be defensive. You're gonna want to own stocks that pay dividends. But we do see some parallels to that early eighties timeframe right now. So here's a question that I have for you, clearly, as we see the stock market selloff across the board, what's your expectation for rate rises? Are you predicting a 75 basis point rate rise come september 21st. And what happens beyond that? Yeah. And that's the real variable and it's hard to handicap what will happen at the next several meetings. But we would suggest that next week it's a 75 basis point move that's essentially locked in from what we saw today. But then what will they do in november? There's a lot of data to collect between now and then we're going to get some additional CP I prints P. P. I prints between now and then. We'll see what the labor market's doing. The labor market's been holding up tremendously well through all of this. So challenging set of data points for the Fed to try to navigate a lot of cross currents. So we're holding out on making a call for november but next week, 75 basis points, 75 basis points chad how entrenched is inflation. And I asked this yes for the investor but honestly mostly for the consumer, this was a very concerning report that we got today, inflation prices up 8.3% and this is compounding right over time and 9.1% peak consumer prices from the same time a year ago in june 8.5% in july 8.3% in august still as gas prices have fallen for 13 straight weeks, what do consumers need to know? How do they plan for this? Yeah, it's difficult to budget around price increases like we've been seeing but the fact that we are continuing to see price increases were in a supply constrained environment. We know that we've heard the story time and time again about supply chain disruptions and how that's impacting, you know, grains. If we think about the war in Ukraine, there's supply chain disruptions from Asia, the list goes on and on. So that's the supply side. The fact that we still have strong demand and balance sheets have been strong here in the US for consumers and businesses that's continuing fuel strong demand. So the prices are going up. Unfortunately there's no easy solution for that, the budgets are gonna get tighter and those financial conditions are gonna get tighter, that's what the Feds intention is. They really only have that one lever on the demand side that they can work with. So watch for things to continue to get tighter from the financial condition standpoint if that puts enough pressure on the economy, we see slowing in demand, watch for prices to slow but right now demand strong Again, I chat for viewers just tuning in wondering how the stock market closed the worst day for the Dow in more than two years since June of 2020, shedding close to 1300 points on the back of a worse than expected inflation report. Clearly inflation entrenched in this economy and Americans simply meeting to dig deeper and deeper into savings. Just to get by, my final question to you is about the coronavirus. I mean, fortunately we haven't seen a huge uptick in cases here in the U. S. Are really around the world, but we are going to be heading into colder months and that could disrupt the supply chain, what is the risk that covid creates in the months ahead. Yeah, that's a variable, that's hard to predict as well. Who knows how many people are gonna get sick. Who knows what the reactions are gonna be from the medical community, from potentially governments around the world. If we look at China as an example, possibly, you know, they're still holding to their COVID-0 policy. And what's interesting is that COVID-0 policy really has impacted a lot of the economic activity and the demand there. So where we're facing a slight decline in our consumer prices today, not enough to really move markets again, entrenched inflation. As you mentioned, if you look at the consumer prices and the producer prices in china for the month of august actually slowed more than what we saw in our numbers. So there's that potential for demand and economic activity is slow if there is an additional outbreak here, but it's really hard to try to put that into an investment thesis because it is such an unknown and the variables are too wide. So again, we would just suggest be balanced. Recognize the timeframes for certain investments. Obviously when you have equities that's for longer term investments on those equities to outpace inflation over the long term, it's gonna be difficult in the short run, we're nowhere near that target of 2% but also have a cash position, have a fixed income position and you don't have to be absent bonds in an environment like this, but be patient and let those investments do what they're meant to do. Oh, it's a rough day chad. I'm glad you're here to break down the market action with me. And the outlook as well. That's shadow via director of investment management at Huntington's National Bank.