Kathryn Rooney Vera, Head of Research & Strategy at Bulltick, joined Closing Bell to talk stocks on the Wednesday before Thanksgiving, as traders were encouraged by reports that the Fed may slow down the pace of interest rate rises. 

Fed Signals it May Slow Pace of Rate Hikes

And let's turn back to the major indexes joining me now is Kathryn Rooney vera, head of research and strategy at wealth and asset management for Baltic Catherine, thanks so much for coming on the show decent gains that we see across the board in today's session before the thanksgiving holiday. What do you make of the market action? Well, the market is increasingly um discounting the possibility of a soft landing, soft landing as I define it. And that definition is christian changing, but um but soft landing being that the Fed is able to get inflation back down near target, which is an average of 2% without inciting without forcing um recession and a jump in unemployment so that I think is what the market is excited about And the fact that the Fed is acknowledging what it had already put forth in its thoughts plot that in December they're going to decrease the magnitude of the rate hikes from a maximum of 75 basis points, which is seen in the past couple of meetings to 50 basis points that we already knew. I think the markets are getting a bit ahead of themselves. Yeah. Um well it is good news. I see here the Dow Jones industrial average Catherine unofficially closing at its highest level since April 21. So the Dow has been quietly rising. I think that that is a positive. Do you think the bottom might be behind us? I think we probably could go lower Kristin in the equity space when we are actually in the recession. Remember that um Currently we're still pretty resilient. The consumer is very robust, consumer confidence has maintained itself pretty nicely, retail sales have been strong. Um So I think a recession is not fully discounted, I think we could go lower and when I'm most interested in now is fixed income because fixed income, once we move past the narrative of everyone talking about inflation and have we, have we seen the maximums and inflation and everyone's talking about recession because we're in one uh then fixed income yields will go lower and prices will go higher as everyone, the narrative changes from inflation to recession. And when is the Fed going to cut rates not hike them? Yeah. Well, what about the labor market? We have actually seen those initial claims take a little bit higher. Today Catherine, we're always hearing, it seems like some layoffs in the technology sector. Certainly meta amazon HP recently announcing some layoffs as well here. How confident are you if we do dip into a recession that this labor market itself can remain resilient? Well, that would be amazing. That would be kind of a soft landing as some define it. I think unemployment is going to go higher. We're already seeing Kristin if if you look in the, in the data just today, we saw business spending really robust yet initial jobless claims came out at 2 40. So, so they're ticking higher. We saw an unemployment rate go from 3.5 3.7, I think that we're going to get an unemployment rate much higher next year. And if I'm right, even even if the Feds right, the Fed forecast 4.4% for unemployment next year, I think we're going to get five. So if that happens to go from 3.5, just a couple months ago to next year, above 4.5, in my view historically, it has never happened where the unemployment rate moves to that magnitude to that extent and we're not already in recession. How much does this holiday shopping period matter for the health of the overall economy? Catherine and especially some of these retail stocks. Mhm. Well we're probably gonna have a you know, a santa claus rally by um by the end of this year um And while the unemployment rate remains so low and while it's very resilient, we should expect consumers to continue to consume. They still have their jobs and jobs opening shows that there's ample opportunities to find another one. So I think we can continue to expect that what I will highlight kristen is look at the difference between consumer loans rising and savings dropping. So that could be the impact of inflation. People are paying more for that. Thanksgiving Turkey and the stuffing and all of their clothing and all of their experiences. Um But it's also because the labor market has a really strong. So my view is that the Fed has to force um a contraction in demand, which means recession to be able to get inflation down to the 2% target. Yes, it's come down, but we're still above 7.5%. The target is to right right. So what is the path? I mean, I know the Fed obviously puts out its own projections Catherine, but by your measure, How long is it gonna take to get inflation back down to 2%. I think if we're in recession next year and we get an unemployment rate that jumps back up to the Nehru, which I think is about 4.9%. That's the neutral rate that unemployment is no longer or the labor market is no longer inflationary. We can get inflation tracking back close to 2% by the end of next year. It will depend on how quickly and how severely the labor market rolls over and how mild or not the recession is because we have supply factors, but we also have demand factors in inflation. It's not all about oil prices, it's not all about supply chain distortions. There's also the impact of wage increases on inflation, which in my view is the more difficult. Mm hmm. I'm just curious in terms of viewers watching Katherine, obviously a jump in the unemployment rate to 4.9% would be, I think pretty drastic for some people. Obviously we'd see a lot more layoffs, are you expecting layoffs across the board? Across all sorts of industries? And when might those really start to gather steam. That's a good question because we've already seen them as you mentioned in the beginning, um, start with tech. Um, and I suspect that a lot of that could come from, um, leisure and, and services and kind of the discretionary sector, which is what people post pandemic have spent on and they currently still do because their wages are growing and they still have jobs and they can get another one. So even though inflation is higher for services, they're still spending on services. So once the labor market turns over and those people either don't have a job or fear of losing their job, the first thing to take a hit is discretionary spending. What is discretionary? It's recreation, it's travel, it's services, it's having fun. It's going out to restaurants. So those are the things that I think we should expect to see rollover in 2023. Mm hmm. Yeah, I think Justin moore muted approach does seem to be what might be in store Catherine. My last question of course, is about earnings generally. We, we still have been seen earnings growth overall, but the expectation is that we'll start to see earnings growth flow maybe even flatten out. So we don't see any earnings growth here in the quarters ahead. What is your projection when it comes to how corporate America is faring amid all this so far. So good. Um, I think that however if we go do go into a contraction in demand, then corporations will respond to that expected future decline in demand um by you know, tightening their belt. So what does that mean? I expect that earnings growth, it's been kind of paltry in this last quarter. Um Up to a little over 2% year over year I think next year we could get a flat um earnings for the S. And P. 520 23 we could be flat by S. And P. By the end of the year. But we I think we could go lower, you know, 37 50 is not um is not out of the realm of possibilities if not even lower, depending on the magnitude of the recession. All right, Kathryn Rooney vera, head of research and strategy at wealth and asset management firm Baltic Catherine. Thank you.