Art Hogan, Managing Director and Chief Market Strategist and National Securities Corporation joined Closing Bell to break down the factors that led to April's stock market meltdown, and look ahead at some possible bright spots on the horizon.

Closing Bell

Hope Ahead for Stocks After Worst Month Since Beginning of COVID

Welcome back to cheddar news is closing bell, everyone. Well anyway, you slice it april was a disastrous month for the stock market. We certainly saw it play out down here on the floor of the stock exchange and friday, in fact, was the cherry on top. The NASDAQ shutting almost 540 points. The dow dropping close to 1000 points just on friday to round out april. And the S&P 500 losing 3.6%. Well, tech stocks certainly were hammered, underperforming. And the NASDAQ posting its worst monthly performance since the financial crisis back in 2008. Well, the concerning thing for investors is that there's not one specific factor 2.2 as inflation supply chain challenges aggressive Fed rate hikes on the horizon. The persisting pandemic and of course the war in Ukraine all combining to take markets lower. So for more on this as we started a new month in the market, I want to bring an art Hogan managing director and chief market strategist and National Security's corporation artists good to see you. I know you've been with us multiple times throughout these past few years during the pandemic, but it was not a pretty april and I think people wondering do things need to get worse before they get better for stocks. Yeah, I think that's everybody's question right now and you're right, right. And that the market certainly the only good things to say about April is it's over and we're starting a new month. Um and what is happening in the markets while it feels terrible is relatively normal. And I say that because the s. p. 500 is now down about 15% from its highs. And in any given year we see a drawdown of about 14% going back to 1980 we have one of these a year on average. So we're kind of in the neighborhood of what would normally be happening and you listed off all of the pertinent headwinds and and agree on all of those. The one I would add to that is the china zero covid policy that's really causing a lot of pull back and demand and and certainly, you know, continuing to mess up our supply chains. The reason this feels worse is because we've lost the leaders, right? So the leadership which had been those sort of teflon tech names have been hit much harder than the average stock in the S. P. 500. The average stock in the S and P 500. It's a market Cap weighted index is down about 28%. And the the average stock and the national composite which has got about 3600 games in it is down about 40%. So it feels worse because it actually is if you look at it on a stock by stock basis, not just at the index level. So the index down 15% the average stock down some 28%. What's the good news? And I think the good news is if we look at the road map in front of us, right, we get, we get a Fed decision this week on Wednesday that typically removes a lot of that hawkish inks that we build up over the six weeks since the last Fed meeting, when everyone is raising their estimates for how much the Fed will have to do to tamp down inflation. We'll likely see a reflex rally off of that we did back in March when we had that the 25 basis point rate hike and everyone sort of, you know, breathe that sigh of relief and says, okay, we, we know where the Fed is at and we, we've got a road map in front of us. I think we get that kind of uh feeling again after the Wednesday meeting and that that's probably one of the catalysts. Certainly I think that that would be at least a short term reprieve right from the selling that we've seen last week breaking through those mid March lows. And I think a lot of people were concerned that we could fall further from here. Obviously artists, we've been discussing the outlook is still cloudy. We got first quarter GDP data that did show that the economy actually contracted in the first three months of this year and we keep hearing from some people at least that a recession at this point is inevitable. Do you agree with that? And what could that 4, 10 for the market going forward, could we drop another double digits from here? Well anything is possible for sure. And I would say any given year, there's a 10% chance of a recession just because of the sort of exogenous events, I would say this year's percentage is much closer to 30 or 35%. It's not our base case for 2022. We may well see a recession in 2023 likely happens in the middle to either in the middle two quarters or in the last two quarters of 23. But for right now, I think that we've priced in more bad news that has actually been delivered to us or will be delivered to us. So for example, if you if you break down the GDP report that we got last week and you backed out the the effects of trade, the balance between imports and exports and backed up the inventory destocking, you're actually in positive territory pretty significantly. There's about a 4% points drag on GDP from just those two um um effects. And I also think if you look at the rest of the economic data stream, the reports for March and the and the reports were now getting as we head into april clearly show that we're seeing growth across most parts of the economy. So that's the good news, the really good news and and in my impression and my opinion certainly feels like we're ignoring Better earnings earnings estimates for the sp 500 have gone up for the second quarter and for the second half As we're working our way through this earnings reporting season. But the punishment for missing has been much larger than the reward for beating. And that happens all the time. But it's, it's very pronounced in this particular earning season. So I think we start to rationalize some of those moves and the, and the last thing I would offer up is the multiple that we're paying for the s. 500. If you back out the top five names that all trade at about a 28 multiple. The average stock in the s. 500 is trading at about 16 multiple, which is extremely reasonable on the historic basis. Okay, let me ask you this are we are tight on time. But I am glad that you brought up China's zero covid tolerance policy. Right? We refer to it broadly as the pandemics, Dewayne on this market. I think the US at least has learned to live with it. But clearly we do live in a globalized world or at least we operated that way. Uh, two years ago. Pre pandemic. That is, it does seem as if China's zero tolerance policy in Russia's ongoing invasion of Ukraine without an end date in sight. Could keep this picture cloudy for a while. Would you say that those are the two biggest risk factors knowing that at least the Fed has broadcast its path forward for rates, we still don't know what's going to play out in Ukraine and in china, that is such a good point. And I think that's exactly correct. And if I were to list them in order of our largest concerns, it is china for sure. Much larger economy, much larger impact on the global economy, much bigger part of the demand for all the goods and services that the world produces. So clearly, the longer they stick with the zero Covid policy, the longer they have shutdowns, the longer they disrupt our supply chains. The worst that's going to affect everybody's economy. I think the war in Ukraine obviously has less economic impact directly in the United States. We produce most of the things that people get from the Ukraine. So that's not gonna be the term impact, but that's not true of the eurozone and the eurozone is a very important trading partner for us. Look, if I were to list those two headwinds in order, China certainly is the number one concern that we have right now. Are we going to leave it there? Always good to start a new month with your insight. The month of May. We'll see if it brings us any flowers after some severe showers in april art Hogan Managing Director and Chief market strategist at National Security's Corporation, we appreciate it