Stocks closed Wednesday's session higher, as investors prepare for comments from Federal Reserve Chairman, Jerome Powell, at the U.S. central bank's Jackson Hole Economic Symposium tomorrow.  The Dow Jones Industrial Average jumped 0.2%, the S&P 500 close up 0.3%, and the tech-heavy Nasdaq finished 0.4% higher.  Chris Konstantinos, Chief Investment Strategist of RiverFront Investment Group, joins Cheddar News' Closing Bell to discuss.
  

Closing Bell

Stocks Close Higher Ahead of Fed's Jackson Hole Meeting

let's turn back to the major indexes a lot of green on Wall Street today, fractional gains, good to see after three straight days of losses joining me now is chris Constantinos chief investment strategist for riverfront Investment Group chris thanks so much for coming on. What is your reaction to what we've seen in the stock market of late? Sure. And Kristen thanks a lot for having me today. Um, yeah, so what we've seen, you know, if you look after Q two, which of course Q two is an absolute disaster uh, for stock and bond investors both, um, we have been somewhat heartened to see, you know, july and here into, you know, most of the way through august, we've seen a lot of the internal technical indicators of the market start to improve. Um, I don't think we're out of the woods yet, but we do think that the fact that the market was able to breach above that 4200 level, which we viewed as important resistance, uh, and has been able to back and fill here without collapsing back down below it or dramatically below it. We see that as an incremental good sign. And so from our perspective, it caused us to get, um, where we have been very, very conservatively positioned. We have put a little bit of capital back to work, but we still remain somewhat conservative, you know, particularly for our lower risk, shorter horizon portfolios here, A lot of focus chris on what Fed Chair jerome Powell will have to say friday morning on the path forward for interest rates and the state of the economy, what's your expectation as to what we hear from the Fed Chair and the market reaction? Sure. Well, I really don't envy his position here because he's gonna have to walk that tightrope between, uh making sure he's trying to maintain as much credibility as possible in terms of uh you know, talking tough on inflation, but he doesn't want to sound so hawkish that he torpedoes financial conditions and creates another sort of mini meltdown in risk markets, which of course is already bleeding into um, you know, consumer confidence, business, confidence, etcetera. So he's got a very, very delicate type to walk here. Um and I think he's gonna wanna send, I think he's gonna want to be a little bit clearer than he was in the last press conference about what he means about the neutral rate. And you know, I think he just he's gonna want to be a little clearer there because I think there was a lot of confusion where you saw him come out with a message that was pretty dramatically dovish from what people were expecting. And then you saw a whole host of Fed governors come in in the subsequent days basically backing backing them off that a little bit. So I think he's gonna gonna be really, really careful here with his message, which should investors do with their portfolios chris in the current economic environment as a chief investment strategist. I'm sure you're digging in on that front. I'm really glad you asked me this kristen um I think one of the things that long term investors can do here is start to really pay attention to the, to the dividend and coupon yields, they're getting out of their portfolio. Um, If 2009 to 2021 was the Tina era, you've heard this acronym, there, there is no alternative, basically that owning stocks and and and and growth stocks in particular, we think we're kind of at the dawn of a new era, which I like to call patty, uh, P A T T Y, which is pay attention to the yield. Um, what we foresee for the future is higher volatility, lower absolute returns in the stock market over the next business cycle and investors focusing more and more on the piece of returns that they have a little bit more incremental control over which is dividend yields. And so we're not telling everyone to go out and buy the biggest, highest yielding dividend stocks on the planet. Rather, we're suggesting investors state focused on free cash flow generation ability, which gives corporations a lot of flexibility in in not only paying dividends, but share buybacks, investing for growth, etcetera, any sectors chris you would definitely stay away from in the current environment. Sure, Well, we remain pretty cautious on consumer facing sectors. Um and and, you know, the reasons are simple, right? You look at consumer confidence has been banged up pretty pretty well here in the United States and frankly it's even worse overseas in areas like europe and on top of that, consumer facing companies are having to contend with rising input costs of which, yes, we may see inflation moderate some here, but remember it's coming down from an extraordinarily high level, so input costs are still a major issue for a lot of consumer facing manufacturers. So from that perspective, we stay cautious on the consumer. We'd rather see, um, you know, investors focusing on more business B two B type businesses versus B two C. It is interesting. Uh, sorry, chris I had to get my ear piece back in there. I don't know if you saw that. Um, I can hear you loud and clear. That's the good news. It is interesting that stocks, extending some of their gains, I'll be at fractional gains today in the wake of President biden's announcement of student loan forgiven Impacting millions of Americans for giving loans up to 10,000, even 20,000 for certain families. Your expectation as to how that impacts the overall economy. The cost of an education and what it might mean for the stock market. Sure. So I think the first thing to remember about President biden's plan is um, it needs to get through legislative support first. Um, so that's, that's a big if if that will happen or not or in what format. Um, but assuming that it does pass in some form or fashion, um I sort of look at it the same way I would look at um a fiscal stimulus uh type of event in the market which all else being equal um could give a short term boost to stocks. But in a with the backdrop of inflation like we have, I think there's gonna be some concern um that, you know, it could have an inflationary impulse, so I'm not sure, you know, you put all that together. I don't exactly know whether the overall impact for the stock market were positive or negative, but I still think we have to kind of wait and see what we end up getting, getting through first. Right? Um Well in terms of some of these dividend paying stocks chris do you suggest that investors do try to pick individual stocks or more broad sectors? Are there certain E. T. S. Or perhaps even mutual funds that you like? Sure. Um I think you can do it both ways and we do it both ways here at riverfront. We own E. T. F. S. In sectors and industries that we particularly favor. But for some of our more risk tolerant longer horizon clients, we also pick individual stocks too, because there's there's some stories out there, there's some powerful business models that you can't really E. T. F. You really want to own that thin sliced business model, not, you know, access to the whole space. So I would say there's ways to add access, you know, Patti strategies in both regards. Um from a sector perspective, um I think you can find some interesting yields in some unexpected places. And one of the places I always like to highlight because it shocks people, um they sort of do a double take when I say this is, if you look at the technology space, there's actually some mega cap, very, very strong free cash flow generators in mega cap tech, particularly in the I. T. Services and software space that actually generate decent dividend yields now. And on top of that they're growing those dividends uh pretty fast, double digits over the last five years and they've got the cash flow generation ability to continue to grow those. So I always say, you know, there's some boring, you know, mega cap tech that everybody's heard of, where you can actually find pretty interesting dividend growth stories. Also areas like health care, you know, areas of pharma managed care and medical devices, areas like that as well. All right, chris Constantinos, chief investment strategist of Riverfront Investment Group chris thank you