U.S. stocks closed lower on Thursday following new economic data that showed producer-side inflation went down.  The Dow rose 0.1%, the Nasdaq added added 0.7%, the S&P 500 rose 0.3%.  Jamie Cox, Managing Partner for Harris Financial Group, joins Cheddar News' Closing Bell to discuss.

Stocks Close Lower Despite Strong Retail Data

let's turn back to the major indexes joining me now is Jamie cox managing partner for Harris Financial group. Jamie thanks so much for coming on. I wish we had better news. I wish we had a better day in the stock market. It's just been a bit of a disappointment I think this year. And certainly what we've seen this week to what's your reaction to the stock market action of late? Well it's kind of normal. I mean you had such a large change in the expectations for interest rates over the past year. I mean this time last year you had Fed officials telling us that the first Fed fund rate increase wouldn't occur until october of this year. And here we are sitting on almost 300 basis points of Fed fund increases so far so market expectations of what the rate environment is going to be have been almost incalculable over the past six months and that's why you've seen such high levels of volatility and so markets now are expecting even higher you know rates and pace of rate increases and so you have people just sitting on the sidelines waiting for you know the break and interest rate raises to stop and so that's sort of what you have is selling pressure with a lot of people doing the wait and see. So the buy side just isn't there? So you get these you know small waves of maybe inflation data is coming the right direction and markets will rally a little bit and all of a sudden you get the reality of the of the of the real data series that come out in both C. P. I. And P. P. I. And you realize things are just as they were just a couple of months ago and the market sell off and I think that's what's going to happen for the foreseeable future until we get meaningful moves in the core parts of the C. P. I. P. P. I. Readings which shouldn't be too far into the future. We're starting to see some meaning meaningful fall off and a lot of the commodity prices, you know energy etcetera. So you should see that start to occur probably in the november december timeframe and at that point you'll see a lot of the buy side come back in and you'll start to see Marcus normalized but until then it's just gonna be a bumpy ride and people need to expect that and not get too overzealous about c interest rate environments change too much before that time. So that's what's interesting right is because I think most people with a long term horizon if you don't need money that you're saving up to buy a home or you don't need to access these funds in the next 3 to 5 years for instance maybe it is a good time to actually buy in, buy the dip in the stock market but Jamie based on what you're telling me and clearly what we've seen play out this year what other markets guests are telling me as well is that We could fall further from here and if this really is a recession, if it turns into a real, even prolonged recession, we might fall another 15% from here, even 20% potentially in the stock market. And so what are you advising your clients do in this environment? Should they stay on the sidelines or should they try to get in? Well, there's plenty of places that you can, you can see value emerging. And one of them is health care, you know, healthcare has held up remarkably well. It has a defensive bend to it and has, you know, outperformed most of the most of the areas of the market thus far in 2022, but it's really one of the area in which there's going to be a lot of growth as well in pricing power. So if there is inflation that persists, you know, health care is an area where you can get passed through a pricing on to consumers and you can maintain margins in those companies like United Healthcare is a good example. You can look at cBS, you can look at any of the major drug companies as well, large dividend paying stocks, that's the area in which people need to focus. So those type of defensive sectors have not necessarily been out of out of favor, but you know, if you look at tech relative to everything else over the past five years, it's been tech all the way. Well that dispersion out into other sectors is actually good and healthy. And if you're paying attention, you can pick up some really good value in telecommunications and healthcare and other defensive sectors that will, you know, pay off into the future. So we're telling everyone now, Hey, if you see something that is mispriced and there's plenty of areas in which that's happening on these large down days with these highly volatile markets, that's the time to pick up lots of value. And even even for short term means you can look at telecom down 30%. Health care is a defensive sector. Probably the only area I wouldn't say that is super cheap right now with the utility which is held up really well as well during this time. So I think that that's what I would say. Plus as we move into the back half of the year and the interest rate environment stops rising at its current pace and goes back to normal levels. That's 60% in some cases anyway. So there's still, there's value there. But it could be that there's a little bit more price to climb. But those are the areas in which people can put money to work right now or even rotate out of things that have done well like utilities into these beaten up tech stocks for the future. There's plenty of Jamie helpful insight? Certainly I think for our viewers watching um it sounds like you think the economic data might remain a bit murky until close towards the end of the year based on what you were saying earlier, stock market, we know does usually look six months in advance. So I think people might be wondering well if things are going to improve by december, why isn't the stock market rallying from these current levels? How long do you think the stock market remains volatile and potentially in a downtrend? So if I were just sort of thinking broadly about this, one of the things that is happening with the markets that the markets are looking at, you know, the potential global recession and asking the question, why is the why is the Federal Reserve and in Central banks around the world hiking into a slowdown, That is sort of the antithesis of what you would normally see when you start to see economic activity really, really declined. You don't really normally see the the central bank's slamming the brakes on demand. And so that's what markets are sort of throwing their hands up, like wait a minute, why is that happening? And so the central banks are probably will find out in a year are probably as wrong right now on inflation as they were last year this time where they underestimated it last year and have overestimated it now. So a lot of, a lot of, a lot of what you see in in markets now is this sort of this this idea that the Fed has it really wrong this time and now instead of just taking away see approach actually raising interest rates and draining liquidity from the system at a time that is the worst possible time. And so that's, that's what I think will ultimately lead the Fed to stop and go the other direction and you're starting to see larger players sort of, you know, sort of suggest that as well. And that's why I'm saying as you as you get into the back half of the year or the back half of the back quarter, the fourth quarter, you're going to see that happen in a big way and that's when you're gonna see markets release and go forward. I think we're all waiting for that release. This is my zen, this is my zen stock market release suppose. I don't know if you can see that Jamie but the question that I have for you is if the economy can start to improve, that's a good thing inflation though, I'm worried might be here to stay right. I mean we've had several ceos come on my show saying higher prices are gonna be rising double digits Kellogg Ceo for instance until early next year. So it does seem to be kind of mixed I mean do you think certain categories will continue to see those, those decent price games while others start to moderate a bit. How do you look at the overall inflation picture across industries, there are two places in which you know inflation could drop like a rock and one of them is if we get a resolution to the conflict uh in Ukraine then you could see energy prices really decline, you know really, really quickly. And that would help with inflation. Not no not so much in the US where it's factored out and poor but around the world where inflation, you know, data are calculated using energy prices and food in there. You know, key statistics. So that's one area. The other is the supply chain issues which are transitory to the extent that we ever get, you know, a normalization in covid where you actually bring back on cheap labor around the world to manufacture things. And and so I feel like we're a little early innings on, you know, the resolution of the supply chain issues where you've seen large moves from goods to services and that really has it found its way into the data. Yet at the same time you can see some of the covid restrictions around the world coming off in places other than china and you're seeing the supply chain, you know shipping and other things. You're starting to see large declines in the pricings of those things and those as they feed through should help inflation a ton. That doesn't mean that the labor market, it won't be persistently high or there's probably something there though. We might remain, you know, a problem for inflation. But those are two big contributors that should bring the numbers down year over year. And I think that is something that we should be seeing feed through the numbers as we move through until this time next year. We should be talking about something completely different and by then we should have solved it. We will be watching closely. Thank you so much for coming on the show. That's Jamie cox managing partner for Harris Financial Group.