U.S. stocks closed lower on Tuesday after investors returned to trading action following Labor Day weekend.  The Dow dropped 0.55%, the S&P 500 fell 0.41% and the tech-heavy Nasdaq closed down 0.74% for its seventh-straight day of losses, which marks the longest streak since 2016.  Scott Ladner, chief investment officer of Horizon Investments, joined Cheddar News' Closing Bell to discuss.

Closing Bell

Stocks Close Lower to Start Trading Week

let's turn back to the major indexes of course next day on Wall Street we had been higher on the S and P. And the dow earlier in the session but ending with losses across the board fractional losses on the back of some better than expected economic data. So joining me now is scott ladd Ladner, chief investment officer at Horizon Investment scott, thanks for coming on the show. What do you make of the market action? You know, today's sort of feels like it's felt for a little bit now. I mean, you know, you start out higher ground away, lower as people sort of come in. Um and and and just you know, just selling rallies um this this this kind of market action makes little sense to us right now and that, you know that people are realizing the Fed has not moved on from inflation being problem. Number one, pretty clearly the market had moved on from inflation being problem number one. Uh And they started worrying about growth and recession and starting starting price. You know, bit of a Fed pivot, that's really what drove some of the some of the relief rally that we saw in, you know june and july but people, you know, ever since, you know, pal came out in Jackson Holden said, listen guys, that's not how we're thinking about the world, We're thinking about the world from the standpoint of inflation is still a problem, number one and don't expect a pivot anytime soon and the market has taken that seriously and you know, so that's that that turns like a buy the dip sort of mentality into a cell the rip or sell the rally type of mentality and that's that's what we've seen over the last week or two. We think probably continues at least until we start getting some corporate earnings news. Uh you know, come come for the next quarter, interesting. And of course the next corporate earnings season scott we know is set to start in about mid october so could be a holding pattern until then. Before then. Certainly we will get another fed decision that dropping on september 21st, september historically. Underperforming downmarket actually more often than not according to history. It does end the month lower. Not catastrophic losses. But what might we be seen in the month of september? Do you expect stocks to continue to grind lower? You know, we do right now just because you know, we're probably gonna get a fairly hot inflation print. Um and and we're still and we're still gonna get fed come out in september and tell us that they still think inflation is a big problem and they're gonna hike rates either 50 or 75 basis points. We don't really think it matters whether it's 50 or 75 basis points which really gonna matter is how long are they projected to hold up at around 4%. Which we think they're gonna get the 3 75 or 4% by the end of the year. You know, how long are they really expected to hold out there? That's gonna be really what the market starts the trigger off of. But you know, that's that doesn't come till later, later in september and as you said, kristen, we don't get any corporate earnings news until until we get into october. And so there's just absent like a very sharp change in direction out of china from their zero covid policy, absent a very sharp change in the direction of the Russian Ukraine war. It's hard to come up with a whole lot of really positive catalysts that could that could affect impact this market in the short term. You know, we don't think this thing is gonna be disastrous, we don't think we're gonna be, you know, s and P 3000 or anything like that, but we do think that the sort of the most likely direction of travel over the next 3 to 6 weeks is lower. You know, sort of grinding lower, not violently lower, but grinding lower for a bit, until we can get some news out of corporate America and says, listen guys, we're okay, we're still earning money profits are okay, you know, margins are okay, but until we get some of that some of that news, we're a little bit of a positive news vacuum right right now, we think, um, and that's, you know, that's just that's just what we have to deal with for a bit. Yes, certainly the economic news has been Pretty positive Scott, which I think does lead some investors to anticipate another three quarters of a percentage point rate rise come just two weeks from now when the Fed does have its next meeting. But we saw of course the manufacturing data outperformed today better than expected jobs report that we got on Friday as well, still very strong hiring even amid higher prices. So based on the data, the positive data that we've been seeing, do you think that does indicate that the Fed does raise rates by 75 basis points again, come September? You know, we think that the way that Fed is gonna interpret those data. Yeah, we think that, that it does make it more likely that they're going to raise 75 basis points. Um, you know, again, the, whether it's 50 or 75, we don't think really, is, is the big, you know, is the big question really? The big question for us is when are they gonna start cutting, like when's this pivot that the market started thinking about in late, in, late June, early July, what is that actually gonna come? You know, like the market had started pricing that to come as early as March next year. We think it's probably like a, you know, a late summer type of event for next year and that's, that's one of the things that we can, we can look towards as being a catalyst to really get aggressive and reinvest in the market. But until we can figure out when that pivot may come, it's gonna be really tough to get aggressive on the risk taking side. You know, it doesn't mean that you have to get all the way, It doesn't have to mean you have to get completely bearish. That doesn't mean you should probably be cautious and and lighting up a little bit on some of these rallies. So Scott what does the data show you to lead you to believe that by next summer, inflation will be under control back toward the Fed's long-term target of 2%. So much so that it can actually reverse course when it comes to its interest rate policy. Well, we've seen, look, we've seen a lot of commodities really, really take it on the chin over the last few months. We've seen, including oil, and even with all the supply constraints around oil, we've seen that come down meaningfully. So we we've seen the inventory situation of some of these retailers in the inventory situation really around the world, get to the place where we're gonna be talking about discounting the third quarter earnings are gonna be a lot about discounting for retailers. So, you know, we do think that there's a lot of things in the system that are gonna make, they're gonna bring inflation down somewhat naturally whether or not the Fed wants to engineer demand destruction or not, you know, they will to some extent. But even if the Fed were to kind of stop here and hang out, we do think that, that there's enough, you know, there's no headwinds in the system right now to bring inflation down fairly naturally. It's just, it's going to happen overnight and this is something that's gonna take a couple of quarters to play through the system, just like it took a couple of quarters where there's inflationary pressures that that looked like they were, they were gonna be there to actually get back into the numbers, you know, a year ago or so, it's gonna be the same thing on the way back out. Um And so, you know, but we do think there's, there's plenty of headwinds for inflation coming over the next six months, it's just not gonna be over the next six weeks. So clearly scott it is corporate earnings on top, that'll start rolling in mid october that I know you're looking at your firm as the Chief investment officer at horizon investments, do you expect all sectors pretty much to hold up or do you think there might be winners and losers and what are some of the sectors doing well, some of the sectors, industries or companies that might not be doing so well in the current environment, you know, we we think that we are entering the part of the slowdown where the slowdown comes obvious. Um and it's not just gonna be, you know economic slowdown, the United States is gonna be an economic slowdown around the world. And so usually when you get into an economic slowdown environment, you actually want to start over emphasizing growth company in growth sectors, think technology, communications, those types of things. Because growth sectors generally are immune from more of the cyclical types of global economic um you know, sort of cycles that something like industrials or materials or commodities companies are just are just more tied to. Um And so, you know, we we are we have been overweight value most of this year. This is frankly a fairly unusual position for us. Um but we we are anticipating growth gravitating more towards like an overweight in tech and overweight and growth as the, you know, as the economy continues to deteriorate both here and abroad. Mhm. Now, in terms of how long corporate um America can hold up scott. I mean, even if the Fed in your outlook can be in a position to start lowering rates mid to late next year. Do you think the economy avoids a recession? I think there was so much focus on a recession the first six months of this year. Are we out of the woods or could we see one down the road? You know, we we think we definitely you can definitely see one down the road a little bit. Um This is, this is, you know, this isn't a type of recession though that we got in like 2001, 2002 or certainly nothing like the great financial crisis and it's nothing like Kobe frankly either. Um, this is a recession that we're gonna get with the consumer coming in pretty darn good shape. You know, the household balance sheets are frankly in really good shape. The labor market obviously is very strong and has been strong for a while. Um, and so, you know, this, this is a recession where we're gonna have to kind of muddle through it for a bit, but we do think corporations are gonna be generally fine, we think, you know, labor pressures wage pressures are starting to come off, we're starting to see that some of the data, you know, it's just like second inning of wage pressures starting to ease, but they are starting to ease and that's gonna, that's gonna help margins and consumers are still in pretty good shape financially. And so, you know, overall, this is not a recession we think is gonna be incredibly deep, but we could, we do think it could take 4 to 7 months to resolve, but on the other side of it is gonna be pretty darn strong because, you know, we're gonna, we don't clear any excess, we don't have any bubbles or any sort of really, really large misallocation of capital, it's just a case where we've got to muddle through it for a little bit and the Fed wants to destroy some demand. Um, and they're going to do so for a bit and we're gonna come out the other side in really good shape, but it is something we're gonna have to deal with for the next few months. Alright, Scott. We've got to leave it there. Thanks so much for coming on this show that scott Ladner, chief investment officer at Horizon Investments.