Stocks closed mixed Tuesday, with the tech-heavy Nasdaq barely eking out a positive result as the S&P 500 sank further into bear market territory. Investors are looking ahead to the Federal Reserve's decision this week about raising rates. As the central bank is expected to hike rates by 75 basis points, the average rate on the popular 30-year mortgage also rose to 6.28%. Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, joins Closing Bell to discuss today's close, what could come out of the Fed's meeting, what the jump for the 30-year mortgage means for consumers, and more. 

Closing Bell

Stocks Close Mixed, S&P 500 Slips Further into Bear Territory as Investors Look Ahead to Fed Decision

Alright, so let's turn back to the major averages, shall we? And joining us now is rob Haworth senior investment strategist at U. S. Bank wealth management and rob What are your thoughts on today's close as investors prepared for the Federal Reserve's announcement about rates this week? Yeah, it was kind of a week close. We got a little bounce off the off the worst levels of the day, but I think we continue to see investor sentiment remains under pressure until or unless we get enough rate increases from the Federal Reserve. Certainly, there was some hope that that the news that broke yesterday which really came from media outlets rather than from the Federal Reserve itself, which remains in its quiet period that we may get three quarters of a point of a hike tomorrow, but I think the market remains focused on inflation, inflation pressures. And what is that going to do to earnings. Now? Let's talk about not only the investor, but perhaps the Homebuyer and just this afternoon, the average rate on a popular 30 year fixed mortgage rose to 6.28% while fears of an aggressive rate hike loom. So what does this mean for the average american who's trying to buy a house right now? Yeah, it certainly is the primary mechanism or a primary mechanism for the Federal Reserve to kind of dampen consumer demand and, and housing is one area where we've seen robust price increases and limited supplies and so this is definitely impacting affordability and should have some impact on what we're going to see in mortgage applications, what we're going to see for housing demand as we move into the summer, Um doesn't make it impossible. Certainly pay increases. And the savings on the sideline are helpful for consumers to be able to afford houses, but but 6.2, some percent mortgage rate does make housing much more expensive than it's been in quite some time. It's very scary to. I'll be honest with you. Now, the question on everyone's mind is whether or not we will enter a recession this year. So what are your thoughts? Our base case is is there is risk of recession, but probably not this you're headed in the next year. We certainly see slowing economic growth. We should see inflation start to roll over, but that that's going to take some time and there's some real risk for inflation, but we still think that the consumer is well positioned right now with very low unemployment. We're not yet seeing that change to uh there's plenty of job openings. Three, they have ample savings and we're seeing that not just in the savings rate relative to income, but also in the in the cash that's on the sidelines and deposit accounts. Um, and and three, retail sales have been holding up. So consumer, while consumers are frustrated when we look at consumer sentiment data, they haven't yet stopped spending. When that changes will start to start to update our views and our forecast, but for now we think we can hold off recession in the next year with a lot depending upon what actually happens to economic growth in particular earnings corporate earnings are going to be a key factor for now. Earnings expectations are holding up very, very well on the corporate side. Um if they start to falter that, that could be a sign, we need to be a little more cautious as well. Alright, so let's talk about the Fed, the federal reserve kicking off its two day policy meeting. Many expecting the central bank will raise rates by 75 basis points. Do you agree with this prediction? Especially after last week's inflation data? Well, yeah, inflation has remained fairly robust. It certainly looks like with, with the news that broke last night from multiple sources that the Federal Reserve is on on pace and has room to do a three quarters of point hike tomorrow. I think the key for us and the question for us is what does that set up for the next meeting? And what is the press conference like meaning what does the Federal Reserve start to say now is their terminal rate? Uh last meeting we talked about 2-3% being their neutral rate range. Right now, the market is pricing the Fed funds rate to get to 4% by year end, which takes us well above that range. The market may be satisfied with that, but we'll have to we'll have to see I think a lot hinges on communication tomorrow. Whether the Fed does a half, 3/4 or more. Let's talk about the speed is the Fed moving fast enough to combat inflation? Does it risk setting off a recession if it does raise rates by 75 basis points this week? This is, this is a challenging environment. But the first three quarter point hike, right? That this, if we do do three quarters of a point that still leaves us below 2% which is the low end of what, what the Federal Reserve would call a neutral rate. So we're not yet tight in terms of monetary policy, we're getting there. It's causing risks. And as we, as we look through the economy, There, there are things we'll watch, but we're not yet there, I think there's more room for them to raise rates, which is why we've got the market pricing and so many rate hikes yet still in 2022 with volatility embedded in the market right now. What are you recommending to investors looking for an opportunity now? Yeah, we're, we're taking a little more defensive stance because I think the concern for us is the possibility but not the probability, but the possibility that earnings come under pressure as we look at the Fed hiking rates and this is a very difficult path for the Federal Reserve to walk. Certainly, uh, as they try and navigate between the market and economy. So we're looking to really battle two issues one inflation and to rising interest rates. And so for us, that means we're tilting portfolios towards real assets like infrastructure, like real estate, relative to equities and two, we're tilting slightly towards fixed income to be defensive. But we're looking at that higher quality, Shorter maturity end of the spectrum because rising interest rates, as we saw today with the 10 year treasury At the highest level since 2011, um higher interest rates have been a real headwind for fixed-income investors. Alright, Rob Hayworth, senior investment strategist at US Bank wealth management rob. Thank you so much for sharing your expertise with us.