Stocks closed mixed Monday to start the week, with Nvidia and other semiconductor stocks dragging on the tech-heavy Nasdaq. Today's mixed close comes after a weekly rise for both the S&P 500 and the Nasdaq on top of last week's blowout July jobs report. Steve Sosnick, Chief Strategist at Interactive Brokers joins Closing Bell to discuss today's close, meme stock movement, where to look for market opportunity, and more. 

Closing Bell

Stocks Close Mixed, Semiconductor Stocks Weigh on Nasdaq

well, let's turn back to the major indexes because stocks were mixed, kind of muted action that we saw to start the week with the tech heavy NASDAQ underperforming as the chip giant video did announce weaker than expected, second quarter sales as semiconductor stocks across the board down today as well. But the mixed close comes after what was the third straight week of gains for the S and P. The NASDAQ was up last week as well. A very strong july jobs report. And joining me now is steve Sosnick, chief strategist at interactive brokers. As steve. Thanks so much for joining the show muted action today. What's your take on the stock market? Um Good afternoon kristen right now. My take is a bit uncertain and a bit a bit wary. Um I think the, the payroll numbers were extraordinary. Um You don't need me to elaborate on that. But what I do think is is kind of extraordinary is the bond market is telling us something completely different than what the stock market is. The bond market is telling us that they are very fearful of recession. The 10 year yield is about 40 basis points below the two year yield, which is a major recessionary signal and one we haven't seen since 1980 which I don't like to remind people was awful year for markets. Um and that's the kind of situation that that we're fighting in the stock market, where things still feel pretty good and, and certainly there's no shortage of speculation. It's a very mixed market right now between stocks and bonds. The question is who wins usually when it's about matters of the economy. The bond market tends to be more accurate, interesting. Um Well, we do see this bull bear debate playing out steve in the market at least a relief rally that we've seen since those mid june lows with the S. And P. F. Double digits. Since then technically out of bear market territory, at least for now, if the Fed does slow rate rises, as it said in its latest meaning toward the end of the year, cannot alone provide some support for the stock market. Uh, Maybe the other problem that I think we have to wrestle with this, um that the Fed is going to be shrinking its balance sheet. Um One of the things that I think was underappreciated by a lot of investors was not only where interest rates at zero, but the Fed was buying bonds like crazy when the Fed buys bonds, that cash goes into the system and that that eventually flows into riskier assets, etcetera, such as stocks and crypto and all the other stuff. Um The problem is the reverse is in play. The Fed has really just dip their toe into this process that they've gone very, very slowly. They started in mid june. Um So, and they really won't kick it into gear until september that even if the Feds if the Fed, you know, raises rates or even stops raising rates but continues to shrink its balance sheet. Um The fact that they're so slow at doing this makes me think that they're kind of afraid of doing it and I sort of share their fear because strange things have happened when they tried to reduce the size of the balance sheet. Well let's talk about inflation. I know we're gonna get that consumer price index data Steve on Wednesday economists expecting consumer prices rose 8.7% in July from the same time a year ago. That would show that inflation did potentially peak in June at 9.1%, which was at the time hotter than economists had expected. What's your take on that inflation print that will get and how it would impact the market. Well, I do agree that that that that were right to think that inflation may start to shrink a little bit, but you know, we we've started to see commodity prices fall, particularly gasoline, which which is probably the most important price in terms of people's perceptions on inflation. Then we started to see some foodstuffs and things like that go down as well. That's all great for consumers couple issues. There is the Fed first of all like to focus on core rates which excludes food and energy. Um I You know, it's not as though people don't eat or drive, but I guess they feel that that commodity prices and other stuff is more volatile. Um and the other part is even if we're starting to peak if we decline from like 9.1 to 8.7-8.3, those are still very uncomfortably high levels of inflation, any number above zero and inflation means prices are going up and we're a long way from the Fed's 2% target. So I think that's why even though Powell last week used the term neutral as far as raids, there was a lot of pushback from the other Fed governors and regional presidents basically saying, no, we're not even close to, to, to neutral. The number we get this week will, will give us a bit of a bit of a sense of how far away we are from neutral. Um, and that'll be the key. What's your outlook on earnings? We continue to get earnings rolling in here. Companies by and large, expected to have been profitable in the second quarter, as we look out to the distance, that guidance does become more uncertain steve as you mentioned within video actually warning today and that causing the tech sector to underperform is the health of corporate America intact. Yes. In the short, the short answer is, yes. In terms of expectations, you know, markets always do. You know, remember it's not always what the number is. It's what the number, it's what the market expects it to be. So I think in the, in the first quarter, the april earning season. I think people really hadn't come to grips with how lousy the guidance was going to be and we really, we didn't perform well. And the stocks that underperformed markedly got, got clobbered. Um, you know, think meta, think netflix, think amazon this quarter I think was the reverse. People kind of expected some really bad numbers. They expected a lot of what we call kitchen sink quarters where the company's throw in all the bad news. Um and they didn't, the earnings were okay, they were fine, they were growing, they're not spectacular, but okay. And so corporate America is healthy in one sense, that's very good because it pushes back against the recession narrative. It's also good which, you know, for people looking for jobs, which even though we've heard some of these companies are gonna be cutting hiring, um we still saw payrolls zoom you know, last week. So it does give us a tricky economic picture. I think it does make life a little easier for the Fed in the sense that they don't have to worry about half of their dual mandate. Their dual mandate is stable prices and full employment. Well, we can check off box number two. So at least they only have to focus on box number one, which makes life probably a little easier steve. I know you've been following some of the action on these meme stocks closely, which ones are on your radar and what does it say about the retail trader? Well the retail trader hasn't gone away maybe went into hibernation for a little while. But the fact that we saw um you know, best buy was a 35% or so today. Uh The fact that at one point, you know, Gamestop was up about 17% before coming back. Um It's it's sort of as though, you know that they unfroze the hibernation a little bit. It remember this is where this is kind of my concern is I think we're much better off if we sort of mud, go ahead um digesting the sort of economic picture that you and I have just been discussing rather than leaping back into some of the speculative names that that were great. But the 2021 playbook doesn't shouldn't necessarily work. That said we saw the saga of A. M. T. D. Digital hkD was a symbol which went from, you know in about two weeks from 7 80 to 22 or 2500 or so. Um and it's come back a long way since. So you're getting these pockets of speculation. Again, one of the things that people asked me a lot during, you know, during the worst parts of the year was have we seen capitulation? My argument was not really um you need to wash out all this speculative fever and quite frankly we haven't washed it out. It had just been taking a break. All right steve Sosnick chief strategist at interactive brokers steve good to get your take thanks again for joining.