Stocks closed near session lows Friday, with the S&P 500 notably snapping a four week winning streak. This comes after this week's lackluster housing data indicating a slowdown, as well as the Federal Reserve's July minutes suggesting the bank will continue its aggressive rate hikes. Brian Shepardson, VP and Portfolio Manager at James Investments, joins Closing Bell to discuss today's and this week's close, whether inflation has peaked, the Fed's path forward, and more. 

Closing Bell

Stocks Close Near Session Lows, S&P 500 Snaps Four Week Winning Streak

let's turn back to those major averages joining us. Now brian Shepardson, VP and portfolio manager at James Investment brian welcome back your thoughts on today's close, especially after this week's lackluster housing data as well as the Federal Reserve's july minutes indicating or rate hikes in our future. Yeah, that's the case. You know, we look back over what happened the past four weeks, things started to look pretty good and even thought throughout this week we're kind of trading sideways until today where like you said, we kind of saw that sell off. Um, so kind of not the best way that we wanted to end the week and kind of what we noticed that kind of stood out is when we look at our indicators, we do a couple of different things. We look at some sentiment which you know maybe about a month ago, it got really negative, which is what we think caused some of that Mark Rally. Another thing we look at is the overall economy then also some other things. Whereas we saw the S&P 500 really bump up against its 200 day moving average. It's almost like those technicals kicked in and there was selling maybe right around Tuesday afternoon that really, really got us to the top of the market and pushed us down to where we are right now let's start with how stocks closed the week. Your thoughts on whether this rally is coming to an end, is there room to fall? Yeah. When we look at it, we think there probably is a little bit more room to fall. We would really consider this, what we saw more of a bear market rally rather than the beginning of a new bull market. Again, we still have, you know, several rate hikes that are bound to take place. The Jackson, whole meetings are going to take place next week. I respect the Fed will be probably a little bit on the hawkish side, which could cause a little bit of nervousness all throughout next week. So from that standpoint, if we saw a little bit more follow through on monday from what we saw today, we wouldn't be surprised at least. Let's focus on this week's Fed minutes your thoughts as the central bank moving at the correct pace to achieve a soft landing here. Well, I think they've kind of been forced into the 75 basis point moves where they started with 25 bumped up to 50 and then 75 you know, I think that the pace could have been a little bit more when they started, maybe started a little bit sooner, but I think they're right on track with where they need to be. Whether we get that soft landing, I don't know from the standpoint that it's gonna have to be many, many more rate hikes to really get inflation to slow down when we look at inflation. The things that we think are probably a little bit more sticky, maybe some of those wages and potentially rents. Things along those lines that don't really come down as quickly as say commodity as as long as those stay a little bit elevated. We think the Fed might have to go a little bit too far which is usually what's been happening in the past. So two big questions floating around starting with has inflation peaked? What do you think there and will august CPI continue july's downward trend that we've been seeing? Yeah if you look at the most recent numbers I think one could make the argument that fit the inflation definitely has peaked. Um You know that 9% number coming down to 8.5 on C. P. I. P. P. I also falling, they tend to move in the same direction. Um P ce also coming down a little bit so when we piece all these together it looks like it may have peaked but again just because it's peaked doesn't mean it's going to fall dramatically. So from that standpoint again we probably remain cautious on the ability for the Fed to really bring down rates or bring down inflation quite quickly while at the same time having to keep rates a little bit higher to really force that action. Another big question whether or not the U. S. Will enter or is already in a recession by definition we are based on GDP but other factors like the labor market are strong as you well know your thoughts, could we see more contraction this quarter. Well like you said, we have seen that back to back quarters of GDP, which I think even the White House has come out and said that's really not the definition of a recession, but again, like you said that employment numbers they've really been strong, so we think we've got a pretty good amount of time before. If we do go into recession, one would really start to pick up again with that though, I would you know, maybe caution that some of the things that we're starting to hear maybe anecdotally that some companies are thinking about pulling back some offers or potentially cutting back on their workforce as we start to hear that the num I really haven't played out yet on maybe say the jobless claims numbers or on those numbers that come out on thursday mornings. But I think again, anecdotally we're starting to hear some of those whisperers continually have to watch out on that week by week basis to see if we start to see those creep up. If we do see unemployment start to become a little bit of a problem, then we'll start to talk about recession brian, what do you think currently is the biggest risk that investors need to be looking out for? Well, I think from where we sit probably the biggest risk would be along the lines of the fed going too far raising the rates too high for too long, if that does happen, that would be that factor that could push us into recession. I think a lot of people have us priced in now to maybe where They think the Fed could cut rates and March June July of next year. We don't see that as the case from the standpoint that even if inflation is cut in half on C. P. I. That's still in the 4% range, I really can't see a situation where the Fed is going to cut rates when inflation is running at 4%. So the fact that they might have to keep increasing rates uh they might be the ones pushing us into recession. They've even made note of that in the minutes that came out this week that they might have to go too far and that could be the result. So for me as a talking to investors, that would be our main concern. But again, we think we have a little bit of time until we get to that point. So maybe again as we saw this rally, maybe take a few chips off the table saying that as a chance to book in some of those gains for what we can call some of that bear market rally, what are you closely keeping your eye on at this point in time, whether it be housing or labor data fed comments or something else altogether. Well, in the very near term, it's obviously going to be that meeting out in Jackson hole, Wyoming, you're gonna hear from just about every Fed governor and president. I wouldn't be shocked to hear them. Really hone in on that 70 75 basis points once again, really trying to keep that hawkish tone. If we start to hear, you know, maybe that the economy is not on that strong footing and they start to maybe backtrack a little here. Those things where people are talking about the pivot, maybe that again, could be another symbol that things are maybe not on that strong footing so to watch out for that. But again, yeah, that is the very first thing in the near term. But in the longer term, um, jobless claims I think is the one thing that the Fed has continued to point to. That's been the strongest. As long as we see those in a shore footing, we should be okay if those jobs numbers do come in and start to be weak. That would be a sign for us to maybe get a little bit more conservative brian Shepherdson VP and portfolio manager James investments. Always appreciate your time brian, thank you