Scott Wren, the senior global market strategist at Wells Fargo Investment Institute, joined Cheddar News to discuss the positive week for stocks.

The markets closed the week with major gains, with hopes for a smaller future rate hike by the Fed. Scott Wren, the senior global market strategist at Wells Fargo Investment Institute, joined Cheddar News to discuss. "Today was a good day, but I think you're going to see certainly some downside testing, and you're going to see some back and forth here in the coming months," he said.

Stocks End the Week on a High Note but Look for 'Some Downside Testing'

stocks ending with confidence, that's good to see investors with a little bit of confidence on this friday heading into the weekend on the hopes of smaller rate hikes ahead after this november meeting. So joining me now scott wren senior global market strategist at the Wells Fargo Investment Institute scott, it's great to see you and Kristen, can we call it confidence? This feels good on the friday, the stock market game, you know, it, it does, it feels pretty good. And I've had a long, hard week and probably a lot of people that are watching this right now have two. So it's great to see the market finished strong on the clothes. But you know, let's face it, this market trades on a day by day. Economic report fed comment by, you know, comment kind of basis. So today was a good day, but I think you're going to see certainly some downside testing and you're going to see some back and forth here in the coming months. Uh, so more volatility ahead scott is what I'm hearing. And we even saw that on display this week, even though thankfully we were able to notch some gains for the week. The major indexes up anywhere between four and 5% officially on the week, we are expecting another 75 basis point rate rise come november, but it is a seasonally strong time for the stock market. So even though it might still be chopping, what is your outlook for the stock market over these next three months. Well, if you look out to the end of the year, we have a 39 100 target out there. So we think we're going to be a little bit higher than where we are right now. You know, you know, you know, you'd like to think, I tend to be a glass half full kind of guy, but you know, you get a couple of comments out of the Fed and some, we'll see what happens in november and december. Certainly there's going to be some rate hikes and who knows, maybe we're slightly conservative, but I think 3900 is good expectation for the end of the year. And, and you know, we're not gonna get there in a straight line, we're going to get there with a bunch of down days, a bunch of updates. But clearly we're looking forward to be at least a little bit higher than where we are right now. You know, how do investors make sense of what's happening in the bond market scott and what really should they be on the lookout for? Because the days that we do see the market turn lower, we do see that 10 year treasury yield rise. And in fact, midweek we saw atop its highest level since 2008. Well, if you're a day trader on bonds, you're having a great time because you have lots of opportunities. But I think for investors right now you have to think about where do you think the peak is in terms of, let's say the 10 year yield, um, where do you think peak inflation is, you know, for us, we think the 10 year yield to be somewhere right around here maybe touch lower at the end of the year. Um Now, if it trades a bit higher than this, we've been pretty neutral in terms of bond duration, but I think that, you know, if yields are here a little bit higher, you know, we're going to get more interested in longer term bonds moving, you know, out on the time frame to lock in these higher rates. So in the meantime though, you know, days like today, you know what, we have a 15 basis point range in the, in the yield on the 10 year. That's a lot. It's happened quite a bit lately. But I think, I think in general kristen the thing is we don't think rates are going to go much higher than where they are now. And if you look out to the two year and 2023 we think they're actually going to be a little bit lower the 10 year yield, maybe down to 3 75 something like that by the end of next year, is that enough to boost the stock market scott? I think, I think that is going to be, you know, next year. If you think the Fed is going to stop hiking rates, we do. We actually think in the second half of the year that they're going to, they're going to maybe cut by a total of 75 basis points. I think the outlook is going to be better. We think we'll see a recession that starts late this year ends in the middle of next year, that the market will start to anticipate that. And we think the second half of the year both in performance in earnings and certainly in market anticipation is going to be better. So we think the market will be about 4400 for the S. And P. Is our target out at year in 2023. And we don't have any 24 numbers out there yet. But I think the market is going to be looking ahead to some decent economic performance in 2024. Okay. That's definitely some good news I guess. Maybe we just need to be patient. Yeah. It's gonna it's gonna be dicey right now. Kristen you gotta be patient, You have to know what you want to buy. You want to take the opportunity to buy things when stocks are down there down now and we'll probably have some more opportunities before the end of the year. Okay. We'll be waiting on that. But let's talk about what is going on truly around the world right? I mean one thing that this pandemic the past 2.5 years has shown us is that globalization is real. It's a global economy, there are not gone effects. And even though we have vaccinations and treatments here in the U. S. And the U. S. Might be doing better than the rest of the world. How we can basically turn a blind eye to what is happening around the globe. And so what particularly in the U. K. With the resignation of Liz truss and the ongoing invasion of Ukraine, what might that portend for investors down the road lessons that we can learn from that? You know I think that um you know the U. K. And europe in general have not done a good job whether it's the coronavirus, the stimulus uh the the the central bank intervention and actions. And so you know I think it's gonna be slower. We prefer the US over international. Um you have to pay attention to international because the S. And P. 500 gets about 40 40% 35 40% of the revenues from overseas. So what goes in the U. K. Makes a difference. We're expecting recessions, we think it's going to take a while for those economies to climb out of that. But um you know I don't think we can count on a lot of help over the next 12 months whether it's the UK, whether it's the eurozone or even the broader Eu um you know these economies have really lagged and they're likely to do so they're slow to react to what's going on. They usually have high unemployment Low productivity, low economic growth relative to the US and I think that's going to be the story over the course of the next year at least. So what's the timing of a recession? Are we seeing Scott a global recession right now? And if the US is not already in a recession, when do you think that might start? And how deep or shallow might it be? Well what we've been calling it is a moderate recession. So we have a little bit economic growth this year. 1.6% for us GDP were looking at a minus 1.3%. So 1.3% contraction next year. If we had to map it out, the recession would start late this year, which is later than what, you know, nine months ago? If you would've talked to us, we would have said, hey it would have started maybe around the middle of the year that's been pushed out so late this year lasting into the middle portion of next year. And if history is any example, usually the market bottoms out, you know, maybe halfway through the recession, something like that. So whereas defense as we want to be right now, we've we've tried to desensitize portfolios to the ebb and flow of the economy expecting the slowdown. So really for us the conversations have been, when is it going to be time to get more assertive, more aggressive looking for early cycle types of things like small caps which were underway, consumer discretionary, which were underway all the things that will benefit from a recovery. So we're not there yet. But our convoy are about the timing of when we will get interested, not how are we going to get defensive? How are we going to hide more? Here's another question. Once we see a turn in the stock market's got interest rates, those rises starting to ebb, perhaps a healthier economy down the road, if we can get there, is it just gonna be a straight rip for stock? So we're gonna see a big bounce given how much we've already fallen so far. Well, I think we've fallen a good amount, We could fall a little bit more. I don't think we're gonna fall. You know, our estimates are that we're going to fall a lot more. You're gonna get some rips and you know, kristen if you look at history, um, a lot of the big up days, they have happen when you're right at the bottom of the market, people are panicked, they're fearful and you get big jumps. And I think that as this market bottoms and eventually finds the bottom, um the same thing is going to happen. So that's why you have to really stay invested. It's hard to, you know, have half your portfolio sitting in cash because um, you know, it's hard to jump in when, when everything's really panicky and time the bottom. So we've tried to stay invested to less sensitive, economically sensitive things right now, but certainly when we come out of this, we're gonna have some big, big up days and we want to make sure that we're in ahead of those, um not sitting in cash and missing them. Yeah, Alright, scott Wren, senior global market strategist at the Wells Fargo Investment Institute on a solid a day for stocks in a pretty nice week as well.