Josh Smith, Lead Portfolio Manager at Capital Wealth Planning joins Cheddar News. 

Stocks Fall Post Fed Meeting 

and joining us now with more on what's moving markets this morning is josh smith lead portfolio manager at capital wealth planning josh. Thank you so much for joining us this morning stocks Opening the session very little changed after yesterday's late day sell off. How are you trading this market following yesterday's Fed decision and the plan to keep raising rates aggressively until the end of the year. Yeah thanks for having me on again. Essentially we believe that the Fed is trying to right the wrongs of the years passed by slamming the break and and removing liquidity from the system. Previously they've always come in and provide liquidity whenever the markets had a choppy period or were selling off or having pressure. Now they're trying to basically convince people that they are full steam ahead with hiking rates and removing liquidity to try to get a supply demand back in balance in terms of inflation and prices. So we continue to believe that they are on this path that they're gonna continue to hike until you know inflation starts to recede And until the up until this point we really haven't seen that the latest C. P. I. Report came out very hot. The market sold off. And we continue to believe that we're gonna be in a choppy market one that's under pressure. And you've got to be very selective in trying to pick opportunities to put capital to work now with these upcoming rate hikes as you mentioned and this potentially choppy market are we likely to test new lows in the stock market and what's your outlook for the rest of the year here? Yeah, I mean in this game you're working with imperfect information. So it's all probabilities and we think at this point it's a higher probability that we retest those lows than not. Historically, when you're in a bull market, you get sell offs that can be severe, but they're usually to support levels and they're quickly bought up within a month or two this year. Essentially what we've seen is lower lows being put in place, every selling every rally is being a selling opportunity. So while the price action is dictating everything, it seems the weight of the evidence is we are in fact in a bear market? That sounds scary. And traditionally when you're in a bear market, you're looking at a 35% pullback over a 12 to 18 month period. So far, the S&P. Is down about 20%. So we think it's gonna be choppy, there might be some downside follow through. But we'll be looking to, like I said, be prudent in allocating our capital looking for opportunities to buy select names that are high quality and nature. And then we feel that can weather the storm in this challenging environment. You mentioned your strategy for navigating this. But how would you recommend other investors navigate this challenging market environment right now. You know, if you if you have cash on hand to be like I said, I'd be very selective and putting it to work and and only looking for high quality names that can navigate this environment. Specifically. General Mills yesterday came out with great earnings, We've owned it for about a year. It was able to raise guidance revenue and earnings came out great. It was up six or 7% in a down market, it's hitting all time highs. Those are the type of names you really want to be looking at that can weather this storm. In addition, we recommend energy when we talk about crude, you know, the governments in there selling a million barrels a day and it's putting pressure on the oil market, specifically crude, but they're going to stop that here in the near future. And we feel once they're done selling buyers will step incredible rally and the energy names will continue to do well. In addition, it's one of the safest and cheapest places in the market. They're spinning off record earnings record cash flow and huge dividend increases. So sort of a contrarian play in energy, but we think it's one of the safest places in the market right now, turning back again to the Fed, you know, if unemployment rate rates rise and company earnings fall enough to kick off a recession here, how do you expect the Fed will respond to that? Yeah, we feel that up until this point, the compression in the, in the P multiple for the market and the reason everything's been under pressure is because of the increase in interest rates. We've gone basically from zero to about three or 4% when you're talking about the two year yield. So that's compressed the pe multiple and the markets sort of come down. We think that the next leg drop will be an earnings recession And they're gonna have to be cut. Last week. Fedex came out and reduced their guidance by about 50%, pulled their uh their numbers for the for the outlook for the year. We think that's sort of what's gonna transpire throughout the equity landscape and earnings will come down and earning and the market will continue to be under pressure and have that choppy action. So as they continue to raise rates, it's just going to remove more liquidity from the system. All this is a recipe for the markets to be under pressure or have volatile swings up and down. The investors if they're patient and diligent, they can take advantage of when the market gives them opportunities. Now we know that the economic path ahead is expected to be pretty rocky here with all this high price to pay for combating inflation. Do you actually expect that? We'll see inflation falling back to the Fed's 2% goal by 2025. You know what will that actually take 2025 is a long outlook and I don't know if you can forecast anything out that far. But um in terms of inflation receding, we think it will recede. We've seen some of the early indications of cyclical things starting to recede in price, which is a harbinger for inflation to sort of roll over a little bit now, in terms of it getting back to 2% we think that's gonna be a longer process and everybody's anticipating it might take a year or 18 months for possibly get there, but it's gonna take a lot of work from the Fed and it seems that they are committed to doing it. So it's possible we're just gonna have to continue to monitor situation as we move forward in time and see what it's likely to transpire the way that they say it will. Of course, we've been talking about these higher interest rates and how they're going to be making buying a home or expanding a business more expensive. So, in that interim period, how do you recommend people navigate through this? Housing has got a huge multiplier effect. So, we think that the prices of housing will come down and that's gonna be challenging in terms of how the economy evolves around that situation, in terms of the equity market and navigating the situation we capital planning, We really believe in sticking to blue chip names that can weather the storm. And really, that's just a function of navigating the environment. They're seeing huge increases in raw materials, transportation and now wages, which are stickier than the other components. So at some point, the price increases that they've instituted on the top line are gonna be pushed back from consumers and it's gonna be harder and harder for the margins to maintain. So we feel like the earnings will come back. So really you have to stick to quality and stick to blue chips and just try to ride it out and be patient and stick to a diligent process of allocating capital selectively to certain names, josh, thank you so much for your time today. That's josh smith, lead portfolio manager at capital wealth Planning.