Sam Stovall, Chief Investment Strategist, CFRA Research joined Cheddar News to discuss how the Oct. jobs report impacts the markets. 

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Stocks Rally After Strong October Jobs Report

But joining us now to discuss what's happening in the markets today is Sam Stovall chief investment strategist at C F R A Sam, thank you so much for joining us this morning stocks snapping a two day rally to kick off october and the fourth quarter after september was a rough one for the markets with the S and P dropping 9.4%. So given all of this, what are your predictions for october And will we see just as much volatility? Oh, I definitely think we'll see as much volatility. October traditionally is the most volatile month of the year, with more than 36% of increased volatility when compared with the other 11 months of the year. So basically fasten your safety belts, it's gonna be a bumpy ride. But the question is, you know, history too, Typically tells us that the final quarter of the midterm election year and the first quarter of the third year are the two strongest quarters of the entire 16 quarter presidential cycle. But the question is with the bear market pretty much taking control, will history be altered? And I think that it probably will be challenged into early next year. Now, Sam, you know, as I mentioned, the nonfarm payroll jobs report is coming out on friday. What should investors be keeping an eye on ahead of that? Well, I think what spurred the markets to surge almost 6% in just two days is the expectation that the Fed may start to think about taking its foot off the brake. So if we do start to see a reduction in payrolls, we had 315,000 new jobs last month. Where the street is looking for? About 250 thous jobs this month. If we get a softer read across the board, then I I think investors are gonna say gee maybe the Fed will stop by the end of 2020 to pause for the first half of 2023 then start thinking about reducing rates in the second half of next year. So really a pause before the pivot. And do you think, you know, as you mentioned with the Fed here, potentially uh you know, pulling back being a bit more dovish, do you think that they might actually do this if that job support is softer than anticipated? I think we'll have to see many more numbers from C. P. I. Which we think will come in at an 8% year on year increase for headline. With the september read, we're gonna have to see more i sm more retail sales and and so forth. Those are the factors that are looked at by the National Bureau of Economic Research to tell us whether we're in recession or not. So really, it's the keeping the finger on the pulse of inflation and making sure that it's headed in the right direction before the Fed will start to ease off on the break. Now a new study by the Professional Services form from KPMG says that 91% of C. E. O. S around the world are expecting a recession to hit the global economy within the next 12 months. What's your response to that? Do you actually agree with this assessment? Yes, I do. Again. I look to history and every time the year on year rise in C. P. I was 6.5% or more and remember we touched 9.1% in june, the market fell into a bear market and the economy fell into recession. So I don't really see this time being any different. I guess the real question is is it going to be a deep recession or a mild recession because of strengthen the employment so far because of the Ukraine crisis. And now with the U. S. Economy delivering energy as well as arms, armaments, military supplies etcetera. Also, you us is a big source of tourism et cetera that we will be able to move away from the possibility of a very deep recession but experience of mild one. Nonetheless. Now speaking of employment netflix Microsoft, Tesla have already laid off some staff and some companies even plan to pause csg efforts. Could we expect more layoffs as we head into the holiday season. And what will that mean for the economy? Yes, I think we can expect more layoffs. Certainly companies have also taken open job opportunities off the table while people have therefore not lost their jobs. Uh those jobs are no longer available. So, the combination of those two statistics, I think will be looked at by the Federal Reserve to help make their future decisions. So it's natural that we Interest rates having risen as sharply as they have. Uh and with quantitative tightening, etc. Uh that essentially, we are going to see a slowing economy and that's factored into our economic projections of only a 0.1% year on year rise for this year, and then only a 1.2% December over December. GDP growth rate for 2023. Let's talk about the housing market. So, weekly mortgage applications did drop 14% obviously impacted by higher interest rates. And Hurricane Ian is the housing market a bit worse off than what homebuyers realize? What's the overall health of it right now? Well, the one thing that's going for the housing market is the gross undersupply of homes available. Uh And so while mortgage rates have been rising, prices have been coming down. Uh there still is tremendous demand for housing. So, I I don't think that we're gonna be seeing the kind of collapse in housing that we saw after the 2007 through 09 financial crisis, but certainly prices will be coming down as the cost of affording a home gets more challenging now, according to mortgage news. Daily mortgage rates did come down slightly this week. But that could all change after we get more reads on the state of the economy, including of course, Fridays, september jobs report. So in advance of that, what should home buyers and investors be on the lookout for? Well, I think you just explained it where you have to look at what the growth in the economy is likely to be. What are some of the components of that growth and in general, the employment numbers? What about the the wage component? Are we continuing to see high inflation because the new the employees are getting paid more and more. So I would tend to say that if you are looking for a home, you probably will see better prices down the road. But let's see if you can do as much financing with cash if possible, rather than trying to hold out for a sharp decline in mortgage rates. Really solid advice there for homebuyers. Now, obviously we're in a time of intense uncertainty here. So what sectors are you keeping an eye on? Well, what's interesting is if you take a look at the last two days trading, I think the market sort of gave us a sneak peek as to those areas that are likely to do best once we do emerge from this bear market. And remember only takes bear markets about three months to become bull markets, meaning Rising by 20% or more. And historically the S&P has gained 47% 12 months after the conclusion of bear markets accompanied by recession. So we saw Monday and Tuesday, the mid cap value area in the uh inflationary areas such as energy, industrials, materials and financials, be the leaders. So that's where I think that the market will be focusing when we do finally emerge from this bear market. Sam thank you so much for your time for your expertise there and for joining us on cheddar. That's Sam Stovall, chief investment strategist at c f r a.