This week was a big one for stocks as the S&P posted its biggest weekly percentage gain since June. David Sekera, chief U.S. market strategist of Morningstar, joined Cheddar News to discuss how the midterms drove markets this week and what lies ahead.

This week was a big one for stocks as the S&amp;P posted its biggest weekly percentage gain since June. David Sekera, chief U.S. market strategist of Morningstar, joined Cheddar News to discuss how the midterms drove markets this week and what lies ahead.

Stocks Rally, S&P Jumps as Market Digests Midterm Results

well, turning back to the major indexes joining me now with more on today's market action is David Sequeira chief U. S. Market strategist and morning star David thanks so much for coming on of course, Morningstar financial services firm, but a really nice game for stocks this week. Do you think that we've turned a corner? You know, I don't know if we've actually turned the corner just yet and I think, you know, this week is just indicative of the type of volatility that we've been, you know, expecting to come. And I think when we look at the market over the foreseeable future, we still still see a lot more volatility yet to come over the next couple of months. So I do think that, you know, certainly a great week for the stock market, but I also think that where we are today, we're probably getting closer to the top of the range, you know, than uh, you know, Well, I think investors are necessarily pricing and going forward. Okay, so let's start um near the beginning of the week. Right? The midterm elections, certainly on Wednesday, we've seen the stock market fall because the outcome was sort of unclear. But other positive events leading the gains in the stock market as we made our way throughout the week. How should markets digest what we know about the midterm results right now and I think we'll find out over the weekend at least how the house is going to shake out now. Having said that, I do think that typically, you know, traders overestimate the impact that the midterm elections are going to have on the markets and the economy. So, again, whatever the policy will be going forward will have impacts. But those impacts are typically going to be focused on those specific sectors where we're going to see, you know, additional spending or differences in regulatory policy. So what I would expect for the market overall, you know, the real risk I would see would be, you know, if the democrats do keep a unified government, Yeah, I'll be watching to see any discussion that they may have as far as, you know, raising the corporate tax rate. That is the one thing that, from a broad market point of view, would be something that would bring our valuations down. Well, of course, we'll wait to see how this does all shake out. But historically, we know, gridlock in Washington has bode well, for the stock market indexes, David, the inflation report on thursday clearly still showing that prices do remain elevated well above the Fed's long term target of 2% but at least taking a bit lower and coming in better than economists had expected. How should investors look at the inflation data that we got on thursday as to the path forward for the economy and the stock market? Well, the CPI report, you know, certainly was providing a good sign that inflation is starting to abate. And in my view, that's one of the two factors that we identified earlier this year that we think that the market needs to see in order to make kind of that full durable bottom and really have a sustained rise, you know, thereafter. So the other thing that we're looking for now is going to be better evidence for the economy to really start real accelerating back to the upside. Unfortunately, I do think that we're going to see some stagnant growth over the next couple of quarters. So that's why I do see that we're gonna have a volatile market going forward. You know, the four headwinds that we identified at the beginning of the year are still playing out. So again, the Federal Reserve is going to be tightening monetary policy, the markets are pricing in another 50 basis point hike in december, probably another 25 basis point hike at the beginning of the next year. And I think, you know, Sarah Powell, he was quite clear in his commentary that, you know, he still think rates need to be higher for longer to eradicate inflation. And then as I munch, you know, the economic outlook is pretty murky. And then also watching long term interest rates. So we did see them start coming down today. So hopefully we've seen the highs there, but you know, if inflation looks like it's coming back again, we have like PP I coming out next week, we could see those start going back up again if that comes out to be a bad print. So we did get the numbers for the week, David. So I just want to read them here for our viewers really nice gains again, ending the week on a positive notice, our viewers see on the screen there as well. So this week the SNP rising close to 6% the dow up more than 4% and the NASDAQ leading the way up 8%. And we know of course that the NASDAQ outperforming because rates have ticked a little bit lower as inflation has come down. But I think a lot of at least a lot of market guests that I talked to at this time every single day during the week are still a little bit apprehensive on some of these technology stocks. What would you advise investors when it comes to investing in tech names? So technology is one of the more undervalued sectors, you know, that we see across the board today. So right now, based on today's market action and what we've seen thus far this year, and we think the market is about 12% undervalued. And we take a bottoms up approach. We cover about 700 stocks that trade in the us. So I take a composite of where those are trading as compared to our intrinsic valuations, and that's how we come up with that 12% discount, looking at the tech sector, the tech sector itself is probably trading about 15, maybe close to a 20% discount. You know, there's a number of names there that we think are very high quality names that we think the market has just sold off, you know, too much over the past couple of months, you know, two names that I might highlight There now would be a service. Now we think that's a very strong company and coming up in earnings next week, we'll see where NVIDIA goes. But that's a stock that we rate four out of five stars. We think it's pretty undervalued trades at about a 21% discount to their intrinsic valuation. Do you think a recession David is a done deal next year? I mean, I think some investors are looking at the performance in the data that we see this weekend wondering if a recession is still on the horizon. Well, that remains to be seen. I know our economics team recently updated, you know, their analysis and at this point they're just saying it's a coin flip. It's a 5050 chance whether or not we go into a recession, you know, beginning of next year or not. Either way we do expect that it's going to be a sluggish economy for a while. I know that their GDP growth for next year is below 1%. So I think that's part of the reason why we're still looking for a lot more volatility yet to come. So even though we think the broad markets are undervalued, they do provide a good margin of safety for investors. And I think that you know based on positioning today you'll be fine when you come out at the end of this economic cycle. But I do think that you're just gonna have to have the intestinal fortitude. You know to be able to live through a lot more volatility like this over the next couple of months. I like that the intestinal fortitude. David that's some good language there I would say the stomach but you're right it is the intestinal fortitude I think that we really need these days amid this market volatility um somewhat point to seasonality saying that it is generally a seasonally strong time of the year. Is that kind of out the window though as we head into this final Fed policy decision and meeting come in december. I think you just every week have to be watching the economic metrics and the inflation metrics as they're coming out because as you saw yesterday, just how much the market moved out. You know once we had that positive C. P. I. Print you know my concern to be that if we do have some negative metrics coming out that the market is very skittish and we could see the market quickly give up. You know some of those gains. So I do think investors really need to be watching as they're coming out and making sure that their position that the way they want to be position going into those numbers and not get caught behind the eight ball. What about investing in bonds? Because we have had some guests come on the show and recommend bond investments in this environment. I think a lot of people obviously are familiar with stocks but maybe not everyone has added bonds to their portfolio or they might not be as familiar. What should people know about bonds when it comes to investing in them in this current market environment? Well, taking a look at long term interest rates, you know, we think that they've moved up pretty much a preponderance of how much we expected them to move up. So they're probably pretty close to fair value territory when we're looking at like the 10 year, the area that I'd actually be more interested in in the bond market today is going to be in the corporate bond market. You know, looking at both investment grade and high yield, you know, both of those the credit spreads have we widened out pretty substantially thus far this year And I think investors are getting pretty well paid for that credit risk. So even though we expect the economy to be relatively sluggish next year, I wouldn't expect to see a huge increase in default rates and I wouldn't necessarily expect to see a large increase in the number of downgrades. So I think you're getting paid pretty well for that additional risk today. Alright. David. Sequeira, chief U. S. Market strategist at Morning Star. David, Thank you.