Stocks soared in their biggest rally since October 2020 after lighter-than-expected CPI data raised investors’ hopes that inflation has peaked. But Chance Finucane, Chief Investment Officer at Oxbow Advisors, spoke with Cheddar News cautioning relief rallies are never sustained during periods of interest rate hikes. 


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U.S. Markets Jump in Biggest Rally in Two Years on Cooling Inflation

So joining me now for more on today's market action the best day that we've seen for stocks in several years with the NASDAQ up 7.4% is chance. Manoukian, chief investment officer at Oxbow advisors Chance. Thanks for coming on the show. So pretty, pretty good gains on the back of this inflation report. What's your take? Hi Kristin. Yeah, it's a nice relief rally for anybody who owns stocks out there and even long term bonds with long term treasury yields having come down quite a bit. But from our view, despite this inflation number coming in lower than expected, it doesn't really change our outlook. The Fed still hiking rates, They're still tightening policy which is gonna make it tough for growth to really accelerate here. And just to think back to previous bear markets in the dot com bubble, that was a three year long bear market. There were 10 separate days with the NASDAQ 100 went up by 7% or more in a single day and it didn't stop things from continuing to go down. And similarly in March 2020 on March 13th, the NASDAQ was up 9% that day and yet rolled over and ended up taking a bit longer before you made that final low. So consider that we're still seeing the Fed raised rates, There's no history of a bear market bottoming while rates are still being increased. So it's a nice relief, but we think it's still still a tough environment Now, that's interesting chance. So based on that comment that you said there's no history of the stock market bottoming while rates are rising, you think that it will take until the Feds stops its higher rate, policy stops raising rates for the market to actually turn around. Usually it's not even the pause, it's actually them starting to cut rates and several times cutting rates before you typically see a bottom. And I think this has just been such a unique atmosphere because they've had to raise rates so far just to try to catch up to where inflation is today and they're still trying to get there. The core PC inflation number is still at 5%. And Chairman Powell has said that he'd like to see the Fed funds rate get above that level. So he's probably hoping that that PC number will start coming back down to 4% or below. And then you can start to see him pause. But from our perspective, we just think this is gonna take longer to play out and the first half of next year, it's probably gonna be a difficult environment for. Okay, so what should investors do chance? I mean, we're already down what, like 30% on the NASDAQ for the year despite a 7% pop today. Again, the best that we've seen in years, should investors stay the course if you think a new bottom is on the way? I mean, do you think investors should sell at these levels. We trimmed a little bit of our stock portfolios today. Just on some of our positions that we weren't feeling as strongly has stronger conviction about uh just given that it's not often you see a seven or 10% pop in some of your shares. Uh I think if you're a younger investor you continue to just dollar cost average in the airport folios. If you're in your twenties or thirties and just consider the long game that you're not going to be needing those savings for decades. But if you're a retiree we think it still pays to be patient, keep some liquidity in your portfolios and stay somewhat defensively positioned because we think this will continue to be a choppy environment for a while longer. Yeah I think choppy indeed. You know I do want to ask you about the crypto market chance. I'm not sure whether or not your company invest in Cryptocurrency but I think the fears with the collapse of F. T. X. And the other crypto entities that we've seen over the past few years is causing some concern about contagion and cryptocurrencies trading like stocks right. They are obviously more risky than risk assets like stocks. But is there any concern that the contagion might move beyond F. T. X. We don't own or recommend any cryptocurrencies for our clients. But just broadly we can say that uh what evidence has shown is that when you're in a tightening monetary environment when central banks are raising rates and especially when the U. S. Dollar is appreciating in value relative to other currencies like it has been throughout this year. That's a very difficult environment for cryptocurrencies to do well and we think that environment is going to continue for several more quarters at least. So it wouldn't surprise us if that led to some more weakness and difficulty in the crypto market beyond even what we just saw happen at FT. X. Yeah I know. I think that contagion fear is real. Um Look I want to ask you about In addition to inflation earnings reports that we continue to see come in growth still technically on pace, albeit pretty meager growth for the third quarter. What kind of status corporate America and and should Americans be concerned about potentially being laid off in these next 6 to 12 months on the question of layoffs, it seems like it's a it's a bit different to past recessionary environments where you might see the unemployment rate going up in the past, that might be more blue collar type roles in manufacturing or transportation or in housing that you might see that sort of an issue or in construction. But right now it actually seems more like service related jobs management positions, especially in tech. Uh That's where you're seeing more of the layoffs where there was just too much hiring that occurred during the pandemic when certain industries thought they were going to see a boom in demand and now it's rolled over. So we think that's made this environment a little bit more difficult to forecast where the unemployment rate is headed. So it kind of depends if you're seeing or you're working in industry where you're seeing a lot of signs up looking for new hires, you're probably okay for a while. But obviously we're seeing more and more announcements from tech businesses that are cutting on average, you're seeing 10 to 15% of their employee base. Yeah. And I just want to note here, chance to similar to what you've expressed here during our interview, I know Carl Icahn, obviously well known billionaire and investor saying he does still think we're in a bear market despite today's relief rally as well, call it. Right. So concerns that there could be more selling ahead. Is there any real indication that inflation can continue to come down? How confident are you that higher prices can cool in the future? We think that inflation can come down and will come down in the quarters to come? The question is is that coming because of what the Fed and other central banks have done to in essence create a recession that we expect to take hold next year. And that can naturally bring down inflation, but it creates different problems because growth will have turned negative on a real basis. Uh And then the other question is, where does inflation start to settle out? We noticed today that the sticky components of the inflation metric. So the indicators that don't change that much from month to month still increased at an annualized rate of five and a half% 3%. So you need to see some of those metrics start to come back down before you start to think that we're back in that range that we were in throughout the 2010s. Alright, chance. We're gonna leave it there. Thank you so much for coming on the show again. A very strong day for stocks relief down here on Wall Street with the NASDAQ up 7.4%. That is chance Mannequin Chief Investment Officer, Oxbow advisors.