Sam Stovall, Chief Investment Strategist at CFRA, joined Cheddar News' Closing Bell to break down what's happening on Wall Street, as inflation, rising interest rates, and supply chain disruptions combine to drive markets lower.

Closing Bell

U.S. Stock Market Experiences Worst Start to Year Since WWII

Welcome back to Cheddar News is closing bell. Everyone April's major stock market selloff that we've seen continued yesterday is the down the S&P found by more than 2% and the NASDAQ was down at nearly 4% on fears of a possible recession. Well, red hot inflation causing the Fed to hike rates aggressively this year. But investors worried that rate hikes could slow consumer spending and lead to an economic slowdown. Well, that's not to mention the far reaching economic impacts of Russia's ongoing war on Ukraine and ongoing covid lockdowns. Specifically in china. I do want to bring in Sam Stovall, chief investment strategist at the stock research firm CFR A SAm, it's great to have you on today. I know you've been following this data, historical trends for years. What is this Rocky month of april and worst start to the year that we've seen since World War two. Portend for the stock market going forward. Hey Kristen good to talk to you again. Yes, April is traditionally the best month of the year, posting the highest average price change going back to 1945 and the second best in terms of batting average, meaning frequency of advanced second only to December. But it was a very big disappointment so far this month. So month, two day through last night, the SNP was off 12.4%, which was the worst since World War II. Even worse than the very beginning. Bear market of 1973 through 75. So all of those factors together sort of created a perfect storm and you would think that after a major pop drop, you would expect a pop. Well, unfortunately history does not imply that we're likely to see that in May, that actually on average, we ended up declining about 70% of the time following the worst 10 april's going or year to date periods going back to World War Two. So don't get your hopes up. Yeah. Unfortunately, certainly we've seen the sentiment turned extremely bearish. And even though we're having a little bit of a relief rally today, certainly not even nearly making up the losses of 4% that we saw in the NASDAQ yesterday, not to mention a whole host of earnings coming in after the close, which could add some more volatility to this space. You're the chief investment strategist at CFR A and so what would you recommend that people do? I mean, of course it might be different for each different generation. But is this a market that you would be selling right now expecting that further losses could come? Well, I think that there could be additional weakness. We are in that traditional sell in May period. And during midterm election years, which I like to call sophomore slumps, we do find that the S and P. Has been off an average of 3.5% on a total return basis from May through october. And so if you are more likely to stick with stocks, you're better off rotating toward the defensive healthcare and consumer staples sectors because sometimes history is wrong. Uh and so you're better off sticking with stocks than bailing out and going into cash. However, during the more challenging May through october period, you're probably better off hunkering down in the more defensive areas. Mhm. Here's a question. When was the last time that the stock market was dealing with this many risks, inflation, supply chain challenges. Covid a war, higher interest rates, Was it the financial crisis? Well, the financial crisis, but certainly back to during the tech bubble bursting. I looked recently at those periods in which we did have uh rising interest rate environment as we now have with the Fed inverted yield curve environment, geopolitical tensions. And then also what we don't know yet is a recession that occurs within 12 months, one year. That reminds me of this is 1956. When we did have the Fed raising rates, we did have an inverted yield curve. From a geopolitical perspective, you had Egypt uh arrest control of the Suez Canal and at the same time, you have the Hungarian uprising be squashed by the soviet Union. So like Ukraine, you have a soviet induced geopolitical tension. So, uh, if we are getting close to recession in tomorrow's first quarter GDP I data, there's a possibility we could be seeing a negative print. I think that could cause investors to worry that a recession is closer than expected. So a recession of course for our viewers watching his two straight quarters of an economic Contraction. I mean, at this point Sam with inflation at its quickest pace in more than 40 years, do you think a recession will be necessary to curb inflation? I think a lot of people wondering will prices ever come down, will the rate that prices are increasing, which is inflation ever? Cool. Well, we probably won't be going back to the sub 1% level that we saw just a year or so ago. But I do think that with the Fed's actions of being aggressive in raising interest rates as well as engaging in quantitative, tightening. then yes, they will be bringing down that rate of inflation, but it could be a lengthy process. Unfortunately, normally we find that when the Fed does start a rate tightening program, the Fed funds rate is already higher than the year on year change and headline CPI I but not this time around this time around. In fact, headline CPI, I was 7.5% points above interest rates. So the Fed has a very long way to go to get ahead of this inflation curve. Sam, we've got to leave it there. We could keep talking. I have so many more questions, but we appreciate the insight, we appreciate the historical trends that Sam Stovall, Chief investment strategist at the equity research firm C. R F. AA