U.S. stocks close higher on Thursday for the second consecutive day.  The S&P 500 added 1.49%, the NASDAQ gained 1.54%, and the Dow rose 1.6%.  Adam Phillips, Director of Portfolio Strategy at EP Wealth Advisors, joins Cheddar News' Closing Bell to discuss.

U.S. Stocks Close Higher For Second Straight Day On Strong Earnings

now let's turn back to the major averages joining us now is adam phillips? He's director of portfolio strategy at ep wealth advisors. So adam, thank you so much for joining us this Wednesday. What is your reaction to how the markets closed today and the second day is straight in the green? Well look, it's nice to see some green on the screen. Um it's certainly a welcome change and so I'm not gonna complain about that, but you know, I don't want to pour cold water on this, that the data that we saw today certainly around consumer confidence. That number as you mentioned has been trending higher. Today's support was surprisingly positive. But if we look, let's say underneath the hood and some of the underlying data there, it still suggests that there's some, there's some stress among consumers specifically. We did not see Um plans for spending over the next few months to increase, actually they fell. Uh and what we also see is that the sub component of this consumer confidence, the the expectations future expectations in the coming months that actually still hovers around 80. So historically that is a level that's consistent with the recession. So I do. So I don't want to complain about today's rally. But I also, you know, I I take it with a grain of salt and I do still believe that we have some work left to do here. So with your concerns that people might not be spending as much, What are the expectations for the markets between now and the rest of the year? Are you kind of still helping for that santa claus rally? You know, I think we could just, just because there's not a whole lot of data between now and then. I think, you know, normally we see volume really trail off here and in the closing days. Uh, and so we could see just a little bit more upside here and, and so no complaints there. We are looking forward to the personal income and spending data that comes out on friday. I think that will inform us how the consumers and households are doing. We know that the last retail sales report that we got a couple weeks ago was left a little something to be desired. And so I think this will give us a more complete picture. It's obviously obviously something that Fed watches closely and so if we get a good report on friday, I think the markets can rally then and continue that rally into the end of the year. Uh, that being said, we are still cautious as the new year takes hold. We still think, as I said that we have some work left to do. I think that we Are still waiting and and looking to see what the impact on the economy will be from what has been the most aggressive rate hikes in 40 years and we know that the Fed is not likely to, to be done done here with their most recent rate hike. Now let's go back to something that you were talking about earlier, which is that consumer confidence number, it bounced back this month after two straight months of decline, highest number since April this year. What do you think this means for going forward? Well, you know, I think it's interesting. I don't want to get too caught up in one month because one month does not make a trend and so I would look for confirmation in the data in the coming weeks and months. You know, we'll we'll get new consumer sentiment data um in a few weeks we'll we'll get another confidence number next month. But I think unless this translates to more spending um then it really doesn't matter a whole lot. But what I think one of the things I do take from this is that inflation expectations over the next year came down, that's the lowest um in just over a year. And so I think that's that's good. That's a great development. I think the Fed will be happy to see that since obviously inflation expectations are important since they can uh inflation can be self fulfilling? And so I think that is a trend we want to continue seeing. But I think the question remains, does this translate to more activity among consumers? Are they feeling better and therefore more inclined to spend? I think that's what we're waiting to see what we are seeing some um some less favorable trends in the let's say Buy Now Pay later theme that we've been hearing so much about? We've seen revolving credit increase up about 30% in terms of credit card debt that's outstanding since the summer. And so it tells us that even though confidence is up, there is still plenty of stress underneath the hood now we also got some data on the housing market, existing home sales dropped significantly in november from the month prior and this is just the latest sign of weakness in this specific sector. Do you think people will want to buy more houses next year? Do you think it's going to improve? Yeah, that's a tough one. obviously we know that housing is the most rate sensitive area of the economy. And so it's not too surprising surprising to see this weakness and especially after we saw home prices gained about 40% on a national level over the last two years. And so a little bit of a pause or give back should be expected supply and demand. We're just so far out of balance that we need to see some kind of reversion here. And I think that we're seeing that the question is how far do prices need to fall? We've seen prices start to fall a little bit here. Um and how far do they need to fall to to bring buyers back? And and I think that mortgage rates have a lot to do with that they're about twice as high as they were at the beginning of the year, ensure their their off of their their recent highs. But are they, are they now low enough and have home prices adjust enough to lure buyers back in? I think that that remains to be seen. And so I would expect this housing market weakness to continue into next year. Um but you know what, I always caution clients is that you want be careful when you're talking about weakness in the housing market because obviously many people think back to the housing crisis and I think the two are very, very different this time around now. Quickly before we go in the new year, do you think the Fed will be able to achieve its goal of reducing inflation that we're seeing right now? That's a great question. I think that that's that is the number one question facing investors going into 2023 I think that they will um I I certainly believe them when they say that that is their number one priority and and they're going to do it. Um no matter what happens to the economy along the way, I think inflation is really enemy number one here that they need to, they need to tackle. And so what I look at is they are essentially saying they have another couple of rate hikes in the upcoming months here left to go and maybe more beyond that? Um what is most likely to happen is they'll they'll hike rates a couple more times and then leave rates at their terminal level at that high level for a number of months until they see evidence that inflation is, is continuing to moderate towards a more healthy level. And so I think that's really where disconnect is between investors and the Fed right now, um, that investors are kind of, I think investing based on hope, but not necessarily reality. And I think they're setting themselves up for disappointment here. Well, that's thanks to Adam phillips, he's the director of portfolio strategy at Ep wealth advisors.