U.S. stocks closed higher on Monday as investors await CPI data from the Labor Department, set to be released on Tuesday.  The Dow jumped 0.71%, the S&P 500 added 1.06%, and the Nasdaq gained 1.27%.  Ross Mayfield, investment strategy analyst at Baird, joins Cheddar News' Closing Bell to discuss.

Closing Bell

U.S. Stocks Close Higher to Extend Gains Ahead of CPI Data

Well, let's turn back to the major indexes strong start to a monday ahead of this. Very important. Consumer price index reporter inflation data that will get tomorrow. So joining me now is ross Mayfield Investment strategy analyst at baird ross, thanks for coming on the show. So we've seen actually several days of gains in the stock market. What is behind this turnaround for stocks? You know, we're kind of trapped in a range here and so in absence of really good news or really bad news, I think you're gonna get bounces when things feel a little oversold and a little bit negative, but you're gonna have a lot of trouble sustaining, uh, you know, momentum to the upside as well, barring some piece of really, really good news, you know, right now that just means something on the bed and inflation. So, you know, I think we're bouncing around, I think we were probably um, you know, a little too aggressive on the rally in late summer, but I do think the recent selloff has probably been a little bit much as well. So I think we're gonna be trapped in this range for a little bit and something to get used to. Okay, what's your expectation for the inflation report tomorrow? I I do see different estimates, but certainly at least a little bit of a tick lower from what we saw in july Yeah, I think that's right, It's gonna be, you know, lower, but still far too high for the Feds comfort for consumer comfort. So, you know, probably somewhere around 88.1% would make sense. Um, I think that the Cleveland Fed's now cast is right about 8.2%. But again, you know, it's it's kind of semantics at that point because you're heading in the right direction, but you're still along ways away from it. So, you know, especially with core inflation looking to remain pretty hot. Things like housing, things like, you know, the labor market, which hasn't really cooled off at all. Um you know, the Fed is still going to be very diligent. I think the odds are still probably in favor of the 75 basis point rate hike in september they want to front load and then see where we're at at the end of the year, but uh lower but still too hot. What would it take ross to move stocks out of this range bound trading that you said you anticipate at least here for the next few weeks or so. You know, really there are a few things I think that you can get really good news on that might provide some lift to the upside, I think geopolitically um, resolution in Ukraine um, would certainly be something that would give kind of a risk on move to two stocks, but really on the, on the the Fed and inflation side of things. It's really hard because we see where this story is going, but there's almost, you know, nothing that can, that can make it happen quicker, right? So things like housing are rolling over but we know that takes you know a bit of a lag time to get into C. P. I. We see commodities are lower but they're still you know largely um too high. You know things like the labor market, it might be cooling on the margins but it's still too hot for where the Fed wants to be. So I don't think there's a scenario right now where the Fed has to get more aggressive than they've laid out. But a scenario where they're getting their easing earlier than they expect is probably not you know risk on either probably means that you know, a recession has come something like that. So it feels range bound for now. But there are a few things on the margins that could that could change that. They're just not high probability events interesting. We do see that results from Oracle will be coming in after the close. Haven't gotten them just yet, ross but when it comes to this technology sector of course higher rates have been putting downward pressure on the technology names are their sectors within technology, semiconductors, you know big name stocks like Apple or even individual companies that look attractive to you at these levels. I think this environment and particularly in a sector that's not necessarily working like technology or communication services, you just want to go with quality. So higher rates tighter financial conditions probably gonna be in that sort of environment for the foreseeable future. Again, if the Fed is cutting rates next year, it probably means something has broken within the economy, it's not, in my opinion, a good thing if the Fed is cutting, so if we're looking at, you know, 4% or higher on the Fed funds rate and they're gonna hold that pat and you're gonna see tighter financial conditions, I just want to own the higher quality stuff, the things that can um you know, self fund that have a lot of cash on their balance sheets that don't have a lot of debt, um particularly floating debt. So, you know, you can decide what that means to you, but companies that have a lot of free cash flow have wide modes and can operate in that sort of environment, maybe that already have, it's been a long time since we've seen an environment like that. But a lot of those kind of tech behemoths have been around for long enough that there might still be some muscle memory there. It is interesting because we were covering at the start of the show the potential strike that we could see when it comes to real workers and what that might mean for the supply chain ross. I don't know in terms of the data if you're looking at some of the supply chain pressures out there, if they've shown that they have been easing over time and what you think potentially could be a risk if this strike does indeed happen to me, supply chain pressures at the exact same answer as inflation right there easing, they're heading in the right direction, but there are still kinks in all parts of the supply chain. Um you still have issues in china covid zero. So kind of at the start of the process, you still have issues as you, as you've been covering with track transportation across the country at the ports. It's all using by most of the metrics that we look at some of the official metrics that the Fed puts out. Um but it's still very well elevated from pre pre pandemic. And so it's just gonna be a thing that probably slowly works out over time. But um, as we still have geopolitical issues as different countries pursue different policies, it's gonna be really hard to get um everything back in unison, especially with, you know, the labor shortages and some of the stoppages that you're talking about right now. So getting better but a long way to go. What about energy prices? I mean, energy stocks have certainly been the gift that kept on giving, I would say at least this past year and a half, maybe even two years and Russia unfortunately is still invading Ukraine. How do you look at the energy space and some of the commodities out there? Sure. So you think about something like oil that is kind of broken down lately. Um but the energy stocks have not necessarily followed in suit. So this is a point that our partners have bared at strategic company have made is that you see oil prices breaking down, but the energy stocks not necessarily following in suit, It might be the energy prices telling you that there still is a structural supply issue in the oil markets and that, you know, there's not necessarily a reason for the energy stocks to sell off, you know, kind of in concert, these companies can still make a lot of money with oil around 80 $90 a barrel. It's still a lot better than the environment we saw over the last 78 years. So they've certainly been one of the ascendant sectors. I think they've taken a pause, but there's still some structural reasons to like that space as we go forward. Um, I think there's still a lot of issues on the supply side and on demand. You know, you've had all this kind of tightness in the market without china really online in full if they ever kind of, you know, ease their pursuit of covid zero policy and kind of re enter the market and bring that demand to the table. It could be another leg higher prices. So, my last question ross is the dreaded r word, right, will we have a recession or do you think we can get a soft landing? What's your expectation and what's the long term impact of the stock market. Yeah, I'm I'm still in the camp that a soft landing as possible I think um There's plenty of job openings out there so that the Fed can kind of engineer a soft landing in the labor market that they want basically removing job listings without removing jobs and causing unemployment to spike The consumer. And aggregates still has a ton of savings. They've started to tap that. They've started to move into revolving credit uh to fund their spending. But inflation is already on the way down. Important inflation things for the consumer like gas prices are coming down you know meaningful e. And so I think there's still potential to get you know 4% on the Fed funds rate fish the Fed holds pat and it's tighter. It's not necessarily kind of the you know 25 30% returns we've seen in the S. And P. 500 in years past. But you know I don't think we have to enter a recession to get inflation where the Fed wants it to go. I think the consumer is still in a pretty good place. They don't have a lot of you know debt in the consumer space right now cos it's kind of the same picture. Um So I'm still pro soft landing. I still I think it's possible I still like their odds unless something outside of the US breaks in a way that kind of spills onto our shore's um it's not impossible but I still like the odds. Okay. Pro soft landing? Yes. I think a lot of people would like that to be the case as well. Ross Mayfield investment strategy analyst. Is there, too? Thank you.