U.S. stocks closed slightly lower on Wednesday after two days of finishing in the green.  The S&P 500 finished down 0.2%, the Dow dropped 0.1%, and the Nasdaq fell 0.2%.  Tom Hainlin, National Investment Strategist for U.S. Bank Wealth Management, joined Cheddar News' Closing Bell to discuss.

U.S. Stocks Close Lower

Well let's turn back to the major indexes, shedding what have been some fractional gains into the close here in the final moments of trade joining me now is tom hanlon National Investment strategist for U. S. Bank wealth management. Thanks so much for coming on the show. What do you make tom of the market action that we've seen to start the fourth quarter? Good afternoon chris and happy to be here. I think as you mentioned, quite a lot of work to get back to basically even for the day or just slightly down. Um you know, a lot of selling to begin with. Probably spurred by, you know, san Francisco fed president mary daly letting people know that the Federal Reserve is still intent on raising interest rates and tightening policy to head off that inflation with, as you said that jobs report coming up on on friday, there will be a key release to see where you see any softness in the labor market. That's what the Feds trying to drive the decline Demand and maybe some softening in the labor market to get inflation under control. So let's talk about what happened tom on Monday and Tuesday, the best start to the fourth quarter since 1938, I think definitely a reprieve after the heavy selling that we had seen in August and September any indications as to how this fourth quarter is gonna play out. Yeah, those two first two days monday and Tuesday were spurred by some speculation that perhaps the Federal Reserve was was gonna uh slow down his pace of interest rate hikes, he looked at the Royal Bank of Australia. You look at the Bank of England which had pivoted last week from, from tightening conditions to, to something less tightening from the, from Australia and the pivot from the Bank of England on their bond purchases. So there's speculation that the Federal, that may be closer to peak interest rates and peak hawkishness as it were. That was the catalyst for the first two days of the week and the, and the rise in stock prices. Then, as folks digested that the Federal Reserve comments from, from uh President daily and others reminding everybody that the Federal Reserve is not looking at England or Australia to determine when they're done. They're going to be done when inflation is under control here in United States and now in terms of corporate earnings time, that's going to be a focus to, especially in the weeks ahead, mid october is when we start getting the third quarter reports. Any indication as to how corporate America is holding up amid still higher prices and a consumer that's willing to spend, but a little bit more intentional with their dollars. Yeah, exactly. The consumers still sitting on accumulated savings during the pandemic, So that's, that's been a strong balance sheet for the consumer. They've been withstanding some of the higher prices on food and energy, but key for us are two things in corporate corporate reports coming out here for the third quarter one, Not only the numbers in the outlook, you know, our company's still believing that the earnings will come in as strong as they've been forecasting, but secondly, any change in the outlook just in terms of visibility as things, things gotten cloudier as the supply chain issues improved or not improved. Those are the things that we, we're gonna be looking at. Our concern has been that ultimately higher interest rates and high inflation starts to erode into the consumer spending, but also corporate margins and ultimately profit. So that's why we've been a little more defensively positioned. Even with a couple of strong days we saw this week, what do you think tom is the right move for investors? Should they be looking to invest in bonds, bond funds right now or do you think it is an attractive time maybe to add some risk via stocks to their portfolios? Our position continues to be that for for diversified investor that owns both stocks and bonds and things like real estate on average, maybe own a little bit fewer stocks, maybe buy some shorter term bonds. We don't wanna take too much interest rate, risk owning longer term bonds. But we also think that investors would be advantage by owning things like utilities, pipelines and just that physical infrastructure that keeps the global economy going, which tends to be under invested in this time of this part of the cycle? So we still think you get strong cash flows. You talked about the energy companies with strong strong gains today, that those, those persistently high energy prices driving strong cash flows across the utility of landscape and energy infrastructure. So a little less stocks more bonds, a little more in the form of global infrastructure assets. I think probably most of our viewers, they know how to buy stocks. Certainly we've seen retail traders do that. I mean the meme stock mania and and other mechanisms during this pandemic time. But if people are interested in buying bonds and they might not have done that before, what's the best way to do that? Is it buying bonds directly from the Treasury? Would you recommend that or would you recommend perhaps some of these E. T. S. Or other mechanisms? Yeah, we recommend that that that folks just check in with their advisor and what the best opportunities are for them on an individual basis, whether it's individual securities or or or bond funds that kind of give you broader exposure. Um, So it again, it's kind of based on everybody's individual tax situation and investment outlook. So we think there's opportunities for both for individual bonds, but also within bond funds path forward for interest rates. What's the Fed's next meeting going to bring and are we headed for a recession? What's your take? Yeah, we still see them tightening heading into the to the year. Um You know, the big debate is, is what they do in 2023. The Fed up release their outlook for 2023. So they're still gonna be raising interest rates in the front half of the year. Whereas investors have been pressing and maybe a little bit of a of a possibility of a flinch from the Fed or or perhaps declining interest rates in 2023. That's the big debate right now. That's the kind of the main driver of volatility across capital markets and asset classes is what will the Fed do in 20 23? We still think the Feds got a lot of work to do. We still anticipate rate hikes going into the end of the year and into 2023, interesting. So for Americans out there, they are sitting on savings. I think that's a positive time. But do we start to see the effects of interest rates, higher interest rates, impacting budgets, more impacting jobs. So wait to see what the September jobs report holds on Friday. But what should consumers, not just investors, but consumers be prepared for heading into year end? Yeah. So those higher interest rates are already directly impacting things like the real estate sector, where higher rates translate into higher mortgage uh mortgage rates. That's been slowing down the housing market. That's what the Fed attempting to do is slow demand, slow the economy. So investors and consumers should anticipate that the interest rates will remain high and and continue to increase as the Federal Reserve attempts to bring supply and demand in the balance that demands coming from savings that were accumulated during the pandemic. That gives consumers the wherewithal to continue to spend. But we still think it looks to be a positive outlook for for the end of the year and particularly to the holiday spending season. Oil prices your take. Do we see oil prices rise into these colder winter months? And what level do they reach? Yeah, we don't have a price forecast for oil. But obviously up here in the in the high eighties and around $90 that's a positive price for oil producers and anybody along the energy transmission lines. So that's why we have that slight tilt for investors into those energy infrastructure and those global infrastructure investments. We still think energy prices stay persistently high here. You've heard the opec news this morning um about affecting a demand supply cut production cut. So we still see oil prices remaining elevated. They're also bound bound by what the outlook is for the economy as the Fed tightens interest rates and slows the economy that will slow demand for oil. So that should that should that should work in lockstep as well. Alright, Tom Hanlon National Investment strategist for U. S. Bank wealth management. Tom thanks so much for joining from Minneapolis