U.S. stocks closed Wednesday's session lower, after Consumer Price Index data showed that consumer prices jumped 9.1% in June from a year ago, marking the the fastest pace for inflation going back to November 1981 -- more than forty years ago.  Jim Worden, Chief Investment Officer of the Wealth Consulting Group, joins Cheddar News' Closing Bell to discuss.

Closing Bell

U.S. Stocks Close Lower Following Hot Inflation Data

come back to the major indexes down day on Wall Street, fractional losses. We have been mixed in this market with fractional gains on the NASDAQ and the S. And P. At one point this afternoon. But technically ending in the red. So joining me now is Jim Warden, chief investment officer of the well consulting group. Jim it's good to have you on the show today. What was behind the market action? Thanks for having me, Kristin. Yeah I I think that the market action is is not bad considering we did get this higher than expected inflation. Print was interesting to see that for a while uh small caps were doing better. I think they actually did close a little bit better than large caps. That makes sense with with smaller companies doing better in an inflationary environment than large companies Interesting. Well of course that consumer inflation data coming in at 9.1% in June from the same time a year ago and the highest pace of price gains that we've seen in 40 years. Jim what's your take, how aggressively does the Fed Act at the end of July in the wake of this hotter than expected print? Yeah, it's interesting because yesterday it looked like uh almost a 100% chance that we get a 75 basis point increase in looking at Fed Fund futures now looks like we get a 66% chance that we'll see a 75 basis point hike. So interesting to see that in light of the higher inflation number, I would expect that to be higher, Interesting. Well potentially 1% in terms of the rate rise that we see at the end of this month, some banks calling from that of course in the wake of this hotter than expected inflation. Read, what are you advising clients here, the chief investment officer at the wealth consulting group in this environment? What should investors be doing? It's a good question. So we we talk a lot about diversification and probably talk about it more than other advisors. But you know, we think clients need to be thoughtful and in terms of what their asset allocation is. And and we have to also be careful not to just uh trade based on emotions. Right? It's been a rough couple of months. It's it's been difficult with the commodity prices coming down and energy prices coming down. I think that this inflation number is old news already. Uh just because you know, if we did have a real time inflation gauge, it would probably be lower than the 9.1 that we're getting. So I would say for investors that are diversified to stay diversified always understand what your risk profile is, what your investment objectives are and make sure that those are aligned. Mhm. Okay, so looking at the market right now, jim some guests on our air just this week have said the market could fall further from here, potentially another At 10 even 15% points as the SNP does remain in a bear market. Do you think that's possible? And what do investors need to keep in mind if we do decline further? Yeah, Kristen, I think it's certainly possible. Um, I think it all goes back to what we own, right. So some of the names that have gotten beaten up the most aren't dropping as much, uh, there's, there's less risk that these things will fall precipitously. And I'm talking about the companies like netflix or Paypal or, and video, these companies have already dropped a lot, so there's not likely going to be as much downside for these companies versus some of those companies that might still be a little bit overvalued, uh, and might still have their growth numbers marked down in terms of analysts revision revising downward. Okay, so are there certain sectors Jim, it sounds like that might look a little bit more attractive. Are you advising that clients maybe start looking at some potential bargains in this market knowing that we are technically in a bear market down 20% from recent highs. Yeah, So we, we still like energy. It's been very, very volatile. We still like those names. The profit margins are very good. But we are starting to have more conversations about some of these technology names that have gotten beaten up the names that we would probably stay away from putting too much in, would be those names that are a little bit too rich for this environment and have got a lot of interest rate sensitivity. So utilities and real estate have have done okay, Real estate has been more volatile. We think that that there's actually more volatility with fixed income right now than there is with equities. Well, of course that is in the wake of higher interest rates on the horizon. Jim my big question to you is we all know that higher rates will put downward pressure on the stock market. But what about some of these other unknowns? Like the pandemic like China zero tolerance policy and the impact on the global supply chain in Russia's ongoing invasion of Ukraine. Are those factors that the market can look past? Yeah, I wish, I wish the market could look past all of those but not quite yet. Probably getting closer to the Zero Covid policy for china, although we are seeing new variants come out. You know, I believe most of the world is kind of gotten in front of Covid. Now the war with Russia and Ukraine, I don't know how long that will last and until that is behind us. I think we can expect that commodity prices, energy prices in particular are going to be gonna stay volatile. They've went up really sharply. They came down really sharply. They looked like they could have some support there to move higher again. So I think that that could be with us longer now. I think the Fed is going to be really, really careful and data dependent as as we see slower economic data come through. And if we see that a lot of these companies get revised downward profits start dropping. Um you know, then the Fed, I think will be a little bit more careful in terms of what they do going forward, although they likely still will hike by 75 basis points this month. Um, So of course we see inflation having an impact on stocks today earning season set to start as well. We're already starting to see some downward earnings revisions. Jim. Um, inflation gives us a read on the consumer, but what about the read on corporate America? How do you expect this earnings season to go? What shape is corporate America in? It's pretty good shape. Both, both consumers and corporate America is in pretty good shape. I would say most of it is in pretty good shape. The profit margins are not far from all time highs. Um, you know, there we may see companies buy back if they've got very strong violence sheets, they could be buying back into this week price environment. But I would worry about those companies that are more dependent on floating rate debt as rates to move tire. It's gonna, it's gonna squeeze those companies more. Just as it's squeezing prospective homebuyers who want to buy a home rates have come up substantially from where they were. All right. Jim warden. We're gonna leave it there. Jim is the Chief investment officer of wealth consulting group. Jim thanks so much.