U.S. stocks closed mixed on Thursday as investors continued to monitor earnings reports from several notable companies and prepare for new jobs data set to be released on Friday. The S&P 500 closed down by 0.1%, the Dow Jones Industrial Average fell 0.3%, and the tech-heavy Nasdaq finished fractionally higher by 0.4%. Rob Haworth, Senior Investment Strategist at U.S. Bank Wealth Management, joined Cheddar News' Closing Bell to discuss. 

Closing Bell

U.S. Stocks Close Mixed Ahead of July Jobs Report

So stay with us. We're gonna break down results from earnings coming in after the close all afternoon long cheddar senior reporter Michelle Costello is gonna join me to break down these results as we get them. So stick with us here as we await what's up next. But I do want to turn back to the major indexes. We do see again fractional gains from the NASDAQ up 4/10 of a percent fractional losses for the S. And P. And the dow. And joining me now is rob Hayward, senior investment strategist at U. S. Bank wealth management rob. Thanks so much for coming on the show. What do you make of today's market action? Yeah, I think we're waiting for the big news and the big news as you alluded to is tomorrow's jobs report. And certainly next week's inflation report is the market's really trying to understand what is the path of the Federal Reserve going to be and what is the path of inflation going to be and how is that going to impact earnings going forward? And in terms of what we see on the inflation front, certainly the latest consumer price index showing a whopping 9.1% gain in prices from the same time a year ago at the fastest pace in 40 years. Are you of the notion rob that inflation has peaked or do you think we might be rising a bit further from here? Well, it's certainly hopeful, helpful and and provides us some hope that we've seen food and energy prices start to trend a little bit lower. Uh that said, I think the challenge is the fundamental underpinnings of inflation remain intact and it's going to take some time probably in the next year before we get close to the Federal Reserve's target. And I think the challenge is when we look at the June employment cost index wages were up 5.2%. Those things tend to take some time to translate through the economy. Additionally, housing prices are still up and working their way through that C. P. I. Calculation. So, you know, kind of a consistent trend and theme there is housing prices and rents work their way through the C. P. I. Calculation mean price gains are probably going to be elevated for the rest of this year, maybe past peak. You know, probably not growing at a 9% rate, but Uh not not making it all the way down to the Federal Reserve's 2% target by year end. Yeah, we still have a ways to go even on that core PC excluding the volatile energy sector and food sector as well here to get back to that 2% long-term target. So what are you advising investors do in this environment rob do you think that they should be getting back into the market or do you think it's too early? Well july was certainly a spectacular month, but our our base case right now is still to be a little more cautious and a little more defensive. We'd we'd under own equities. We'd be looking towards owning higher quality shorter maturity bonds trying to manage the risk of rising rates because inflation still has to work its way through the system and the Federal Reserve still has more interest rate increases ahead of it. But also we're aware that that inflation pressure is is a key factor in portfolio. So we tilt a little towards real assets in particular. Thinking about infrastructure focused assets that have some ability to pass through those cost increases and offset some of that inflation pressure in your portfolio. So we really use those two tilts to try and manage the overall risk and portfolio while under owning global stocks. At this point we're showing a helpful full screen. I hear the year to date percentage losses on the major indexes robbed? So the dow down about 10% the S and P off 11% the NASDAQ down 15% by this measure at least the NASDAQ would be out of correction territory. But we know it actually peaked in november. So I don't think it's there quite yet. But still these numbers actually are pretty positive with the recent rally that we have seen in july as you mentioned. And even some of the strength that we've seen here at the start of august do you think that the Fed can engineer a soft landing that getting prices down inflation down and keeping this labor market still healthy while avoiding a long term recession is feasible. It's certainly a possible scenario for us. I think it's it's very hard. It's uh it's like threading a needle very often for the Federal Reserve because we're talking about a fairly blunt instrument and and raising the cost of lending and borrowing to try and slow the economy. We're seeing some good signs as as you alluded to earlier. Uh jobless claims are up a little bit, not a lot, but a little bit. Um continuing claims are up a little bit, not a lot. So that's starting to work in our favor. Additionally, job openings are coming down. So that's starting to work in our favor. And and so the Federal Reserve has the start of this. I think the other cushion to a softer landing is the strength of the consumer. At this point. Those wage gains are extremely helpful. The labor market remains very strong with a very low unemployment rate. But also consumer balance sheets are in very good shape with high high savings on the sidelines in deposit accounts. Uh And additionally, from a edit perspective, we don't, they're just starting to expand credit. They haven't been expanding credit for a long time. So we don't see that credits a problem yet for this economy and for the consumers, so there's some some room for them to be resilient through this period of rising interest rates. And I think obviously we know that the stock market does move in tandem with those higher rates. So the higher the rates, the more downward pressure it does put on stocks. Do you think the lows are behind us, rob? I know you're advising clearly here caution, but do you think we might retest these lows if inflation does stick around? It's certainly possible. And this is, this is where I think so much depends upon the path of the Federal Reserve. Right now. The market has been looking forward to a to a 2023 pivot and taking some of those rate hikes out of their expectations. Um But we've had speakers on the tape trying to re emphasize their commitment to fighting inflation and increasing interest rates through this year. So I think that path could be very important and if the market has to adjust to the expectation, especially after tomorrow's jobs report or after next week's inflation report that the Federal Reserve has to do more rate increases than they're currently anticipating. I think that could be a challenging environment for this market. What would be a job sprint tomorrow that would concern you? I would probably so one I think from a payroll number, I think under shooting on the payroll number, particularly if it's it's particularly dour and I'm thinking, you know, closer to 20 or negative. I think that would be a surprise to the market that that would not, that would not be well received. Um And then, you know, because I think we've had such success in that labor market and the other number I'm really looking at is average hourly earnings that's been so robust. And if that starts to dissipate or deteriorate one or two accelerates well above expectations, I think the market has some challenges there because it implies that either the labor market is falling apart a little more quickly than current data indicate or, or be if those wages are accelerating, it means there's more cost pressures on the way for companies and that could be quite challenging and and leave the Fed with a lot more work to do when it comes to inflation pressures. So I do want to give our viewers on the estimates that we're waiting for tomorrow, rob economists estimating the economy added 250,000 jobs in july down from three, 372,000 in june but 250,000, I would still say is a bit healthier than normal. Even during a robust economic growth times, I would just start to see the recovery slowing down a bit. It does appear that the stock market is also pricing in a rate rise of about half a percentage point from the Fed at its september meeting maybe a quarter of a percentage point rate rise at the other two meetings that will get before year end. I think that the scenario would actually, if we get the number on the money on economist expectations tomorrow would be a positive for the Fed because of course it does expect to see a little bit of a slowdown in the labor market. But nothing so dramatic per se. Are there certain sectors as you're advising your clientele steak, Cautious that you think might be more attractive here and other ones that you're shying away from oil specifically on my mind because we've seen oil prices come down to their level just before Russia invaded Ukraine $90 a barrel on W. T. I. Crude and some expectation that energy prices may have peaked. So time frame is always an important thing. And I think for a longer time frames thinking two years or more the secular growth stories in technology and communication services remain attractive. I think in the near term we are looking more towards the cyclical recovery stories. And that's partly because we have china starting to reopen from the shanghai shutdowns. But additionally, inventories here here domestically in an output for the world in terms of oil remains low. Um and for us, for example, if we think about uh oil and product inventories here in the US were at levels we haven't seen since 2005 in terms of inventories. So inventories are really quite low. We have some rebuilding to do when it comes to inventories. And I think that provides a boon maybe for energy companies to generate earnings in as we move forward. Maybe not see much higher oil prices, because we were really taken out kind of the premium that we were, that the market built in for the Russia Ukraine conflict. Um, but but even, you know, kind of sustained long term prices in the 60 to $90 range is a solid place for companies to generate earnings as they continue to to produce oil and try and meet the demand that is in the economy today.