U.S. stocks closed Thursday's session mixed with minimal movement for all three major indexes, as investors await the November jobs reports set to be released by the U.S. Bureau of Labor Statistics.  The S&P 500 dropped 0.1%, the Dow fell 0.6%, while the Nasdaq jumped by 0.1%  Sam Stovall, Chief Investment Strategist at CFRA Research, joined Cheddar News' Closing Bell to discuss.

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

And let's turn back to the major indexes joining me now is Sam Stovall, chief investment strategist at CFR, a research Sam, it's great to see you. We had kind of a wash today? Not a lot of movements, notable movements, I would say in the stock market after a very strong day yesterday. What do investors need to know as we start the final month of trade for 2022? Well, history tells us that we should expect a good december might not be a great one, but it could be a good one. Historically, it's the best month of the year for the S and P 500 not only in average price change, but also in frequency of advance. A batting average if you will up 77% of the time. If you overlay that with the midterm election year, the batting average comes down a bit to 68%. And even if you look at the 10 worst year to date returns since World War two through november as this one is a part of what we find is that the market continues to post an advanced 60% of the time, so more more likely than not. We will end up with an end of year positive move for the market. Well, let's hope so. Of course. The Fed decision, I think would impact that as well. SaM we saw the market bottom this year in early october the dow has been quite a nice game since then. Even though it underperformed today, but as we look forward for the overall trajectory in forward for stocks. What should investors know if there is a recession, could we retest that early october low? What do you have in mind? Well, I think you're absolutely right. The things that could go wrong, uh, in 2023 primarily is recession. If you look at the steepness of the inversion of this yield curve between 10 year and two year, it's not been this deep since 1981. We're looking at a year on year, percent change decline if you will in Ellie I leading economic indicators and we're also coming up to the potential of an earnings recession. All three of those indicators tend to point to an economic recession. And while some people are assuming that we're either in a soft landing or a mild recession, I don't think anybody really knows how deep it's going to end up being. So I think that investors have to be aware that we could be looking at a pretty volatile first quarter two, first half of 2023. Okay, so I think that's good to know because even though we might see a rally into year end sam, as you aptly note is typically the case more often than not for the month of december doesn't mean that we're out of the woods. Right. I mean, certainly we've seen a lot of volatility in the first quarter of this year and historically, I think at least of late the first few months of a new year have come with some choppiness in the stock market, You're absolutely right. But the question is you don't really want to be bailing out of the market at this point because I look back to 2008 and saw that November 20 was the low of that calendar year. And then we advanced by nearly 25% into early January of 2009. If you were an investor who said, Okay, I'm gonna be buying and you were unfortunate enough to do so on that. The, the highest point on January six. Well then you actually got back to break even by June one of that year. Yes, you suffered through March nine, which was the new lower low, but you got back to break even by June one and we're up almost 20% for the entire calendar year. So I would say that because the market will likely look across the valley in 2023, I don't think you have to worry about timing the exact bottom to accurately. Okay, so that's a good point. So I think SaM what you're telling me to is Fed policy, we know is dictating the path forward for stocks and inflation, a recession. I mean those could all impact Fed policy to interest rates is what I'm referring to here. But as soon as we start to see a shift in Fed policy, it sounds like there might be some pent up demand based on perhaps what we saw as you referenced during the financial crisis that as soon as the stock market takes a turn, um, and puts these losses behind us, it could accelerate pretty quickly. Absolutely. And our expectation is that the Fed will raise rates by 50 basis points in december, do so again in february and then a final 25 basis point hike in March and that one really is on an as needed basis. And then the Fed will pause at least for six months and then, And maybe start to think about or act upon cutting rates by the end of 2023. And as we all know, investors are anticipate ear's and they will look across six month timeframe, uh, and start to act if they believe that the Fed will soon be lowering interest rates once again. Okay, so SaM is a market historian and chief investment strategist at your firm C. F. R. A. I think the big question for people out there is, is the Fed policy effectively bringing down inflation, the data that you look at. Can american consumers expect inflation to come down in the new year? Absolutely. Our belief is that we're likely to see the year on year percent change in headline CPI I uh, fall below 7% with the final december reading of 2022 then approach the 2.5% level by the end of 2023 we're already seeing reductions in gasoline prices. We are seeing a freeing up of the supply chain et cetera. So I think that as time progresses we will definitely be seeing inflation come down. So I guess I just want to end with one more question sam because last year we started at record highs right? We had seen back to back record highs. Some of the big thinkers out there were saying well even amid oh Macron that started spreading pretty quickly in december here in the US we were able to deal with it. Covid was taking a turn this time around, we had treatments and we had vaccines. So I don't think many people saw the stock market plunging 30% this year as we've seen play out knowing that risks still exist technically we're still in a pandemic, China still has a zero tolerance policy when it comes to COVID though, there are reports that they're trying to scale that back and Russia is still invading Ukraine. How big of wild cards are these? That could throw an investment thesis out the window in 2023. Well I think that right now these are already known knowns uh and that they could end up reversing and being more positive. Uh if china does begin to lighten up on its Covid policy, if we do start to get the hints of some sort of agreement being made to cease uh activities in Ukraine. You know, then I think that would end up being positive. We're already seeing a weakening of the 10 year yield and the value of the U. S. Dollar which would benefit international investments. The unknown unknowns, if you will are north Korea china potentially invading Taiwan, additional activities coming out of Iran etcetera. But the market tends to climb a wall of worry and we're always going to have geopolitical events out there that one can point to to say they could be a concern and increased volatility. All right, SAM we got to leave it. There are always great to get your take, especially as we start a new month at Sam Stovall, chief investment strategist at CFR Research.