U.S. stocks closed mixed as the recent market rally settled in the later hours of Thursday's session. Investors weighed a better-than-expected July PPI report, which along with Wednesday's July CPI, was an encouraging indicator for inflation and the economy, showing that inflation may be slowing down. The S&P 500 closed down 0.07%, the Nasdaq Composite dropped 0.58%, and the Dow fell by 0.08%. Ross Mayfield, an investment strategy analyst at Baird, joined Cheddar News' Closing Bell to discuss.

Closing Bell

U.S. Stocks Close Mixed as Market Comeback Rally Pauses

but I want to turn back to the major indexes because joining me now is ross Mayfield investment strategy analyst at investment bank and financial services company baird, thank you for coming on this show. What do you make of today's market action? You know, I think the market initially rallied on the P. P. I. Data, obviously there's there's a lingering sense from yesterday that lower inflation inflation topping out is good news and the market should rally on that. But I do think that later in the day there became a sense of alright, we've had this tremendous rally off the lows inflation is still very elevated. The Fed is still going to have to be quite aggressive both through use of interest rate hikes and quantitative tightening, which is only set to ramp up and so, so, you know, it's good to see that things are heading in the right direction, but has the near term picture changed all that much on the margins? Yes, but enough to merit, you know, what is now a 15 20% rally in the major industries. Maybe not. So I think the market took a breath and I was thinking through that question which will linger for the foreseeable future. So, ross based on what you're telling me, do you think we could retest the lows before the end of the year, in the stock market, after this breather. You know, I'm not sure if we'll retest the lows. I do think that particularly this earnings season, you know, the strong earnings, the resiliency of corporate earnings and the better than feared guidance has kind of put a floor under the market, so to speak. Um but I don't know that we're necessarily, you know, on the path to an up to the right bull market. I think there will be some chopped, I think we could see another downturn. Bear market rallies are are super common in these sort of extended bear markets. Um You know, the breath data and some of the sort of technicals that folks look at to say, well, are we at the start of a new bull market or just in a bear market rally? It's pretty mixed. So it's hard to say that we've started, you know, a tremendous new bull market. Um but I don't necessarily think we're going to retest the lows either. I think there could be a lot of chopping volatility in the coming months and we'll see some downside pressure, you know, among them. I want you to talk to me about the best way to enter this market ross knowing that we are still quite a ways from those record highs that we had at the start of the year for both the S and P. And the dow. Of course the NASDAQ's last record was back in november. What's the best way to get in. Is it a bit by bit basis? Or do you think investors should maybe try to put some significant amount of cash to work here in this market, it's a great question and I think it's a question that a lot of folks who have cash on the sidelines right now are asking. So, you know, historically, if you have a lump sum, if you have some cash, the best strategy has been just dump it in the market as soon as possible. The long term trend of the market is up into the right, something like 90% of five year periods are positive. So it makes sense to get that money invested with that said, we have seen a significant rally here amidst this bear market and folks are nervous to put money to work right now. So in these extended bear markets, a dollar cost averaging strategy, getting money to work little by little can both, you know, be beneficial as you kind of average cost down, but also just from that psychological aspect, which is so important. You know, if you were to put all your money to work and then we retest the lows tomorrow. Um That's that's pretty damaging psychologically. So I think a bit by bit basis can be a really strong strategy for folks who are a little wary, um but want to participate in the long term gains of the stock market. So what do we need to keep our eye on ross? I mean, clearly second quarter earnings coming in better than expected companies by and large, still profitable. The S and p expected to book profits here in the second quarter, but with an uncertain outlook ahead. What might that mean for the economy and for corporate America. Look I don't envy corporate operators right now. This is as challenging environment as probably they've seen between inflation. You know strong U. S. Dollar which hasn't talked about all that much but for multinational corporations has been a huge headwind. The geopolitical situation uh you know not just in Ukraine and Russia but in china as well with supply chains still fairly in the world and then you're you're dealing with a consumer who's facing a lot of pressures right now. So this is a very difficult macro environment. I think investors should be you know relieved and encouraged by the resilience of of us earnings, you know over the last year, year and a half. Um What does it mean for the economy going forward? Well what matters right now is is still one track, mind it's still the Fed and it's still inflation. The Fed is gonna keep raising interest rates. The Fed is going to ramp up its Q. T. Program all of that is with the intention of lowering aggregate demand in the economy, slowing the economy down cooling it so that inflation can reach their target. So I think economic growth we can expect to continue to slow from here. The question is can the consumer which has been resilient and can the labor market which has been white hot kind of provide enough cushion to make that soft ish landing, still a possibility. Softest landing. I think that's what everyone wants to see. But you're right. That is the big unknown based on what we know about the economy right now. The positive data actually the data moving in the right direction for july. What do you think would be the appropriate move from the Fed come september? I think the Fed should continue on their path. I mean whether it's 50 or 75 basis points this next meeting, you know, that's, I don't know that it matters that time but they need to continue to be hawkish in in their their rhetoric and they need to continue on this path of raising interest rates at least to neutral and letting them sit there for a while. We know that monetary policy acts with the lag. But I think that, you know, declaring a premature victory over inflation because you know, we had this this softer than expected report yesterday and today. Um, I think would be a mistake. I think they need to continue on the path. It's still enemy number one. And by all accounts that's their plan. They haven't indicated that they're easing up any. Um, but I do think there's a bit of a sense of complacency in the market right now that's expecting Fed rate cuts next year. I don't know if that's necessarily gonna be the case. That's probably not my base case. Right? You're the second markets guests this week who has told us that probably is not the base case that we could see an easing actually of price hikes and borrowing costs next year. I'm just curious about the labor market, labor shortages clearly still persisting. We saw that in the services sector data for july just last week, we saw in the jobs report on friday as well. The Fed, once the labor market to cool a little bit ross. Do you think that's gonna happen? I think it will, I think you already starting to see, you know, anecdotal signs of hiring freezes or layoffs and industries that have been kind of harder hit by this, this shift in the economy and the markets. Um, but it takes time again. You know, most, you know, economists will say that monetary policy can act with a year to an 18 month lag. Obviously in today's, you know, kind of world things move a little bit faster. But Um, it's gonna take a while for the labor-market market to catch up. Um, you know, 528,000 jobs added last month is certainly, you know, as great news as that is for those folks who got employed. That's bad news. If you're a federal reserve, uh, you know, voter who wants to see inflation come because that strengthens wage inflation. Um, it makes it really hard for companies to manage costs. So it will happen? The question is, what's the timeline there and will it happen soon enough for the Fed to be able to, you know, maybe make that pivot in 2023 that markets are expecting If we don't see a cooling in the labor market? I don't see how that's possible. Alright, Ross Mayfield investment strategy analyst, have bared ross, thanks for coming on the show today.