U.S. stocks closed near their session lows on Friday, with all three major indexes finishing the week in the red. David Waddell, CEO & Chief Investment Strategist at Waddell & Associates, joins Cheddar News' Closing Bell to discuss.

Closing Bell

U.S. Stocks Close Near Session Lows, Capping a Third Straight Weekly Drop

Well, let's turn back to the major indexes on the move this week, a third straight week of losses. I see today's market action closing near session lows on the screen. The Dow and the S&P down 1.1%. And the NASDAQ continuing to underperform amid the prospect of higher rates down to 1.3%. So joining me now is David, Waddell Ceo and chief investment strategist, the wealth management firm, Waddell and Associates. David, thanks for coming on the show. What's your reaction to what we've seen in the stock market of late? I mean, it makes me want to drink scott to be honest. Um Thanks for having me on again. The market action is exactly what the Fed wants. They want us to be miserable. You know, they relented on us a bit back in june and we felt better markets went on a tear of 70.5% and the inflation expectations went higher with that optimism or at least decreasing pessimism. And so they have to get us back into feeling bad about stuff. So the inflation expectations fall, we focus more on recessions. And so, you know, they're really moving this market with their guidance and then we're seeing some quantitative type income in. Everybody knows they're going to raise rates, you know, it's really even money now between 50 and 75 basis points. So, you know, we're just in a process of the Fed fighting inflation, we're in the disinflationary process now and it's just gonna take some time. So could we retest those mid june lows, David, I think that's the question that investors are wondering? Certainly clearly investors taking some risk off the table into the close of this long three day weekend. Yeah, I mean, we could, I don't think we need to um you know, let's not forget that earnings were up 6% last quarter. Um evaluations fell 30% from where they were into that correction. But if you look at the median stock, so the median stock within the, I think the NASDAQ was down 45% from its high going into that moment. So the headline returns for a little bit better. Um That was pretty nasty. But but what set us up for that rally from that level was that sentiment had gotten so negative and so washed out. So everybody knows that's possible, right? That at some point we get a better inflation number or a Fed member trips up and said, you know, like Bostic did maybe we don't have to raise rates quickly and the market goes on a tear. So now that we know that it's possible for that kind of rally to happen, people are gonna be looking for it. So I imagine people are gonna be more willing to buy into this dip. Um And it may be if you look at the seasonality and the history books, the forward expectations for everything. The last invitation to sort of get into this fair market before we're back in interesting. When do you think we could reach new highs? That would feel good. Right. I mean, I like to take it there, um, next week to be awesome. I'm open. Um, but I think it ends up being next year. And, uh, that's predicated upon, of course, is that that doesn't really break anything with this campaign. Um, you know, businesses are doing a lot to trim costs and maintain margins. And so I'm confident that corporate America can, can skate through this period and there's enough disinflation out there. So let's say, you know, earnings are 2 40 next year and the multiple goes back to 20 times or something. I mean, you could be back, you know, thinking about 5000 by the end of next year, 5000 by the end of next year. I'm taking a look down here at the big board on the floor of the stock exchange. And you know what, that would feel good. I like that optimistic tone, David. Um, let's talk about the Fed's september 21st rate decision. Are you in the camp that we get another 75 basis point rate rise? I think they should, uh, you know, again, they keep sort of saying, we need to do more, we need to do it faster. And then they took some of that off the table. It's sort of even money here. I don't think that 25 basis points, that's gonna make a bit of difference. Um, they're getting close To the end of this campaign. We we are seeing disinflationary impulses across the economy. I mean, look what's happening in real estate, etc. It just takes a while for that to translate into rent. But you know, we're seeing gas is down 25% I think. Um and that's really what drives consumer inflation expectation. So, you know, they're getting closer to the end of this than the beginning. I don't think they're gonna have to hike as much as they broadcast or even as much as the street thinks right now because I think there's more disinflation in play than People acknowledge. So I think, I think again, you get probably 75, but then things get real. I think a little bit more relaxed. Yeah. So if you think that we can reach 5000 on the S&P. Next year, new record high, what about a recession? Some people saying, I don't know if we weren't in a recession the first six months of this year, we could still technically see a recession any time through next year as the Fed does continue to raise rates, albeit eventually at a slower pace. If we have a recession, could that take the stock market lower or jeopardize some of those new record highs. You know, it depends on the type of recession. If there's a crisis. If something breaks, then that would matter. But the garden variety recession doesn't really damage earning all that much and this has been a recession that's been scheduled. So we sort of had it the first half of the year and earning screw despite. So in the second half of the year that we get back to sort of a low growth rate. We do, but recessions only matter to the extent that they injure corporate earnings. Um So I don't I don't really see corporate earnings falling off the cliff. And valuations have gotten so low. I mean 20% of the S. And P. 500 now is trading at A. P. E. Below 10. Uh 5% of the SNP trade for A. P. E. Below 10 and its dividend yield above treasuries. Um So this market, it's already priced in recession and war and you know, we've all accepted all that stuff so if it happens and it doesn't contain a crisis. So my last question, David then is what do you recommend to clients? How do they trade this market? It sounded like you might recommend that people try to get into the dip at these levels. If we don't retest that mid june low, what should they consider buying? So I still believe that, you know, you got two sides of this market. One you got the trader's market which exists in the mean stops and then. Bitcoin um profitless tech, those kind of things. So if you want to just play the market then go play over there, there's plenty of volatility. But there's good value right now in mid caps and value sectors and internationals and dividend paying, you know, consumer staples names, I mean you can buy Jpmorgan for instance, in the financial sector for nine times earnings and it's got a 3.5% dividend. So there are places where you can just buy stocks, feel good about them and wait. Um you know, you don't have to be a hero and try and go chase, you know, a rebound in microstrategy. Alright, David, we got to leave it there. Really good to get your take. I like, like the optimistic tone on a friday before the holiday weekend, enjoy your monday off. That's David waddles. Ceo and chief investment strategist at Waddell and Associates.