U.S. stocks closed near session lows on Monday.  Gains earlier in the session were eventually erased after Bloomberg reported Apple plans to slow hiring and spending next year.  Dan Kern, Chief Investment Officer of TFC Financial Management, joins Cheddar News' Closing Bell to discuss.

Closing Bell

U.S. Stocks Close Near Session Lows to Start Week

So let's turn back to the major averages. Shall we join me now is dan kern, chief investment officer at TFC financial Management and dan, We started off hot. We start off in the green for most of the day. We didn't finish that way. So what is your reaction? So how the markets closed today's session? I think today's market action really shows how much the markets are on a knife edge of worry. Their markets are definitely on edge and it doesn't take much news to propel markets higher and it doesn't take much news to propel markets lower. We, we started out really on a good note with the Goldman earnings in particular and bank of America also had decent earnings. You had the combination of that plus a lot of commentary out of the Fed that leads us to believe that next week's rate hike will be 75 basis points and not a full percent. But then when the Apple news came out, the market really lost and, and, and we finished close or at session lows and I think that's the kind of environment that we can expect as we go forward until we have a more definitive direction on economic growth Fed policy and inflation. I think we're going to have this kind of directionless path where we go up for a stretch and then we go down for a stretch. Um, and that's probably how the rest of the summer is going to look. So let's talk about inflation. Are there any reasons to believe we are at or close to a peak. I think there's a lot of reasons to be optimistic about the path for inflation. I don't think it's likely that oil, gas and food prices will get, will get worse from here. Things that have fueled a lot of our our inflation auto inventories, new and used auto prices have been horrible and major major contributors to inflation. We expect to see auto inventories rise and that should ease some inflationary pressures there. The housing market has been a big source of inflation and as a big source of concern but we have rising mortgage rates starting to hit home builder activity. We see mortgage applications being way down and inventories are up albeit from a low from a low base And the 3rd leg of the stool is is wage growth. Um and wage growth is is still solid but it's definitely slowing from the toward pace that we saw after the post covid economic reopening. I'm hoping to see more people enter the workforce. We certainly have a huge gap between job openings and job seekers that's certainly fueling fueling inflation as well. But there's a lot of reasons to think that inflation will start to come down from that 9.1% print we had last week. I do have bad news on the inflation front which is that I think that getting From 9% to 4% inflation may just be a matter of time and patience and a little bit of Fed tightening. Getting from 4% to the Fed's long term target of 2%. I think that's going to be a heavier lift and that probably necessitates a recession. And the big question for me is does the Fed do this all at once? Do we take our medicine all at once or does the Fed blink and we have a slowdown or mild recession now but that's followed maybe later in the year next year or early the following year by a more severe recession. If the Fed starts to tighten again after taking their foot off the brake for a while. So When it comes to the Fed, what do you think the next rate hike should be? Because we've been getting a lot of mixed reports that somebody, some feel 75 basis points is right. Some feel 1% is right but they feel that too too much aggression will again lead to that recession more quickly. So if it was up to you, what would it be? If it was up to me I would go slower I would go 75 basis points next week. I don't think that it's necessary to do a shock and awe 1% rate hike. I think the Fed should be patient. They're clearly behind the curve. But I think if they try to catch up all at once they're going to create a more severe slowdown than is really necessary. So the question everyone's mind, do you think the U. S. Will enter a recession? And if they do, when will it happen? I'm in the camp of a recession. I don't see the underpinnings for a recession. Um Immediately I think a recession is likely to come the latter part of this year or early next year. I think we have a little bit of a window before we hit recession. And if you think about the real drivers behind the economy, employment um consumer spending uh systemic balances or imbalances, there's a lot that's still working. Retail sales certainly were inflated by inflation last week, But retail sales are still hanging in there. We see consumers starting to dry down on their savings. They've still got more than two trillion more savings than they had at the pre pandemic trend. Industrial production still isn't isn't bad. And they I see a lot of people saying, well we're gonna have a housing bust, the likes of of which we had during the global financial crisis. I just don't see that We're not in the in in no way shape or form is today's housing market the same as the housing market in 2007. So I I think we have some runway before recession happens unless the Fed really, really forces the issue quickly now. I don't know about you, but it seems to me dan dan, like right now is the easiest time to be an investor? So what advice do you have or what advice are you giving investors during this type of volatility And this economic uncertainty patience is really, is really important. I think that the high ground of quality is a good place to be when you think about equities, um free cash flow, um, balance sheet, balance sheet strength, pricing power. All of those are important in an environment in which there's a lot of uncertainty and a lot of cost push pressures with regard to the beaten down growth stocks. And certainly the growth market has just really been shattered even more seriously than the headline indexes would indicate. I think you need to focus on companies that have a clear path to positive cash flow and companies that don't need to tap capital markets because the capital markets are really to a large extent close to more speculative companies. I think those growth stocks are better bets in this environment than the really speculative growth companies. And I, you know, I think Peloton is a good example of a company where I would really, even though they are down the stocks down a lot. Um it's, it's still may have more to go. So stocks like that. I would, I would gravitate away from the contrast is, you know, something like a Shopify, where that's a stock that's way down, but there's a real business there and maybe that stock hasn't bottomed. But the company is doing the things that I think it needs to do to be a long term success story and a long term alternative to an amazon. All right, dan Curran. Chief investment Officer, TFC Financial Management dan, thank you so much for sharing your expertise.