After another day of selloffs on the stock markets, investors look like they're wondering if the economy is headed towards a recession. Shawn Snyder, the head of investment strategy for Citi U.S. Wealth Management, joined Cheddar News to discuss why today the markets took such a blow and where does it go from here. "I think this is the first time I've seen investors kind of question the strength of the consumer with some of the big box retailers missing profit expectations," he said. "Then also we got a survey from The Conference Board of CEOS, and 57 percent said they're expecting to see a recession now."

Closing Bell

Weakness in Consumer, Recession Fears Lead to Another Brutal Day on Wall Street

but I do want to turn back to the major indexes and joining me now is Sean Snyder, head of investment strategy for us wealth management. I sean, thanks for coming on the show, bad day in the stock market, there's really no way to put it. We have seen three straight days of gains or general recovery, a relief rally, if you will. What was behind the selling today, first of all, thank you for having me. Yes. Another brutal day of Wall Street dow jones down over 1100 though I will say we shouldn't forget dow jones is up over 1100 points since last thursday. So volatile markets don't try not to make too much of, you know, one given day. Why did the market sell off today? I think there's two factors underlying that one. I think this is the first time I've seen investors kind of question the strength of the consumer with some of the big box retailers missing profit expectations. And then also we got a survey from the conference board of C E O S and 57% said they're expecting to see a recession now. They said that it would be, you know, very short, mild recession. But still we've seen ceo confidence go into negative territory this morning. And I think that's also weighing on investor sentiment today. Where do we go from here? That's the big question, you're the head of investment strategy for us wealth management, Sean, what are you advising your clients? Well, I would say two things particularly acute advice for today is, you know, time in the market is more important than timing the market since 1990 if you miss the best 2020 best days, your average annual return falls from say 10.8% to 6.3% in eight of the 10 Best days are right next to 10 of the worst days within two weeks of each other. So you know, again we saw a really strong rally since Thursday, really strong selloff, so trying to time the work, it's not really great. Um as far as what do you do with your portfolios? And I do think diversification is back, I think bonds, I'm encouraged that yields are falling while stocks fall. Um you know, that hasn't been the case so far this year. So I think I'm adding something like 30 year Treasuries to your portfolio should give you a little portfolio buffers. There's diversification that may help out of stocks continue to sell off and then we also really want to lean into quality here. Strong companies with strong balance sheets, Growing dividends. If you look at the sp 500 dividend aristocrats, for example, Um they're down just about a third of what the broader S&P 500 is. So if you can focus on those high quality names, really solid companies like consumer staples, healthcare, um that can help you weather the storm as well. Do you think we could fall further from here. Sean and if so how much, Listen, it's it's certainly possible, you know, I think we're very quickly um priced in the odds of a recession, typical drawdowns in the s. 500 rounds of recession is about 30%. So, you know, we're two thirds of the way there. But I will say not every recession is equal and again, it's not a guarantee that we are headed towards a recession. We may or may not depends on what the Fed does, depends on what the consumer does, depends on a number of factors. Um But not every recession is the same. Right? So if you look at, say 60% of the recessions since 1937 the average drawdown was 18%. Uh And then we had six that had these really mega selloffs, the global financial crisis, the tech bubble at a handful of others. So I don't think that's what we're seeing here. I don't think this is the global financial crisis. I do think that C. E. O. S are right that if we do have a recession, it will probably be brief and mild. We have seen in the past, the Federal Reserve pivot their policy once they start to see the unemployment rate rise, fetch your palate yesterday said that they would potentially continue to raise rates and tell they see A few upward ticks in the unemployment rate. So I don't think there's any necessary reason. This has to be as bad as what we saw in 2008? So the selloff may not be as deep. What are the key data points sean that you're going to be watching here in the weeks and months ahead. That could dictate the path forward for the stock market. Well, inflation is gonna be a big one. You know, it's been that case all year long. I do think, you know, the trend is sort of on our side when it comes to inflation so mechanically it shouldn't move lower. So if we look at 2021 in april May and june inflation rose by 0.8% month on month, that means as we enter these next few months, we should have easy comparisons. So hopefully inflation continues to come down a little bit, maybe get some more stability in the bond market. Maybe the equity market as well. I think as the year progresses, what I'm gonna watch is really labor market metrics, particularly weekly initial jobless claims, they also tend to be a leading economic indicator of recessions And you need to see them rise steadily usually before recession. They normally bottom out about 13 months before recession. It's possible we've seen the bottom and been marked. Um you know, again, I don't think there's any real sign that we're imminent recession, but I think that we will continue to see labor market conditions potentially worsening. If we do. Um You know, then that would be more confirmation to me that we are indeed headed towards recession. But I don't think we can say that confidently yet? So we're not in a recession. We may or may not have a recession yet. We're seeing the stock market extremely volatile. I mean the NASDAQ swinging 5% today at one point it was down 5%. Shine, What is the fear that's out there? Why are we swinging so dramatically? Why are we down so dramatically if a recession is not a confirmed thing? Well, listen, I think this is different, right. If the recession does happen, this would be the second engineered recession in a row. Right? The first one was Covid, we purposely shut down the economy. This want to be an engineered recession to fight inflation. This is a very well tell a craft tightening of monetary policy from the Federal Reserve. And that's why the market is able to move so well in advance. We're being told that the Federal Reserve is trying to tighten financial conditions and that they really intend to do so that's why the market is reacting to these potential recession fears so early on. Whereas normally it would react say three months before recession would need to see the economic data weakened materially before react. That's not the case this time around. So the market is really ahead of things this time. Sean. My last question to you is the Fed has signaled that it is planning to raise rates by half of a percentage point here at the next several meetings. The next meeting in mid june another one in july. Do you think that the Fed is behind the curve? And what will the Fed need to do to get inflation in line? Listen, I think the Fed can catch the curve whenever it wants. It can change policy on a dime. So you know, it's easy to critique them and say they missed the boat. But it was a very unusual time, uh massive fiscal stimulus, massive monetary stimulus in order to avoid, you know, great depression like scenario when we shut the economy down. So don't critique them too much. What can they do to bring inflation down? And I do think you can see some sort of demand destruction where you try and cool off the consumer and cool off the economy. That's gonna happen on its own. I think simply from fiscal stimulus not repeating. So people are no longer being sent checks, um, you know, to be unemployed so that's changing. Uh you know, but I sometimes question how much they can really influence inflation. A lot of this is related to supply chains, not necessarily monetary policy or fiscal policy. That's gonna take some time. I think maybe we get to inflation rate of 6.5% or so by year end maybe in 2023 we're looking at 3.5 or 4%. I'm not sure the Fed can instantly cool it back down to its 2% target very rapidly. It's gonna take time.