Director of Investment Management, Huntington's private bank chad,
Thanks so much for coming on the show.
It's good to see you
mixed market today, but a pretty strong third quarter GDP report.
I don't want to overlook that.
What is this third quarter GDP report signal about the strength of the consumer?
Well,
the strength of the economy versus the strength of the
consumer is debatable based on the numbers that we saw.
So economic expansion, absolutely. A good thing for the U. S.
Economy, but it's where it's expanding and what parts are actually slowing.
So when you get underneath that headline number,
you can see that the consumer actually is slowing down a bit.
So that's where some of this cross current of information or,
you know,
some of the volatility that we saw today is coming from based on the GDP report.
It was a good report. Again, to your point,
we were in a technical recession for the first two
quarters coming out of that with a good number,
but it's how we got there.
That might raise some concern for investors,
particularly if you look at that slowing of some of the consumer spending.
But also part of that is that there's some signals in those
numbers that show inflations are also starting to come down a bit.
Right? So, I do want to hone in on some of these numbers. Right?
So I do see a cost of living measure
that did rise.
4.1% in the quarter for this third quarter GDP report,
but that was below the 5.3% estimate.
So, a full percentage point below.
And we had seen the cost of living, you know pretty much rise dramatically.
Obviously disinflationary environment and then headline inflation chad
to your Point up 4.2% but down sharply
from 7.3%. So how do Americans
digest that do you think that short lived or are these
some positive numbers embedded within the report that could continue trending
in the right direction?
So our takeaway from this is that it signals to us at least here
in Huntington's on that the Fed's rate increases are starting to have an effect.
Now remember rate increases have a 6 to 12 month lag period.
So that's part of the concern that the pace some of these central banks are moving
is are they moving too fast
and are they going too far with their tightening cycles?
That's yet to be determined.
But the takeaway from the GDP report for us today is
that some of the tightening is starting to have an effect,
particularly in areas like housing.
You can see those numbers there and of course the Fed is going to
continue to debate headline inflation versus core. So you
start to strip out food and energy and you look at what those core inflationary
numbers are and that's been the real challenge over the last couple of C.
P. I reports. This headline versus core
Core has kind of forced the hand of the Fed kept them being aggressive.
We think they're probably still going to be at a 75 basis-point increase next week.
We didn't see anything in the report that would change that.
And we still have a strong labor market despite maybe some
adjustments upward in the weekly initial
unemployment claims and continuing claims.
So between employment and the strength of some of the inflationary numbers,
we think the Fed still goes 75 next week.
Okay.
That was gonna be my question is does this indicate maybe a 50 basis-point rate rise?
But we both know chad you and I both know if that was the market expectation?
These stocks I think would be ripping right now. Right?
Yeah, you're absolutely right.
Okay. Let's talk what we can glean from these technology names reporting this week.
We've gotten big results already from meta Microsoft alphabet as well.
Apple and Amazon on deck here.
What does this portend for the growth sector specifically?
Yeah.
So it's something for us that we continue to
talk to our clients about relative to growth is
you don't want to be absent growth but you
don't necessarily want to own a passive index either.
This is where active management can really benefit
and looking selectively at some of those names.
Not all of the tech stories are bad and you can
look through and find some individual companies that make sense,
particularly long term.
If you're willing to be patient and you're owning these for longer term
then it makes sense to consider some of these names,
it also is worthwhile to look for names that might be paying some dividends too.
So at least you get paid while you wait.
You know what's interesting to us as well is that even
though these tech names are getting hit particularly this week with,
you know,
information coming from metal and we see some of
these results coming after the bell today too.
It's not impacting the entire index, right? There's parts of their sectors
and companies within all of these industries that are still doing well
and that's where you want to be selected.
You want to look for those quality names and again, you want to be patient,
what's the expectation for the current quarter chad,
do you think we could see a year end rally
is the low in the stock market behind us,
you know, given, given what we've seen all year, where it's really,
if you think of price to earnings ratio and the way that
companies are valued in the way that we look at the indices,
it's really been that price side that's come
down earnings to date have been pretty good.
The question is, are the earnings going to hold,
what are the forward expectations of earnings?
They've come down a little bit, but not significantly.
So if they're able to hold,
we think that there could be some price readjustment to reflect the state of
earnings versus earnings coming down to meet
what the pricing expectation has been.
So to your point, yes,
we think that there could be some upside potential to the S and P.
From here to the end of the year. And then looking forward into 2023.
We think there's some stabilization that can occur within the stock markets.
Oh my gosh, stabilization. When was the last time we saw that?
Exactly.
Well,
there's a lot that has to change between now and then in order for that to happen.
But we think as some of these clouds start to part,
maybe the Fed moves to the sidelines, inflation does start to come down.
There's some meaningful
information yet to be gleaned but
on the current path that we're on, we think that stabilization could occur.
Oh that is music.
I think to my ears chat and many other americans and investors out there as well.
Right?
We do know that the market does tend to be forward looking,
but it is worth noting right that most people are calling
for a recession in the first six months of next year,
which I guess technically would match the recession,
the
technical recession that we saw in the first six months of this year.
How do you see a recession playing out? Is it deep? Is it shallow?
How does it impact jobs?
I mean companies, maybe growth companies are in the position to make more cuts.
But I think some other companies,
they're still feeling that labor shortage, right?
And they might actually want to keep employees on the payroll
after lessons learned these 1st 2.5 years of the pandemic.
Yeah.
Well, well,
first put some odds on a potential recession in the first half
of 2023 for us at Huntington's were thinking 5050 chance of recession,
you know,
when you look at the economic data and even some of the earnings that we're seeing,
there's
data points that you would say these suggests
that we are heading towards a recession.
Other data points would suggest we're not so to that
we like to point out that are kind of indicating the
potential for a recession leading economic indicators are coming down
and coming down meaningfully on a week over week basis.
We also inventories building up which can be a
negative in a lot of respect for the economy.
But then you turn that on its side and say, well,
what's working in the benefit of the economy?
What would suggest we're not going into a recession
and we look at things like labor.
We talked about that the labor markets are still really tight,
unemployment is good.
So we would point to that as an indicator that the economy is doing all right. So
there are data points back and forth again that we would suggest give us that
50 50 chance we would argue that the Fed is really the arbiter of this,
they get to choose which direction we go based on their tightening cycle.
And for right now,
they're willing to take on a little bit of economic pain
to get to those inflation targets that they're hopeful for.
So when we think about that recession being
shallow or deep,
it's really going to be dependent on how the Fed progresses from here.
Because keep in mind the rate tightening cycle is
is designed to take liquidity out of the system.
Also push down demand.
That pushing down demand is designed to stabilize
prices and that brings down inflationary pressures.
But if you go too far, you could create a pretty deep recession,
but that's not our forecast.
We think that we actually have a chance of avoiding a recession.
All right,
chad ov it director of investment management at Huntington's Private bank chad.
Thanks as always.