Joining me now is Catherine Rooney Vera,
Chief Market Strategist at the Financial Services company, Stone X.
Catherine. Thanks for joining me.
Thank you very much.
All right.
So let's talk about how to make sense of this stock market,
the S and P at a nine month high volatility below a level of 14.
I can't remember the last time that we saw that
in the past year or so. What is this?
What message is this sending to investors?
Well, I think the message is complacency.
Um I don't think many have anticipated that we are on
the cusp of the next phase of the economic cycle. No one knows when that will be.
So, I'm not here to tell you that recession is um next month or next quarter.
Um But I do think that portfolio should be positioning
uh for the next phase of the economic cycle.
And that could mean for example,
unwinding positions that have up to this
point been overdone such as the divergence,
for example, between
energy and NASDAQ or small caps and, and NASDAQ.
Um So I think that's,
that's one trade to consider and the other is to
build positions in those defensive sectors that historically do well
in either stagflation,
which is where we are today or in the next phase of the economic cycle,
which is recession.
Ok.
So it sounds like Katherine by your measure, I mean, a recession is on the horizon.
Typically, I think the stock market drops between 20 and 30%
during a recession that would add a whole lot of volatility to the stock market.
Is that potentially on the horizon, even as we've seen
to building in stocks?
Well, the, the vic certainly doesn't see that happening.
As, as you mentioned in your preface, Kristen,
the vix is historically low as an indicative of that level of complacency,
which uh which is, I think more reason
to add more defensive positions at this moment in time.
The big question we get asked a lot is what is the fed going to do?
Well, the fed has to continue to push inflation lower.
They're likely to hold at this month's meeting.
But my contention,
Kristen is that they're more likely to hike further down the line than cut,
which the market has clearly taken out of its forecasts.
And we know that at the beginning of the year,
several cuts were anticipated by the end of 2023.
Now, if I'm not mistaken, that has been completely erased.
So there is a lot of money on the sidelines.
That's kind of the factor that we know Catherine.
It is hard to fight momentum, right?
And trillions of dollars sitting on the sidelines, some in cash
savings accounts, money market funds,
you name it that are yielding several percentage points
right.
Now,
do you think that's one of the reasons we just kind of
continue to see this place and melt up as you called it?
Well, at, so
for example,
we have a lot of different areas of business and one of them
is hedging and we've seen quite a bit of activity on that front.
I think that's judicious for both retail.
We have, you know, we have 400,000 retail clients,
we have 50,000 commercial and institutional clients
and a lot of those clients are asking about these possibilities,
not just securities trading,
but hedging their positions clear an execution.
There's a lot of different areas that you can as a business
or as an individual high net worth or institutional with a portfolio,
preserve that capital and protect it for the
long term because we have to realize that
where we live right now, with that anchor bias is not permanent.
So uh the, the, you know, economic cycles are, are cycles,
I think it should be realized that recessions are inevitable parts of them.
And is it true, is it real that, you know,
the next phase is another bull market and not just in terms of the S and P,
but in terms of economic activity,
my strong conviction is that no
interesting.
So how long is it going to take to work this through the system? Catherine?
Of course, inflation a factor, high rates,
a factor the fed may pause next week but no indication
that it's going to be cutting rates any time soon.
I think it's such a fascinating topic.
All of us economists are talking
about immaculate disinflation or immaculate deflation.
The a soft landing or a no landing.
This remind me of a couple of years ago when I remember
some analysts saying that inflation is a phenomenon that's dead varied.
Well, lo and behold, you know, we have a ton of inflation now.
So I think we have to be careful with discarding completely economic
principles that have proven to be accurate over the course of,
you know, centuries.
So for example, unemployment, I think unemployment has to go higher
um for uh inflation to come down.
It tends to be a controversial position at this point.
Um But I think it's based in quite frankly reality. So,
you know, we're two thirds, two thirds of our economy is based on consumption.
If people still have jobs, they're still earning money,
not as much as the pace of inflation, but they're earning more money um year over year
and they still have a job and they think they can get another one.
Those habits of consumption. Christians are unlikely to change.
Um So until we see a rollover in the labor market,
I don't think recession is around the corner.
So that means it could take, you know, to the end of 2024 for this to happen.
The fed doesn't cut before then. All right, Catherine Hura,
she's market strategist at Stone X Katherine. Thank you.