So let's turn back to the major indexes again,
a very strong week on Wall Street I see for
the week here for our executive producer of the S.
And P. Of 3.6% the dow rising 2.7%.
The NASDAQ outperforming
of 4.1%. So joining me now is rob Hayworth, senior investment strategist at U. S.
Bank wealth management rob. It's good to see you. Thanks for coming on.
What is different this week that has allowed the
stock market to snap three straight weeks of losses.
Yeah,
I think what we're really seeing is the market got a
little oversold after the Jackson Hole speech of Chair Powell,
we had the the european Central Bank raised rates fairly aggressively.
They did a three quarter point hike this week. And the market is really now priced in
the Fed,
doing three quarters of a point here later in september and has come to grips with the
fact that that rates may reach three and three quarters or 4% here uh fairly shortly.
And then the Fed will hold it there.
So I think the market has done a good job of
uh pricing in where it thinks the Fed is headed?
I think the challenge for us is what is actually
the pattern of things we're going to see ahead?
Is inflation going to soften enough
uh Is the labor market going to soften a bit?
And what is the Federal Reserve actually going to do
as we head into the rest of the year.
So september historically is a down month rob that we've seen the
stock market more often than not actually the stock market falls in september
but based on some of the market action we've seen so far.
Does it lead you to believe that this september might be different knowing that we
pretty much all do expect that 75 basis point rate rise on september 21st.
Yeah,
that's a great question for us were remaining defensive for the moment
and I think we really need to see a few things happen.
I think one,
uh what happens with earnings and we're still not done with third quarter,
So we won't probably four weeks away from getting third
earnings estimates,
but I right now we're seeing earnings estimates start to drop the rest
of the year and for 2023 how far does that have to go if
we're actually going to see the Fed hike rates enough that that they're going
to slow the economy and maybe push that unemployment rate up a little higher
I think to what happens with inflation. Yes, oil prices were higher today.
They're lower on the weak energy prices are generally coming down.
Is that enough to drop inflation such that the Federal Reserve doesn't
have to be as aggressive as they may need to be.
Certainly Tuesday's inflation report will be an important indicator to us.
If we're seeing some relief,
there will be looking a little more at some of
the factors under the hood there in the core prices,
what's going on with auto prices, what's going on with a couple of other things.
Uh and then right,
we've heard all defense speakers be fairly adamant this week that they are going to,
you know, kind of raise rates and hold them for some time.
Do they stick to that pattern when we get to that september 21st press conference?
So we know
that consumers have been needing to dig deeper and deeper
into savings just to get by with basic essentials.
But what about companies,
what's the health of corporate America and what
do you expect from corporate earnings going forward?
Knowing that historically
it is those corporate results that actually drive the stock market.
Yeah actually second quarter earnings season was really fairly good.
We had much better growth than anticipated.
When we entered the entered the quarter,
we're seeing consensus estimates come down for the second for the full year, 2022.
And we were, when we started the year, we were we saw we were on $229 a share for the S.
And P. 500 that's come down to about $225 a share for the S. And P. 500.
Uh And then if we look at uh 2023 we're seeing estimates
come down to about 2 43 maybe a little lower for 2023.
So we'll have to see how that plays out as the year moves forward.
But uh but but for now we think that pricing is still in
play and companies may have to take down some of their esten that's given
cost pressures they're facing
as well as what may happen to the consumer as we start to deal with the fact that
consumer net worth is down based on some of
the data we just got from the second quarter.
What is your projection on those consumer prices
that will get on Tuesday of next week.
How hot do you think inflation is currently running?
Uh no inflation pressures.
We look at year over year numbers, they are still running fairly hot.
I think we were 8.5% last month. It should slow a little bit from there.
But some of the data we're looking at would tell us consensus is by
year end you're still talking about a year over year inflation rate of over
5% which is still very robust when we think about the Federal Reserve having
a 22% target or consumer prices averaging 2 to 2.5% in the long run.
So
there's still a lot of challenges.
And part of it is we still have a very robust wage growth,
5.2% based on average hourly earnings in the august jobs report.
Um And uh and we have housing prices that still
need to work their way through that cp i calculations.
So uh those housing costs,
those rental costs probably stay in that three plus percent
year over year gain for a little longer here.
What's your trajectory rob for how the stock
market will perform the rest of the year?
September shaking out to be okay so far, but we're still early on in the month.
We have another fed decision on tap later this month and then two more before the end
of the year. Do you expect volatility to stick around?
It does seem like volatility is here to stay.
And classically september and october are both highly volatile
months before you get into in the midterm elections.
And certainly right now,
that's some of what we haven't yet seen as
we're not yet into that midterm election season,
which happens in november.
And then, and then classically we tend to see better returns.
Uh If we look into the, into those last two months of the year,
especially after we get some clarity on leadership in Washington.
After those midterm elections were still staying cautious.
We're actually seeing a market that is right around our year
end price target for now in the S and P 500
We're expecting about 18 times uh $225 earnings expectations.
That takes us about 4050.
Um Well,
certainly revise that as we get through third
quarter earnings season and get some get,
get a real view on what's happening in corporate America and
how far down they're going to have to take earnings.
So still defensive for the moment looking for opportunities when it
comes to the fact that inflation is going to remain elevated.
So we look a little more towards real
assets like global infrastructure which have some sensitivity
to some positive sensitivity to inflation and and
shy away from global stocks especially developed for.
And is there still some challenges when we think about the european situation
rob, when it comes to stock picking, Are there certain stocks that you like?
So I know it sounds like you're taking more
of a broader sector approach and I think people
are still a bit still skittish here on europe and how things are going to shake out.
There could be a long winter,
that's for sure. Even though some of those stocks are technically
at a discount based on historical levels,
but specific names or even sectors I guess catered sectors
that might look attractive to you at these levels.
Yeah,
our our preference is really for now to look towards some
of those defensive encyclical sectors that should benefit from economic opening.
So things like global infrastructure where you're thinking about utilities,
midstream energy oil prices are down from their peak this year,
but their remaining high.
Uh so we would look towards those sectors where
you're going to benefit from kind of higher inflation
and reopening activity as as we we get back to school
and back to work and and transportation activity picks up.
We look there and maybe not so much back towards the secular growth names,
which we think have good long term value,
but but there's still under some some multiple pressure.
As we see interest rates moving higher with the 10
year Treasury pushing 3.3% to finish out this week,
rob, we gotta leave it there. Good to get your take. That's rob.
Hayworth, senior investment strategist at U. S. Bank wealth Management.