but I do want to go back to the major indexes joining me now is Rhys
Williams chief strategist at spouting rock asset management
Reece thanks for coming on the show.
What's your reaction to today's stock market action?
I think it was actually fairly encouraging just because
you had a couple of governors out saying,
you know,
arguably bearish things that they wanted 75 basis point hike in september.
And remember there's been a lot of talk about the
Fed being slow and not realizing that inflation wasn't transitory,
but since they, you know, realized inflation wasn't transitory,
they have really gotten after it and they
raised rates faster than paul Volcker ever did.
So I think they're getting beaten up a little bit here for being too slow.
Uh, and also, I believe that, you know,
some of the statistics you're seeing on the good labor market really
haven't been impacted yet by these rate hikes because they just happened.
But, but those, these rate hikes will actually impact things in a few months.
Yeah, we do see at the stock market ending the day with gains,
that's definitely a positive response.
We're getting a bunch of retail earnings out today, um,
out throughout this week as well, kohl's target walmart thread up,
just to name a few throughout these passport trading sessions.
What are these results telling you about the state of the consumer?
Well, I think people were very baird up going into these reports.
I think everybody has sort of gotten the memo that
the consumer wants experiences and not goods and they bought,
you know, three years worth of goods during covid for a year and a half,
that covid existed.
So
I think everyone's nervous. Uh and and people clearly have too much inventory.
Um So it's hard to really get the stocks to
stay down because people are going in somewhat cautious.
Uh And I do think, you know, these, I would not buy them today,
but I think on on weakness,
it might be an interesting pick up to
pick up some of these consumer discretionary stocks,
they're pretty hated.
And everybody's everybody on the management teams have have ordered concern
for christmas
and typically
retail does well when they have good gross margins.
And you know,
that's that's been the problem this year is they've
had bad gross margins because of all the discounting.
How are you looking at weakness in the housing market?
We've got some more disappointing housing data today.
Parts of the economy still holding up a recession concerns, still lingering
is weakness in the housing market. Something that you think could
lead the US into a more prolonged recession.
It absolutely could.
And I think that's the big risk here, with with too much tightening.
And then, and then, and then by the way,
then you have quantitative tightening going on to and
and so we had an historic ease easing cycle.
And now we're gonna have an historic tightening cycle here. So I do think it's a risk.
Clearly homebuilding sentiment is poor, affordability is poor.
Uh and and I think one of the ways to play that would
be apartments because there will be fewer first time home buyers right now,
so that should give good support for apartment owners to be able
to raise rents because people just can't afford a down payment.
Right? Well certainly rents rising
a lot as well raised,
I think shelter across the board not looking affordable for many americans.
Unfortunately, inflationary pressure is still persisting
as a chief strategist, it's pounding rock asset management.
What are you advising your clients to do?
Do you advise that they get into the stock market at these levels?
Well, I certainly would not be fighting this tape. It seems to want to go up.
Um but that being said, we've had a very nice five weeks,
so I certainly wouldn't want to be all in and I
want to have a balance of both growth and and income.
Um Some of the bigger tech companies have a consumer
staple like qualities and also pretty good revenue growth.
Uh And and so that, that's an area that, that has some interest where as I mentioned,
some, some reeds with above average dividends and dividend growth.
Uh that household is pretty interesting
and I think energy is interesting.
It's been one actually one of the worst performers over the last five weeks rally
and these stocks are very cheaply priced on a price to free cash flow basis
and you've had management teams that have
really gotten religion about not over drilling.
Um, So I think that's an area,
especially now with some of the things that could go wrong, i.
E.
A very cold winter in europe and and Russia
not supplying europe with with oil and gas.
Uh, that's an area that could be a really good support for your portfolio.
You know, it is interesting the jobs market continuing to hold up.
We saw that in the jobs report for july race,
more than half a million jobs created double what economists had actually
expected and then jobless claims taking a little bit lower today.
That's all positive.
Still, as we see some growth companies, younger companies,
big tech companies announced hiring freezes or layoffs altogether.
What's your view on the state of the labor market?
Well,
I think those kind of companies that grew very quickly and had a
lot of venture money thrown at them have all gotten the memo,
we're cutting back here because harder times are coming.
So, uh software engineers were hugely in demand.
They're gonna be less in demand going forward.
On the other hand, you still can't find people to, you know, open,
I walked by a Starbucks that couldn't open in boston yesterday.
Um and and that's because they didn't have labor.
So there still is a lot of labor shortages among
some of the some of the consumer facing companies.
And so I do think overall labor market is still quite good.
It's just pockets right now. May be very high end
tech real estate. That might be under some pressure.
Yes.
So let's talk about what it means for the Feds
path forward res what's your expectation in terms of rate rises
that we could see throughout the rest of the year?
Well,
I think it's important for the stock market overall that september is one and done.
I don't think it makes that much difference whether it's 50 or 75.
But I think if the Fed raises 75
then says, you know, we're gonna keep going,
then I think the market will come under some
pressure and that's why you want to be diversified.
Um But I do think there is one more coming and I do think by the end of
the year there will be enough signs that the Fed will be able to pause at least.
I know there's a lot of uh posturing that they're going to keep interest rates,
you know, higher for longer.
That may be the case because it will take some
time to take the labor pressures out of the economy,
the wage pressures of the economy.
Um but I do think that it's important
for the overall market that there's some indication
that there might be a bit of a pause after the big september rate increase.
Alright, Rhys Williams,
chief strategist at spouting rock asset management Reese. Thank you