for more inside in early morning trading and activity.
I'm joined by Eddie Gabor co owner at the key advisor group, Eddie,
thank you for joining me this morning stocks again, as I noted a moment ago,
closing lower on friday, that selloff continuing obviously into today.
And this comes after we got a pretty solid jobs report on friday, right?
Especially on the headline number 428,000 jobs.
What do you think has the markets shrugging off some,
even some of the positive indicators like that jobs report.
So look, you know, we've been warning clients, uh,
and investors that watch our tv interviews that we are heading into
a bear market and heading into a recession is our opinion,
This labor market is actually part of the problem from a stock market standpoint,
the labor market is so tight
that wages have really escalated.
And when you take a look at the margins
and the profits coming in on these earnings reports,
profits continue to get compressed tighter and tighter
and keep in mind,
we haven't even seen the second quarter numbers yet that are gonna come
out in july and some in august and we think the second quarter,
it's gonna be a lot worse than the first quarter. So
this market is over leveraged coming into this
year and the biggest thing that's gonna,
that's causing these bubbles to pop in our opinion right now,
which is why you're seeing an acceleration
of selling is the Fed, the Fed is accelerating tightening at a historic rate.
Uh, and in our opinion when you try to tighten that fast,
it's very difficult to do that when you have
an inflated market and not expect things to break.
So unfortunately, we still think there's quite a bit of downside here.
Um And it's gonna be interesting to see
how the
fixed income markets and the liquidity starts to look as
the Fed gets tighter and tighter with their monetary policy.
So you bring up the Fed and it's really interesting
the way the markets read the Fed um you know,
FOMC kind of meeting minutes and
Powell's comments because initially right positive,
we saw a rapid kind of um
You know, bounce back for the major averages,
but then Thursday and Friday a completely different picture.
What do you think the market was reacting to in a 24 hour or so to speak,
delay as it relates to the Fed.
Do you think that at some point they realized maybe a
75 basis point hike could be more possible in the future?
Despite Powell really trying to tamp down any fears of that?
Well,
it's very interesting that day because we thought
we saw two different things when we saw
the market when we heard the Feds speak and what they were planning to do,
we thought to ourselves, oh my gosh,
this is even more hawkish than what we were thinking,
but the entire market just focused on that one sound bite of 75 basis points,
But the reality is is Mr Powell said they're gonna do 50 basis points two more times
and unwind the balance sheet.
That's never happened before at that speed.
And when you do that type of acceleration,
when the economy is already fragile due to the inflationary pressure,
that's on the consumer,
I don't understand how anyone just doesn't look at that and say, okay,
maybe it's time for me to just play a little bit
of safety here to protect some of my hard earned capital
and wait and see what happens to many people, in my opinion,
are trying to find this bottom and I think they're too early because again,
I want to see if the feds going to pivot on what their original plan is.
Because what happens if the S and P is down 25 30% by the time they get to july,
are they going to continue to put the pedal to the
metal on tightening and possibly bring us into a much deeper
uh, sell off?
It's a very, very dangerous time right now and again,
I just think being cautious here is the most prudent approach for
investors to do with at least a portion of their net worth.
Speaking of investors, you know,
trying to find the bottom here and perhaps being too early.
I mean, you've got support some support in that idea, right?
Bank of America saying the S&P 500
that could fall another 28% before
this historic selloff is over and the market starts to bounce back.
I know we will look at the NASDAQ, we're obviously in a bear market.
Do you think we truly hit a bear market when it comes to the Dow and the S&P.
and add on to that?
What do you think it takes before we start to see the markets bounced back?
So I do think that you're gonna see the S and P go into a bear market.
Um One of the things with the S. And P.
That's been holding it up is you got some big names that's highly concentrated,
the index that really haven't had a huge drop yet,
but I do ultimately believe it's going to filter into the larger cap names.
Uh So we would expect the NASDAQ to sell off first and then filter into the S and P.
So I think that's gonna happen,
Really.
One of the biggest things that we got to see in our
opinion is we need to see the VIX into the 40s,
because that tells us there's a lot of fear in
the market and we need the narrative to change.
You know, I'm a very contrarian investor
the narrative I'm hearing continues to say, just write it out, stay the course.
Um And until people actually start to,
I think go more consensus with the fact that this market is very dangerous,
that I don't think you're gonna see this market
bottom and then the last thing of course,
is the Fed,
the Fed holds the keys to this entire house of cards.
Um, and if they continue to do rate hikes throughout this year,
it's going to get a lot uglier
than what anyone could possibly imagine. In our opinion.
You mentioned, you know, an indicator will be seeing the vics in the forties,
the vix right now at 32 99,
pretty elevated still. Right?
When we look at overall kind of concern, you know, within the market,
the picture you paint obviously is one where we are headed into a recession.
So I wonder,
you know,
a why are you so sure that do you think it has to do
with a lot of the thesis is saying that we're not headed into a recession
is around just how strong the consumer is and maybe there's a little bit too much um,
you know,
kind of positivity when it when it comes to that and
then be what timeline do you think we hit a recession?
So look, of course we could be wrong.
You know, we're not consensus in our call,
a lot of people think the economy is very strong, but we're looking at earnings,
you know,
when you see companies profits come in at 40 and 50%
and you look at the inversion of the yield curves,
you look at the stock market, these markets are forward looking
the data that we continue to get his rear view mirror data.
So we believe that the markets and the bond market have it
right and are telling us that there's big warning signs ahead.
So the market will bottom in our opinion before,
it's a technical definition of a recession.
I believe the technical definition of the recession will
happen sometime in the first half next year,
which means in our opinion,
we could possibly bottom in the market the fourth quarter of this year.
That's when we think most of the buying opportunities are gonna be,
because we think the market will probably bottom by then.
I would assume the Fed would pivot by then because if our thesis is correct,
then the economy will clearly show that we're gonna be going into a recession.
So at a time like this right now, when the market is this volatile and, and you know,
to your point potentially heading to even further volatility.
Um, what sort of sectors are are you crying?
Where do people go to have some safety with
their money given that especially in the equity markets,
those traditional flight two safeties,
Those have gotten pretty expensive right now.
Yeah.
Look,
I think right now and of course it
depends on everybody's investment time horizon and goals.
But look, there's a term called cash is king.
There's nothing wrong with holding onto some cash in
such uncertain time periods to be opportunistic with it,
to lower volatility from an equity sector perspective,
The only thing that we are looking to buy on
any major dips or utilities or consumer staples right now,
we are not chasing tech, we're not chasing small cap.
We think there's still a lot more downside there
and then look, you know,
I think ultimately this 10 year yield that has really spiked significantly,
it's probably gonna top out here in the next month or so,
So it's gonna be a pretty interesting setup actually for fixed income,
fixed income has had one of the worst starts in history and
I think a diversified portfolio and maybe some longer term treasuries.
If the 10 year bond goes down in the second half of this year, which we think it will,
you could potentially get some upside there
to help manage risk and get some of the losses that you've seen in the first
four months,
interesting analysis Eddie, you know, I think the reality of a recession,
no matter where you fall,
if you're still bullish or bearish on this market right now,
the reality of recession has, has been elevated over the last couple of weeks.
A great insight. Eddie Gabor, co owner at the key advisors group