Welcome back to closing bell and cheddar news.
Everyone I'm kristen Schouler down here on the floor of the stock exchange and
this is a look at where we finished the trading session on this Tuesday.
We did end near session lows. So we had actually seen a mixed market at one point
but take a look at the dow down 6/10 of a percent down, 192 points.
The S and P down 9/10 of a percent and the NASDAQ down about 1% on this session.
So stocks losing some steam as we await more earnings,
we did get some positive results from Pepsico this morning,
better than expected results on the top and the bottom line raising its outlook
of course. Other key data coming from the banks this week as well as Delta Airlines
and then some very important inflation data out
tomorrow that consumer price index figure for june
Expected to show consumer prices were up 8.8% in June from the same time a year ago.
That would be a new
40 year high in terms of the pace
of these price gangs.
So investors a little bit jittery here as we
wait to get some more results and certainly guidance
from companies.
But after what was
the market session, I do want to bring in paul, kim
ceo and simplify E. T. F paul. Thanks so much for joining
your thoughts on today's action.
Hi kristen I think you captured it pretty closely.
It's we're in a holding pattern and everyone's waiting to see not just a C. P. I.
Print which is gonna be somewhere around
The high AIDS to possibly in the 9% range.
So that isn't gonna be surprising by itself. But I think the reaction
of the market because some of the narrative around today has shifted to
focus on growth concerns and recessionary concerns instead of this for that kate hi
uh inflation.
So I think the sort of tug of war
between inflation and recession risks remain and whether the
narrative starts shifting tomorrow with the high print and
whether investors start thinking about rate hikes again.
I think that's really the big question.
So I want you to talk to me a bit more paul about what you offer at simplify E. T. F.
I do see some option based exchange traded funds.
What kind of activity are you seeing in terms of
bets on the future price of the stock market.
Do you think that we could fall further from here based on the activity, in your view?
I think whether people have a view or not,
we're certainly seeing a lot of demand for hedged equity type
strategies that can do well through a more volatile equity period.
I think the general consensus is that we are only
part way through the sell off that interest rates have taken
a big chunk of the market market valuation,
but I think earnings pressure will remain.
We're seeing a lot of activity hedging out duration risk.
So interest rate hedges,
we're seeing activity around equity hedges and we're seeing people saying,
you know what,
this may be sort of the norm going forward and
I'm gonna actually sell some options and collect some income.
So we're seeing a lot of activity
but a general concern but not panic yet.
We're not seeing big flows amongst our clients.
So how much further could we fall from here? I asked because the S. And P.
Is down just about 20%. I see up here on the big board
from its recent high at the start of the year, that is officially a bear market.
But I know some calls that we could fall another 15% points from here
based on what we typically see in bear markets. What's your take?
I agree with that sentiment that we have at least another 1520% still on the table.
Why? Because we still have earnings expected of 10% growth the rest of the year.
We're still at um very modest volatility levels.
And equity markets have been very calm
and we see a lot more activity and panic on the fixed income side.
So If that starts catching up to the equity market,
I think we easily could see another 1520%.
What do investors need to be on the lookout for in these earnings reports,
paul that could dictate the health of the consumer and corporate America.
I think it's really a look at uh funding costs,
whether that translates into pressure on margins, how much
pricing power and how much strength and uh, consumers are still here.
So can companies pass on these inflationary pressures
and importantly on the wage side has labor pressure really taking chunks out
where the pendulum is swinging back from capital back to labor again.
Okay,
so certainly interest rates and inflation having a big
impact on the path forward for the stock market.
But what about some of these other factors Paul, Ukraine China, the coronavirus,
I mean technically we're still in a pandemic despite calls at the start of the year
that we might be able to switch to an endemic stage in 2022.
I I totally agree with that sentiment.
I think the geopolitical as well as the pandemic risk are still out there.
And that's the concerning part is that we have a hiking fed
into recession concerns with uh potential further downside from these uh,
sort of outlier risk.
And I think we're far from seeing sort of the
float through of energy and food prices.
I think that's a tailwind for inflation going forward.
So what should investors do? Should they sit on the sidelines?
Should they actually consider selling
at these levels? If you do think that the stock market could fall another
15 to even 20%.
I think we've all learned that it's really hard to sit out of markets,
especially with inflation nearing 9%.
Um, so pick your spots,
try to raise some dry powder because there will be likely
lower prices to buy things that um in fixed income probably go
towards a higher quality and shorter duration basically get more defensive
but stay invested and look for your spots to reengage at some point.
This too shall pass like every other recession. But we're we're in the early phases,
interesting. Okay so how long does inflation stay elevated?
Of course the long term goal is 2%. If we get to read tomorrow of 8.8%
that is clearly extremely elevated.
Maybe some downward pressures once we passed the summer months.
But how long do you think that inflation does continue
to run hotter than the Fed's long term goal?
I'm in the non transitory camp.
I think this is a structural uh inflation
that we're seeing now um reversing globalization,
reversing some of the cheap financing that's been made available,
reversing the entry of new labor forces including china.
Um And I think all of that is gonna start to unwind and it's gonna take years
and I think it's gonna take a very
aggressive Fed to get inflation back under control.
Interesting. Alright paul. We got to leave it there.
That's paul, kim's ceo simplify E. T. F. Paul. Thank you so much