Asset TV U.S.’s Post

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Welcome to Asset TV's View from the Floor. I'm Risky Gupta, and I'm pleased to say joining me now is Michael Reinking. He is a senior market strategist at the New York Stock Exchange. So welcome, Michael. Good morning. Thanks for having me. So First off, let's start looking at the markets very broadly. Of course, we're at fresh record highs, I believe the 32nd record this year. So equities really have defied doomsayer, shall we say? But what part of the camp are you in the side that yes. Equity can continue to go higher or are we gonna see some kind of a meaningful pullback? Yeah. So I mean, you know, as you pointed out, right, we have the S&P, you know, right at, at, at you kind of all time highs. We had a very significant rally in the first half of the year, you know, but that rally there wasn't the the breadth within that rally, right. So we saw the equal weight version of the index kind of underperform, you know, by about 10%. We've seen the the the small caps and mid caps, right, of all sort of underperformed. So we have this bifurcation within the market, right, If you know, if you take a look at things. You know, when you have a year where you're up over 10% in the first half, you do tend to see gains in the back half of the year a little over 3/4 of the time, you know, but, but in a typical year, you do tend to see an average pullback of, you know, somewhere around 10%. We barely sniff 5%, you know, kind of in that April time period, right. So I think there's, we're in for some period of consolidation here at the very least. And then in election years, right, the gains do tend to be kind of, you know, driven in the final kind of couple months of the year as there's a little more. Certainty in terms of policy and we will absolutely get to the upcoming election. But you mentioned the market breadth that weakening. Is that something that concerns you? And we see tech having an outsized proportion of the gains, right? So I mean, if you think about what's driving, you know, that bifurcation, it's it's actually kind of rational, right? Because if you look at, you know, earnings revisions, you've seen very positive earnings revisions throughout this year broadly. But a lot of that is coming from those tech companies, right? So they're the companies with the highest growth rates and you're seeing the positive earnings revisions. Right, the other side of the market, right, it is you've seen kind of negative revisions throughout much of this year and the price action is really starting to reflect that. And when you look at the, the small caps in particular, right? I mean, you know, you have over 40% of those companies that are nonprofitable, right? They're much more exposed to floating rate debt, right? So when you think about, you know, needing, you know, higher for longer interest rates, right? And needing to rely on, on, you know, financing, right? It, it, it's understandable that those companies are underperforming. And Fed Chair Jerome Powell has said that the US is on a disinflationary path, but they need more confidence. What? I mean, how many rate cuts, if any, are you expecting from the Fed this year? Yeah. So I mean, I think his commentary yesterday was actually, you know, reasonably dovish, but very consistent with what he said recently, he did acknowledge that we're on this disinflationary path. And he also pointed to the balance of of risk at this point between, you know, employment and inflation. So I I took his commentary as as a little more dovish. Uh, you know, in general, I think the Fed set the bar pretty low for at least one rate cut this year. If you look at their summary of economic projections, right? They had the unemployment rate at 4%, which is where we are currently and we've been trending higher. We just moved over 4% for the first time in two years, right? And they also had their PC estimates that are higher than current levels, right? So I think they've anchored the market at one cut and then you potentially depending on how that data and I think really at this point, I think the labor market. That it is really the key depending on how that data comes out is, is will depend if we see one or two. I'm picking up on your point about the data here. I mean we've had consumer spendings moderated, inflations moderated and we've got had some jobs dated today. We're going to get the payrolls on Friday. So what are your expectations heading into that? Do you think the Fed, the jobs numbers could move the needle for the Fed? Absolutely. So you know, this morning we had the 80P job surveys that came in a little below expectations at 150. 1000 you know, people really pay close attention to that in terms of the job stayers and and job, you know kinda changers in terms of, you know pay and those both moderated by .1%. So continuing to move in the right direction, but you know very, very slowly. And then in terms of claims, we initial claims have remained somewhat elevated, but we also saw a continuing claims hit the highest level since November of 2021 and moving over 1.85 million. So we're starting to see that you know kind of suggests that it's it's harder to kind of. Find a job, you know, you know, once, once you do lose those in terms of Fridays numbers, markets are looking for something right around 200,000 jobs for non farm payrolls. You know, I think one of the things that people have been paying close attention to is the, the, the, the differential that we're starting, the widing widening differential that we're starting to see between the household survey and that establishment survey. The household survey has been, you know, much more negative, you know, over the last, you know, six months or so. And that's what drives the, the unemployment rate. So that's going to be something to pay attention to. Going forward, and of course, you mentioned the upcoming election, what kind of policy should investors be looking at out of Washington? Yeah, So I mean it, it's really interesting what we've seen over the last week, right? So following the debates on Thursday, we've seen kind of yields starting to move higher despite inflation data. That's actually been pretty benign, right? So we had PCE that came in, you know, kind of in line with expectations. And then on Mondays, ISM manufacturing, the prices paid fell pretty significantly. But we've seen rates moving higher, right, markets are starting to increase the potential probability of a, a Trump presidency, right? And so, you know, there there's a focus on, you know, if there is a red wave, right, there is a focus on fiscal deficits are, are are very much back in the conversation. Inflation with with tariffs, right? It, you know, is also kind of a a key point that markets are are starting to focus on. And Michael, building on that, I mean, we're halfway through the year. We're seeing mid year outlooks now being released. What are you think investors? Need to be focused on for the second-half of the year that could potentially be a catalyst. Yeah. So I mean, I think really it's gonna be very much about economic data, right? And and that and markets have become hyper sensitive to each kind of release that we've seen throughout this year. And you think about where we came from, right, Markets were pricing in six or seven rate cuts at the start of the year. Now we're talking about 1-2, you know, are are we going to hold and in terms of, you know, the the driver of of market performance, right, we talked about positive earnings revisions and that's been a big driver of the market. Throughout this year, we have seen, you know, some PE expansion, but but we've had those positive earnings revisions working in our favor as well. So if we start to see, you know, the economy slow down, you could start to to see some negative revisions coming, right? The, the, that upward trajectory has started to slow down, right. So that is where we could get into a little bit of a rocky road. Everybody sort of hoped for this soft landing, but you know, kind of going through that process right, is you're going to get a growth scare at some point. Well, not know. I will say thank you, Michael so much for joining us today. That was Michael Ryan King, the senior market strategist at the New York Stock Exchange.