With stocks near record highs, here’s how this week’s CPI and PPI report could move markets.
Transcript:
CAROLINE WOODS: Joining me now, Art Hogan, chief market strategist at B. Riley Wealth Management. Art, always great to have you.
ART HOGAN: Well, terrific to see you. And congratulations on the Buffalo win this weekend.
CAROLINE WOODS: Thank you. Thank you very much, Art. All right. Let’s talk markets. Last week’s jobs report, of course, caused stocks to stumble, but they’re still sitting near record highs. S&P 500 trying to regain some of those losses right now as we kick off this new week. Art, how are you feeling about the market?
ART HOGAN: Well, there’s three things to think about. I think the market has plenty to be concerned about in terms of the near-term inflation picture. And we’ll learn more about that this week with both the CPI and P. But I think the Fed, in a sense, is really focusing on the labor market more than stable pricing because they’ll look at core goods pricing as being a one-time event because of trade.
ART HOGAN: Speaking of trade, unfortunately, trade is back to the unknown because the appeals court pushed this out and now it probably gets taken up by the Supreme Court. So we won’t know the rules of the road on the trade war highway until October sometime. So I think that causes some unknown. And when we have unknown, we have corporations that don’t create new jobs, consumers that pull back a little bit, and investors that want to stay on the sidelines until we know at the end of that.
ART HOGAN: But I think for this week alone, the biggest news we’ll get will likely be the CPI. Hopefully it doesn’t come in scorchingly hot and change the narrative around a September rate cut. It would have to be an extremely higher-than-expected number for that to happen. Away from that, we will get the annual revisions of the labor market. Once a year, they try to basically consolidate the household survey with the institutional survey and figure out exactly how many jobs were created last year or over the last 12 months. That always causes some headlines, but I don’t think it’s anything that’s going to move markets around.
ART HOGAN: The Fed is widely expected to cut a quarter point next week, but there is starting to be this narrative of potentially a half-point move.
CAROLINE WOODS: What camp are you in, Art?
ART HOGAN: Well, I think the Fed’s going to cut 75 basis points this year. They may well front-load that and go 50 basis points at this meeting and take the October meeting off. Then go another 25 basis points in December. The reason I think they would front-load it is we saw the weakness in the labor market tick up in the July jobs report. Had the Fed had that report, which came out two days after the July meeting, they probably would have cut rates already.
ART HOGAN: So I think that when we think about the cadence of what the Fed would like to do, there’s probably about 125 basis points that they’d like to remove from the Fed funds to get to a neutral level where they’re not restrictive or stimulative. If they can get that done by getting 75 basis points done this year, they may well do that right now. The CME FedWatch tool shows that there’s about a 90% chance that they’ll go 25 basis points and a 10% chance to go 50 basis points.
CAROLINE WOODS: So, Art, if and when the Fed does cut, what sort of market reaction do you think that we’ll see? Is it already priced in at this point?
ART HOGAN: Yeah, that’s such a great question. I think you framed it up perfectly. The market is anticipating this and has been since the July jobs report came out. Therefore, we’re starting to see small caps do better, mid caps do better, interest-rate-sensitive housing stocks do better. I think that will continue with the confirmation of the rate cut and the language coming out of the press conference in the statement. And what we see in the new plots that we’ll get.
ART HOGAN: So I think we’ve already started to see some of that reaction. It’s beneficial to small caps—they’ve been underperforming for quite some time. Housing stocks have been under pressure, and they’re starting to see a bit. I think the interest-rate-sensitive sectors will continue to broaden out this market.
CAROLINE WOODS: You mentioned that there’s plenty to be concerned about, whether it be trade uncertainty and the unknowns around that, the labor market, or the inflation picture. But then I was taking a look, and you’re holding your S&P year-end target of 6600, which implies not much upside from here, but also not downside. So explain that 6600 price target.
ART HOGAN: Sure thing. Yeah, we can go on a bumpy ride between now and the end of the year.
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