Full Video Transcript Below:
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. I certainly think September is historically that time. We may see that. I think we have plenty of catalysts on the short-term horizon to give us that sort of 5% to 10% pullback, which would not surprise anybody.
ART HOGAN: In the month of September, a couple of other things might drive that. The uncertainty around trade is certainly a large catalyst that could be a headwind for markets. But away from that, how weak does the labor market get before it stabilizes? I think one of the drivers of weakness in the labor market clearly comes from uncertainty around trade, keeping corporations from creating new jobs. The other is we just don’t know how much, in the near term, artificial intelligence is starting to take away entry-level jobs for new college grads.
ART HOGAN: Right now, the unemployment rate for the 18 to 34 demographic is about 10%. If that continues, and we haven’t made the transition to find new jobs for new college grads, that can continue to show weakness. On top of that, we’ve got 11,000 baby boomers retiring every month. So the workforce demographic is really unclear right now. Add to all of that, much less immigration. Last year, we needed to create about 150,000 jobs a month to keep unemployment unchanged. That new normal may be about 50 to 75,000 jobs. We’re below that right now. If we remain below that, unemployment will continue to rise.
CAROLINE WOODS: OK, so it could be a bumpy ride to 6600. Then what would you buy on a pullback, and what would you buy regardless if we see a pullback or not?
ART HOGAN: Yeah, I don’t think this sort of weak September or the normal 5% to 10% pullbacks should change your long-term investment views and positioning. But if you are under-allocated to equities right now because you’ve been nervous about all sorts of things this year, it will give you that opportunity to have an entry point.
ART HOGAN: We certainly think the three things you want to think about are the winners in artificial intelligence—they’re clearly starting to emerge. And it’s not just NVIDIA anymore. Companies like Broadcom are showing that they can do well. But I think the biggest name giving the best entry point right now is Apple.
ART HOGAN: Apple, and I’ll tell you why. Three quick reasons. The alphabet soup that just got thrown out of court means that Alphabet can continue to pay Apple to be their default browser on 2 billion Apple devices. That also means Apple doesn’t need to spend a lot of money developing their own large language models. And they can partner with somebody like Alphabet to enhance what they’re doing with Siri. Then there’s going to be a massive rollout at the end of the week of new Apple products. Probably the best thing I can tell you is, if you’ve missed a lot of these great moves that are AI-adjacent, any pullback in September might be a great time to get involved.
CAROLINE WOODS: OK, so you said three names. I heard Apple, which of course is down, what, still 5% year-to-date. What are the other two names?
ART HOGAN: Yeah, NVIDIA is down 20% off from its recent high. I certainly think that represents an opportunity. Every time NVIDIA pulls back, people start to get concerned about either competition or CapEx spend slowing. Neither one has shown itself. NVIDIA likely gets a license for the H20 to sell them to China, which right off the top would be another $5 billion.
ART HOGAN: The third name I’ll throw in here is going to come out of the blue a little bit—TJX, which is TJ Maxx and Marshalls. It’s the biggest beneficiary right now of this consumer uncertainty. Folks love the treasure hunt that is TJX. TJX isn’t over-indexed to imported goods and continues to outshine the rest of the discounters.
CAROLINE WOODS: OK, all right. Yeah, TJX though up about 1,516% year-to-date, so it’s already caught a nice bid there.
CAROLINE WOODS: All right. Our final advice for investors right now, with stocks at record highs, the economy showing signs of cooling, and all this uncertainty that you mentioned in terms of AI’s impact on the jobs market—what’s your advice to investors?
ART HOGAN: Well, I think investors should think about this as a journey and not a point in time. Unfortunately, because of a 24-hour news cycle, we hear about points in time a lot. You need to separate the noise from the news, and I think the news is more good than bad.
ART HOGAN: Once we get through the uncertainty over trade, we’ll start to feel the beneficial effects of things like less regulation and knowing the corporate tax rate for several years. That hasn’t shown up in equity valuations yet. I think we’re in the very early innings of the AI revolution, which will continue to show us more winners in tech and communication services.
CAROLINE WOODS: We’ll leave it there. Art Hogan, chief market strategist at B. Riley Wealth Management. Always a pleasure.
ART HOGAN: Thanks so much. Great to see you.
#week039s #inflation #numbers #stock #market