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Speaker 1: Seven minutes past the hour. Let's get to our guest.

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Speaker 1: It's Matt Orton, chief market strategist at Caroline Tower Advisors. Matt,

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Speaker 1: everybody seems to be bearished, and we've seen that born

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Speaker 1: out in surveys and the commentary and such. You know,

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Speaker 1: we're not seeing capitulation in markets, so that must tell

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Speaker 1: us some kind of story. What is it, Hey, Brian,

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Speaker 1: great to be back. I think what it says is

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Speaker 1: that there's just a tremendous amount of uncertainty. We we

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Speaker 1: haven't been to this position before. We haven't been in

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Speaker 1: a position where we're the FED ist hiking rates at

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Speaker 1: such a rapid pace coupled with an anomalous economic slowdown

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Speaker 1: that that may or may not be putting us into

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Speaker 1: a recession. Uh and at the same time seeing the

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Speaker 1: economy generally hold up. So I think there's a lot

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Speaker 1: of hesitancy on the part of investors to get in

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Speaker 1: front of the Fed until there's a little bit more

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Speaker 1: clarity on what's going to happen. So positioning is incredibly light.

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Speaker 1: You know, I've been telling our clients it's frankly just

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Speaker 1: washed out seeing the levels of institutional cash just sitting

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Speaker 1: on the sidelines, and to me that that's a signal

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Speaker 1: that maybe if we can finally stop getting bad news

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Speaker 1: or get a little bit more certainty in terms of

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Speaker 1: what the terminal rate looks like, where rates are ultimately heading,

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Speaker 1: that that that might help establish the floor for equity

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Speaker 1: markets to start moving higher again. Yeah, it's not just

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Speaker 1: the right decision that's going to be closely watched, but

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Speaker 1: it's seventy five, which seems likely, or a hundred, which

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Speaker 1: is a possibility no one's really ruling out. But what

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Speaker 1: about the dots? How closely are we all going to

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Speaker 1: be watching those this time? I think they're going to

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Speaker 1: be watched very closely because the big question, like you said, Paul,

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Speaker 1: is is where are we going? Where is the terminal

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Speaker 1: rate going to go? And what do we see happening

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Speaker 1: in So the big news that really helped drive the

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Speaker 1: markets lower after Jackson Hole was the fact that that

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Speaker 1: there really was no devish pivot um and the markets

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Speaker 1: had to readjust the pricing to that and so ill

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Speaker 1: there possibly be a pivot coming? Probably not? But what

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Speaker 1: does higher for longer really mean? And that's that the

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Speaker 1: clarity that we need. I think that's the key point

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Speaker 1: where I talked about capitulation. People don't seem to to

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Speaker 1: really want to throw in the towel because they feel

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Speaker 1: like we're some somewhere in the process of inflation peaking.

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Speaker 1: But the FED is not going to hand it to you.

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Speaker 1: They're not gonna say, Okay, it's time for a pivot,

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Speaker 1: We're gonna pause, or we're gonna do this, or we

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Speaker 1: think enough has been done. It's just not gonna happen.

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Speaker 1: They need to crush inflation. So what are the signs

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Speaker 1: that we look for? Because the data itself is choppy,

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Speaker 1: some good, some bad, and rightfully flow bright, and then

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Speaker 1: the feed has to show that that they are being

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Speaker 1: taking inflation very very seriously. Um, I think it's going

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Speaker 1: to be easier to get inflation down to say, maybe

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Speaker 1: five or four percent, but it's moving it lower from

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Speaker 1: there that I think is going to be really really

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Speaker 1: hard to do because there's so much stickiness and things

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Speaker 1: like rent and housing as well as labor um those

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Speaker 1: those are things that that we're not seeing move very

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Speaker 1: significantly in the right direction, if in the right direction

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Speaker 1: at all. But we're probably going to get to the

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Speaker 1: point of seeing deflation with respect to to some goods.

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Speaker 1: We're already seeing energy start to come down, so so

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Speaker 1: there are positive but the big, the big challenge is

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Speaker 1: going to be really moving it lower. But at the

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Speaker 1: same time, we can't drive the economy off of the cliff.

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Speaker 1: So so what we need to see is data dependency

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Speaker 1: from the FED and hopefully after we get what's likely

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Speaker 1: going to be a seventy five basis point hip tomorrow

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Speaker 1: that we're going to see them start to take their

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Speaker 1: foot off the break a little bit, or at least

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Speaker 1: signal that given some of the data, because data is

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Speaker 1: coming in a little bit softer. And man, I just

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Speaker 1: want to return to those comments that we heard from

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Speaker 1: Noria Rebani talking about a long, ugly contraction, maybe a

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Speaker 1: global recession in three Uh. Do you think he's either

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Speaker 1: cooking it or a bit or is this a distinct possibility?

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Speaker 1: So you know all, I can certainly appreciate the risks

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Speaker 1: that that he's highlighting, that that are very very real,

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Speaker 1: but I just I can't get there. I can't get

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Speaker 1: to seeing a calamitous situation. And I think too many

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Speaker 1: people are using the analogs that we've had of the

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Speaker 1: most recent recessions being the shutdown of covid or or

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Speaker 1: the global financial crisis, where there were where there were

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Speaker 1: massive events that that that brought down the entire global

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Speaker 1: system and infrastructure that led to forty plus percent sell

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Speaker 1: offs and equity markets and crippled economies. And in this situation,

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Speaker 1: I really think that we're likely to see more of

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Speaker 1: a rolling recession through the u S where different sectors

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Speaker 1: and pockets of the economy are impacted at different times,

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Speaker 1: because that the data just doesn't point to a sharp

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Speaker 1: slowdown that is starting to happen. You know, you heard

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Speaker 1: today it's you know, it's a tale of two economies

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Speaker 1: right now. If you listen to FedEx four g E,

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Speaker 1: they might be more on the Rabbini side. But if

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Speaker 1: you listen to to be a who commercial client activity

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Speaker 1: is good, says the consumers in good shape. You know,

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Speaker 1: m X continues to point to very very strong consumers

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Speaker 1: in our favorite weather man, Jamie Diamond is you know,

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Speaker 1: highlighting that their strong consumer spending too. So listening to

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Speaker 1: some of the companies that are closest to the economy

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Speaker 1: and real time consumer data just doesn't point to a

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Speaker 1: sort of calamitous situation that's on the horizon. So I

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Speaker 1: we heard that from Ralph Lauren yesterday too, said that

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Speaker 1: they're not seeing any signs now. That's more at the

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Speaker 1: luxury end, I guess. But when you have the stock

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Speaker 1: and the bond markets both down and property falling like

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Speaker 1: it is now, prices maybe not quite so so much yet,

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Speaker 1: but then transactions have dropped, you wonder whether or not

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Speaker 1: the reverse wealth effect will eventually hit for people that

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Speaker 1: do have higher incomes and spend more. It certainly might,

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Speaker 1: but uh, you know a lot of people with higher

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Speaker 1: incomes they're not they're not taking out home mac releans.

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Speaker 1: I don't think there's exposed to to to you know,

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Speaker 1: not having the money to continue to spend, you might

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Speaker 1: feel like you have less than that might for you know,

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Speaker 1: you might behaviorally spend a little bit less, and that's

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Speaker 1: probably a good thing. On the inflationary front um, where

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Speaker 1: we're seeing the switch from good spending to services spending,

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Speaker 1: I think is, you know, we can lighten up even

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Speaker 1: more on the good spending to help bring down inflation.

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Speaker 1: And if we moderate spending on services a little bit,

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Speaker 1: the economy still remains in a healthy place. But but

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Speaker 1: you're helping to bring down some of those inflationary pressures too,

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Speaker 1: so it's not necessarily a bad thing. And I would

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Speaker 1: also point out that corporate margins are are at the

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Speaker 1: highest levels we've seen the margins over the past five

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Speaker 1: quarters of the highest over the past ten years. And

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Speaker 1: and so even if we move a little bit lower

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Speaker 1: on the margin front to to labor or a little

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Speaker 1: bit of a slowdown on the consumer front, companies by

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Speaker 1: and large are still in good shape. So when I

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Speaker 1: talk to people to write people's people's balance sheets are

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Speaker 1: looking pretty good too. That's a great point, Brian, that

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Speaker 1: the home owners, the family balance sheet is in good

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Speaker 1: shape where we're not seeing tremendous evidence of people reaching

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Speaker 1: for credit cards or taking on a ton of credit

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Speaker 1: to to finance their purchases. So to me, what that

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Speaker 1: says is you take a defensive vice in the market

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Speaker 1: right now, lean into companies that are actually making money,

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Speaker 1: lean into dividend growth companies with higher are we quality

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Speaker 1: that has been working. Healthcare is one of my favorite

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Speaker 1: places to get exposure. And in those pockets of the market,

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Speaker 1: you're outperforming the index and you can wait and be opportunistic.

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Speaker 1: You know, if we do hav an even further pull

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Speaker 1: back to say that June lows are even lower because

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Speaker 1: I don't see how we sustainably stay at those levels,

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Speaker 1: and that could be a great buying opportunity to get

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Speaker 1: more aggressive. Alright, Matt Alton, we'll leave it there, but

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Speaker 1: thanks so much for joining us on the bloom Big Daybreak. Asian.

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Speaker 1: Matt Olton is Chief market Strategist at Carol and advises