Even after the downgrade in the latest JOLTS data, investors are speculating about when and how likely a recession will last. Eddie Ghabor, CEO and co-founder of Prominent Advisors Wealth Management, joins Yahoo Finance Live to discuss the market outlook amid recession risks.
“I hope I am wrong and we do not have a recession, but one thing I am sure of is that the market is not ready for a recession and if we are correct in our assessment, it could bring a lot of volatility ,” says Ghabour.
Ghabor cited recent JOLTS prints, earnings season results and housing market data in his bearish forecast.
“Without question, the markets and the economy have been much more resilient this year than we anticipated, so this could be a story for the first half of next year,” Gabor says. “Again, when you follow the rate of change and you’re looking at the direction the consumer is going, being in a consumer-driven economy, things are not going in the right direction. They’re slowing down.” “
video transcript
RACHEL AKUFO: Well, as we continue to have that conversation, job opportunities have decreased in July, indicating that there may be some cooling off in that hot job market ahead of Friday’s jobs report. Now, the Fed is hoping for some relief in a tight labor market as rising wages are helping to keep inflation steady.
Now, this news has sent stocks soaring as investors expect inflation to ease without a recession, therefore softening prices. But our next guest isn’t so sure that the economic downturn is avoidable. Now joining us are Eddie Ghabor, CEO and Co-Founder of Principal Advisor Wealth Management. Nice to see you, Eddie. So you say there is no way to reach the 2% inflation target by next year without a recession. Break down your base case for us.
Eddie Ghbor: So look, in my opinion, when you look at it on a percentage basis, you’ve got to drop down to get down to 2%. And it’s our opinion that the only way you’re going to get there is to destroy the demand. I think the Fed, obviously, now knows this. Look, if they eventually turn around and panic and say, well, they can live with 2.5% or 3%. This completely changes our opinion regarding the recession. But, again, I don’t see how you can get the rate of change that low into next year without a recession.
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So right now, we think the consumer is showing some weakness. When you look at credit card debt, you’ll need to resume student loan payments in October. That’s why I don’t watch it. I hope i am wrong. And we don’t have a recession here. But on one thing I am sure that there is no possibility of recession in the market. And if we are correct in our assessment, it could bring considerable volatility.
And finally, let’s take a look at the data for some heartwarming shocks to the bond market today. But we worry that we’re going to see a spike in inflation again when you see oil prices rising into the 80s. So we are still not out of this fight with inflation. And so I think the bond market is going to continue to be very volatile, because we’re getting these mixed signals.
Brad Smith: Yes. It seems like the market has put a price on AI for improving productivity. And maybe, the Eagles winning the Super Bowl this year. But Eddie, as we think about going forward more broadly, this potential recession that you’re calling out, are we talking about a shallower recession or one that’s milder than you anticipate?
Eddie Ghabor: So whether it’s light or shallow, I think the market– when you look at the history, whether it’s light or shallow, it’s not good for the equity markets. You will typically see double digit declines in relation to the market from the levels they are at when the market is finally in a bearish phase. And that’s really our base case that it’s still in the cards. Now, look, without question, the markets and the economy have been much more resilient this year than we expected. So that could be the story of the first half of next year.
But, again, when you follow the rate of change here, and you’re looking at the direction the consumer is going in a consumer-driven economy, things are not going in the right direction. His pace is slowing down.
Rachel Akufo: And we certainly continue to hear some of the warning signs from what we hear from some of these earnings calls and some of the forward guidance, which were dependent on how consumer is performing right now. And when you add to that, as you mentioned, student loan repayments, credit card debt reaching these record highs that’s causing some concern here, when do we see that take a more significant form in earnings? starts appearing from?
Eddie Ghbor: So I think you’ll see it in the fourth quarter of this year when you really start to see it. And, again, if I had to point out a time period where you would start to see identified weakness in the market, that’s probably when you would see it. So we’ll still get some bounces and rallies, and then some declines, and maybe more sideways. But I think in the fourth quarter we’ll really start to see it. And look, there are going to be some cracks in real estate as well. If you have mortgage rates over 7%, you’re going to have problems relative to people who have mortgages at 4%, 3% at the moment. I don’t think you will see them putting their homes on the market to sell in the near future.
Brad Smith: What would be your top trades if we see a recession?
Eddie Ghbor: Will buy the long end of the Treasury curve. Because if we see a downturn, in our opinion you’ll actually see a downturn over the long term. And that’s where you’ll get the initial pop. And then you’ll want to move around in your higher beta plays. At the moment, we are heavy on the currency markets, clearly, because of their yields because we are still not convinced that the volatility in the Treasury market is over yet. But once its price goes up, you should see the long end of the curve actually coming down.
Rachel Akufo: And Eddie, what are some of your customers asking about the environment they’re in and how to play it out right now?
Eddie Ghabor: So the biggest question we’re getting from our customers, because our customers, many of them are retired, so this isn’t their first rodeo, is they looking at what’s happening to their businesses financially where they live, and their local economies. And they’re scratching their heads as to why the market has ignored those fundamentals this year. So the divergence between fundamentals and the market is the number one question we’re taking right now.
So we continue to talk about patience. And being patient is one of the hardest things to do as an investor. But with the payoff of short-term yields, it’s much easier to be patient today.
Brad Smith: Several of the companies that we continue to monitor during earnings season have cited macroeconomic challenges and how this could affect their company. But I think more broadly, for those around the world looking at where they’re being impacted, not only by the US and the domestic front, but also by the global situation. Are there parts of the market that you can already see changing internationally, particularly here, because of AD’s performance?
Eddie Ghbor: So it’s interesting that you bring it up. We are confident about India. Clearly, this is our top equity position. Because of the weakness that China has, we believe that India will emerge as the winner. And I think you will see more and more companies investing in India and less in China. So it seems that India’s economy is going to accelerate in the coming quarters due to that dynamism.
So, in our opinion, there are places where you can make money in this environment, but we do think we have some challenges domestically. So we are more cautious on the domestic front.
Rachel Akufo: And like you said, it’s easy to be less patient at this point when you’re looking at some of these yields. Always nice to see you. Eddie Ghbor, CEO and co-founder of Principal Advisor Wealth Management. Take care of yourself
Eddie Ghabor: Thank you.
Source: finance.yahoo.com
