YOU HAVE TO GET CONCERNED. I AM WITH KAREN. I THINK IT GOES LOWER FROM HERE. >> WE ARE GETTING CLOSER TO A RECESSION IN THE COMING MONTHS AND THAT OCTOBER LOW NOT REALLY THE LOW. CHIEF MARKET STRATEGIST TONY DWYER. GREAT TO SEE YOU SO WHAT KIND OF LOW ARE YOU BRACING FOR? >> WHY DON'T WE GIVE IT THE DATA SO OYOU OPENED THE SHOW WITH THE TWO-YEAR YIELD THE HIGHEST OF THE CYCLE. WE LOOKED AT SINCE IT'S BEEN AT 500, SINCE 1957, THE S&P 500 HAS NEVER MADE THE LOW OF A CYCLE WHEN IT'S DOWN MORE THAN 19% BEFORE THE TWO-YEAR MADE ITS PEAK SO WITH THE TWO-YEAR MAKING THE PEAK OF THE CYCLE SO FAR, THAT TELLS US THAT OCTOBER LOW WASN'T THE LOW.
>> OKAY. SO THEN IN THE NOTES YOU SAY THAT THE HIGHER THE TWO-YEAR YIELD GOES THE MORE LIKELY WE ARE HEADED INTO A RECESSION. SO DOES THAT MEAN — YOU SEE THAT IN THE CARDS AT THIS POINT? SO A RECESSION ADDS WHAT TO THE MARKETS? >> I DO. I THINK THE SOFT LANDING SCENARIO WAS BECAUSE YOU COULDN'T DISPROVE THE DATA YOU DON'T GO FROM SUPER FAST TO A RECESSION IN A TICK. SO IT TAKES TIME TO GET THERE. SO WHAT WE'RE BASING OUR RECESSION CALL ON IS THE PERCENTAGE OF THE YIELD KEVS THAT ARE INVERTED ALMOST 87% ALL YOU NEED IS 55% OF THEM TO BE INVERTED TO A RECESSION EVEN THE SOFT LANDINGS OF THE 1966, 1995, AND 2016 THE LEADING ECONOMIC INDICATORS WERE NOWHERE NEAR AS WEAK AS THEY ARE NOW ANY TIME THE LEIs HAVE BEEN HERE YOU HAVE GONE INTO RECESSION LASTLY, NOT JUST THE MONEY SUPPLY, BUT THE BANK LENDING STANDARDS HAVE TIGHTENED TO A LEVEL AND THE LOAN DEMAND FOR C AND I LOANS AT A LEVEL THAT HAVE BEEN ASSOCIATED WITH RECESSION SO TO ME THE DATA IS THERE FOR A RECESSION.
WE JUST HAVEN'T HAD ENOUGH TIME TO GET THERE YET. >> THIS IS, OBVIOUSLY, BACKWARD LOOKING IF YOU HAVE THE DATA HERE DO YOU HAVE ANY SENSE OF LIKE WHEN STOCK MARKET IN A BEAR MARKET USUALLY BOTTOM IN AND AROUND A RECESSION AGAIN, THIS RECESSION CALL BY A LOT OF STRATEGISTS AND SOME INVESTORS HAVE BEEN PUSHED OUT A LITTLE BIT A LOT OF PEOPLE SAID A COUPLE WEEKS AGO WE ARE IN A NEW BULL MARKET AND THE BEAR IS OVER. I AM CURIOUS IF YOU ARE RIGHT ABOUT THE RECESSION MAYBE IN THE BACK HALF OF 2023, HOW DOES THE STOCK MARKET USUALLY BOTTOM BEFORE RANKINGS OR IN THEM >> IT'S A GREAT QUESTION THEY NEVER BOTTOMED BEFORE A RECESSION.
SO THE MEAN, THE MEDIAN NUMBER OF WEEKS FROM THE BEGINNING OF THE RECESSION TO THE S&P 500 LOW IS 23 1/2 WEEKS. THAT'S WHY THIS WHOLE CALL HAS BEEN ABOUT THE RECESSION AND WHY IT'S SO IMPORTANT TO USE THAT DATA I MENTIONED EARLIER WE KNOW THAT WHEN THE TWO-YEAR IS MAKING A PEAK, THE S&P NEVER MADE THE LOW UNTIL AFTER THE TWO-YEAR PEAKS THAT MEANS THE OCTOBER LOW ISN'T IT WE KNOW THAT MARKET HAS NEVER BOTTOMED BEFORE THE RECESSION BEGAN.
IF I CAN, I WANT TO BE SUPER CLEAR HERE WE ARE OVER A YEAR INTO THIS BEAR MARKET. I WANT TO ATTACK THE NEXT LOW. YOU DON'T GET ARMAGEDDON NEGATIVE NOW GO BACK TO THE OCTOBER LOW AND I WANT TO ATTACK IT BECAUSE IT WILL BE WHEN BAD FINALLY BAD NEWS WILL BECOME BAD NEWS AND THAT'S TYPICALLY WHEN YOU MAKE THAT RECESSION-BASED LOW. >> AND WHAT TAKES US OUT THEN, TONY BECAUSE I THINK, WELL, I MEAN, YOU KNOW WE WORK A GREAT DEAL. WHAT TAKES US OUT — LIKE WHAT ARE YOU GOING TO ATTACK ON THE AGGRESSIVE SIDE ON THE LONG SIDE >> IT'S GOING TO BE THE EARLY CYCLE NAMES OF FINANCIALS, AT THE CYCLICAL NAMES THE ECONOMICALLY SENSITIVE NAMES. IT'S INTERESTING THE SOFT LANDING SCENARIO TO ME IS ONE OF THE — IT'S NOT THE BEST-CASE SCENARIO BECAUSE WE DON'T HAVE TO GUESS.
WE KNOW EXACTLY WHAT'S GOING TO HAPPEN IF YOU ARE IN A SOFT LAND PG INFLATION IS GOING TO REMAIN ELEVATED THE FED IS GOING TO HAVE TO CONTINUE TO TIGHTEN AND THE MARKET IS — AND RISK IS GOING TO GET HIT WE DON'T HAVE TO GUESS THAT'S WHAT HAPPENED OVER THE LAST TWO WEEKS SO I THINK WHAT WE NEED IS UNFORTUNATELY TO GO INTO A RECESSION TO THE POINT WHERE THE FED WILL LOWER RATES ENOUGH THAT IT KICKSTARTS A CREDIT CYCLE TO KAREN'S POINT, NOT NOW WHEN WE ARE ABOUT TO ENTER A POTENTIAL NEGATIVE CREDIT CYCLE. >> HOW DOES THE FED PIVOTING IF AT ALL FACTOR INTO THIS SORT OF RECESSIONARY OVERLAY A LOT OF STRATEGISTS — I DON'T WANT TO SAY A LOT, SOME ARE BANKING ON SOME MARKET — BANKING ON A PIVOT, SOME SORT OF CUTTING, YOU KNOW, LATER ON THIS YEAR, MAYBE EARLY NEXT YEAR.
DOES THAT PLAY INTO THIS AT ALL? DOES THAT CHANGE YOUR OUTLOOK FOR WHEN THE MARKET BOTTOM >> IT DOESN'T BECAUSE WHEN I LOOK BACK THE ONLY TIME I FIND AFTER A TIGHTENING CYCLE WHERE THE FED PIVOTED AND IT WAS THE LOW WAS IN 1995. THE LAST RATE HIKE HAPPENED I BELIEVE IN FEBRUARY OF '95 THE MARKET WAS ALREADY RIPPING AND IT KEPT GOING STRAIGHT UP FOR THE YEAR I THINK IT WAS A 34% YEAR. SO WHEN YOU LOOK AT THAT, IT REALLY COMES DOWN TO YOU HAVE GOT TO — YOU'VE GOT TO GO HAVE THE UNEMPLOYMENT RATE PICK UP. AND YOU KNOW YOU ARE IN A RECESSION HISTORICALLY WHEN THE UNEMPLOYMENT RATE IS A HALF A PERCENT FOR AN AVERAGE OF THREE MONTHS ABOVE THE LOW SO IF WE GET A 3.9% UNEMPLOYMENT RATE, WE KNOW WE ARE IN A RECESSION.
WE KNOW WE ARE IN RECESSION, WE SHOULD BE ABOUT TO MAKE THE LOW AND THAT CREATES THE OPPORTUNITY FOR A REAL SUSTAINABLE BULL MARKET AND A CHANGE IN THAT MONEY. THE PROBLEM IS MONEY IT'S NOT JUST THE THOUGHT OF MONEY. THERE IS THE MONEY SYSTEM IS SHUT DOWN. >> TONY, GREAT TO SEE YOU. THANKS >> GREAT TO SEE YOU. THANKS, GUYS. >> TONY DWYER.
SOME MORE BULLISH PEOPLE MIGHT HAVE ARGUED THAT THE MARKETS HAD LOOKED THROUGH THIS, THAT THE OCTOBER LOW WAS PRICING IN IN THE RECESSION TO COME, BECAUSE IT'S A FORWARD-LOOKING MECHANISM. DID YOU BUY THAT >> I THINK PARTS OF THE MARKET WILL TO CONTINUE TO DO ALL RIGHT. I DO THINK IT'S HARD BECAUSE WE ARE LOOKING AT TALKING SOFT LANDING OR HARD LANDING AND THE BIG CRUX IS WHAT'S GONNA HAPPEN WITH UNEMPLOYMENT AND I STILL DO FIND IT STTOUGH TO SEE WHERE WE GET TO THE HIGHER UNEMPLOYMENT BECAUSE TODAY WE SAW HOME DEPOT CAME OUT AND NOBODY LIKED THEIR EARNINGS BUT THEY ARE HIRING MORE PEOPLE AND INCREASING WAGES.
SO THAT YOU HAVE A LOT OF THAT HAPPENING IN THE INDUSTRY. YES, THE BIG TECH FIRMS LAYING OFF BUT PLENTY OF PARTS OF THE COUNTRY CAN'T HIRE ENOUGH PEOPLE SO I DON'T KNOW WHAT THE CATALYST IS TO GET THERE TO BRING UNEMPLOYMENT ENOUGH TO BRING US TO THE RECESSION TO BRING US TO A HARDER LANDING YES, IT'S A POSSIBILITY. I AM NOT CONVINCED IT'S HAPPENING. >> KAREN >> I AGREE TO ME THE EMPLOYMENT THING IS A BIG — USED TO BE — I MEAN, .4 WAS BELOW. YOU KNOW, MIDDLE 4s MABEL. S MAYBE I WOULD THINK THE ECONOMY COULD WITHSTAND SOME MEANINGFUL MOVEMENT IN EMPLOYMENT THAT ACTUALLY WOULD – >> NO. IT HURTS THE FED STORY IT MAKES IT SO MUCH HARDER FOR THEM IT BASICALLY MEANS THAT THE FEDS FUNDS HAS A — I THINK THE STOCK MARKET COULD ENDURE AT THE VALUATIONS IT'S AT THE OTHER THING, I MEAN — >> WHY MORE UNEMPLOYMENT REMAINS DEPRESSED.
>> OH, IS THAT WHAT YOU ARE SAYING >> YES. >> YEAH. >> I THINK IT MAKES THE FED'S JOB HARD I KNOW YOU FEEL THE SAME WAY I THINK IT'S JUST, YOU KNOW, ONE OF THOSE THINGS — AND LET'S BE FRANK. WE TALKED ABOUT CHIPOTLE, THEY ARE HIRING 15,000 WORKERS. THEY CAN FIRE THEM SO QUICKLY AND WILL FIRE QUICKLY IF THERE IS A RECESSION TO ME I THINK THAT WITH UNEMPLOYMENT IF WE GET HOT READINGS AND HAVE UNEMPLOYMENT BELOW 3.5% IT MAKES THE FED'S JOB THAT MUCH HARDER — >> I AGREE IF UNEMPLOYMENT RISES — >> BUT YEAH, SHE IS STAYING IT'S GOING TO STAY LOW FOREVER, RIGHT? ISN'T THAT WHAT YOU ARE SAYING YOU THINK WE CAN ACTUALLY HAVE A SOFT OR NO LANDING BECAUSE UNEMPLOYMENT IS NOT GOING UP >> YOU ARE RIGHT, IT MAKES THE FED'S JOB HARDERT. WE WILL PROBABLY HAVE HIGHER INTEREST RATES FOR LONGER AND THAT'S WHERE YOU NEED TO LOOK AT THE MARKETS.
LARGER DURATION AT SET ASSETS WB UNDER PRESSURE. >> THREE WEEKS AGO IT WAS 4.9 OR SOMETHING. I MEAN, THE CHANGE IN PSYCHOLOGY, WHICH IS PROBABLY WHAT THE MARKETS NEED, IS AMAZINGLY FAST. >> AND IT'S EXACTLY RIGHT. EXACTLY WHAT THEY NEED IT'S SORT OF LIKE THE COME-TO-JESUS MOMENT WHERE THEY REALIZE, WAIT A SECOND, WE ARE NOT OUT OF THIS SITUATION AS FAST AS WE WANT TO I AM WITH YOU. I DON'T THINK UNEMPLOYMENT IS GOING TO MOVE — THEY, THE FEDERAL RESERVE, I THINK THEY WANT A FIVE HANDLE THEY WOULD NEVER SAY THAT.
THAT'S WHAT THEY NEED. THEY ARE NOT GOING TO GET T THAT'S THE PROBLEM WAGE GROWTH CONTINUES. INFLATION IS A PROBLEM YOU ARE GOING TO SEE IT IN THE NUMBERS LATER THIS WEEK AND THEY ARE TRYING TO COMBAT SOMETHING THAT EVERYBODY SEEMS TO THINK IS AN EASY FIX..
