July jobs report should 'put to bed' any short-term recession talk: Strategist

Cornerstone Wealth Managing Partner Jef Carbone and Jacqueline Remmen, Morgan Stanley Private Wealth Management Private Wealth Advisor and Senior Vice President, sit down with Yahoo Finance Live to talk about the economic outlook amid Fed interest rate hikes, inflation, and growing jobs numbers.

Video transcript

- Let's get back in on the markets and talk. Inside, Jef Carbone, Cornerstone Wealth Managing Partner, and Jacqueline Remmen, Morgan Stanley Private Wealth Management Private Wealth Advisor and Senior Vice President. Good to see you both. Jacqueline, let's start with you. What do you make of the market's reaction to that job number? Initially, it looked like it was going to be overwhelmingly negative. The S&P largely shrugs it off, and the Dow finishes up.

JEF CARBONE: Yeah, well--

JACQUELINE REMMEN: Yeah, thanks.

JEF CARBONE: OK, sorry.

- Jackie, go ahead.

JACQUELINE REMMEN: Thanks so much for having me. It's great to be here. Yeah, it looks like the market is basically shrugging it off. It seems like it's ready for rising interest rates. And we're seeing that, not surprisingly, what's leading the market today are the areas that typically would do best in rising rates, so thinking about financials, energy, consumer staple.

And what we're talking to clients about right now is that this is just one piece of economic data, which confirms information about what's happened in our rears and talking to clients about looking present forward in the market and what opportunity exists, both short term with rising interest rates and higher inflation and longer term opportunities for growth.

- Jef, what do you think? What's your assessment of today's report and how the market responded?

JEF CARBONE: Yeah, this seemed like a quiet week after last week with the GDP, the Fed, earnings, 250 companies, so this was like a vacation, but big numbers today, double what was anticipated. In our view, I mean, if there was any recession talk, this had to put it to bed for at least a little while. We didn't see it happening, technically, maybe the technical sign, but it has not been deemed a recession.

But it did also show us the-- get back to the old the good news for the economy is bad news for the market. And we saw that a little bit, good job number, low-- the unemployment number dropped. But the market took it negatively, of course, because it looks like the Fed's going to have to continue a more aggressive hiking cycle. And 75 basis points is probably back on the table for September at this point.

- We needed a vacation. It is, after all, August. Jacqueline, how does the Fed see this number today?

JACQUELINE REMMEN: You know, I think it's one data point that they're going to be considering. There's a lot of time between now and the end of September, when they'll have their next meeting to decide about hiking. We have another set of CPI, actually two more sets of CPI and PPI numbers. One will be next week, which we'll definitely be looking at, and then another round of employment data, so just one piece in the puzzle for them to consider.

And as I mentioned before, we're talking to clients about taking that in the bigger perspective of looking present forward, what that means for how to position ourselves, which is that short term reality that rates will likely continue to rise. So that puts you in sectors like staples, financials energy and then that longer term opportunity.

- What about you, Jef? Where are you seeing the most opportunity right now?

JEF CARBONE: Yeah, I think some of the same areas that Jacqueline mentioned. But I think we also look at-- we know the economy is slowing. Inflation's remained higher, although we do think it's going to start to dissipate here or decelerate. It's going to-- it hasn't decelerated. We thought it would decelerate a little sooner, but it hasn't.

I do think we're seeing signs, as Musk has said too, we're seeing signs that it may have peaked. So we're looking for areas that do well, both defensively and offensively. So health care, we really like the health care sector, and there's some specific positions we like there.

We also like high quality, mega-cap tech, seeing some opportunities. We've had a little bit of a run back in the last week and a half, two weeks now, but with the mega-cap technology, and then also as mentioned, some consumer staples certainly fits in.

But we are, I will say, from the defensive, we're starting to lighten up on some of the utilities that we did hold and looking to place that in other places that give me a little bit better upside because we could see a little bit of a rally back into the year end, although maybe a little being a little bit more rangebound in the S&P, still see some opportunity ahead of us.

- Jacqueline, I never pass up an opportunity to talk Elon. Are we past peak inflation?

JACQUELINE REMMEN: That's what the indications are starting to show. Some of the numbers that have come in show that inflation is starting to come down. We'll see where that brings us next week when we actually get the CPI and the PPI prints.

And we're talking to clients just about positioning for that beginning to come down and opportunities more long term, like in health care, as was mentioned. With the rising aging Baby Boomer population, that presents a really good opportunity and then also opportunities within other companies that we're seeing earnings coming in pretty good and better than expected, which also brings opportunity for, say, megacap tech.

- Jeff, how much of an aggressive Fed is already priced into the market? Because after today's strong jobs report, the chatter has picked up that we'll most likely see a 75 basis point hike at the September meeting. If we do see that, I guess, how do you see the market responding?

JEF CARBONE: Yeah, well, I think if we see today, right, not in the right direction that we want to see it, again, the strength of the economy, yes, is slowing. But there's still some strong sectors. You have a consumer that is still in fairly good health continue to spend. I think we're changing-- the habits are changing. We're not as more not as goods-based, more service-based. We want experiences. I think we saw that with Live Nation. You're seeing that with Marriott and some other hotel travel positions or stocks or sectors.

So I think the Fed is going to certainly be at this-- or the markets will be a Fed driven market. And I think they're going to stay on a little bit more aggressive side right now. Last week if you asked me, I would have said, we may be 25 basis, 50 basis points September, and then we can almost give the Fed the ability to maybe take a pause. That may be off the table for now because we've got such a strong number in the jobs numbers today. And we're not seeing any of this decline.

So Fed needs to see the wage pressure ease up, needs to see the participation rate pick up. They need to see the unemployment data pick up. So we need to see some, unfortunately, some negative to back the Fed off, which would then kind of give them, the markets, a little bit more running power.

- All right, Jeff Carbone, Jacqueline Remmen, thanks so much for joining us this afternoon. Have a wonderful weekend.