The US economy is slowing, not collapsing: Raymond James CIO

It's been a rollercoaster ride on Wall Street this week. The major stock market indexes (^DJI,^GSPC, ^IXIC) closed in positive territory on Thursday after being hit by a three-day sell-off at the beginning of the week. The Dow Jones Industrial Average jumped over 680 points while the S&P 500 had its best trading day since January 2023.

Raymond James CIO Larry Adam joins Market Domination Overtime to discuss the market action and how investors can navigate the pullback.

"What happened over last Friday and then Monday, I think everybody got a little bit premature thinking that this economy was going to roll over into a recession, that the Fed was going to have these emergency cuts, and the reality is that the economy is slowing, but it's not collapsing," Adam says of the sell-off.

He believes that while the economy will continue to slow, there will not be a recession when the Federal Reserves begins cutting rates. "I think we've learned over time that the market loves these narratives and you get to see these more extreme moves," he adds, thus fundamentals and earnings are more reliable metrics moving forward.

As the tech sector (XLK) took a beating this week, Adam believes that Nvidia's (NVDA) earnings will provide key insight into the sustainability of the AI race. "Our base case is that the AI theme is still very early stages and that it will continue to drive the tech sector for the foreseeable future," he explains. He notes that in Wednesday's trading session, mega-cap tech stocks went into oversold conditions, so investors could use dips as good buying opportunities.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Melanie Riehl

Video transcript

Roller coaster ride on Wall Street climbing higher today, the S and P 500 having its best day in over a year.

And joining us now is Larry Adam, Raymond James, Chief investment officer.

Uh, Larry, it is great to see you.

So I got green all over my screen.

Larry, you know, we did get some new economic data this morning.

You know, new data point on the labour market, and it seems like that's given investors some some relief and some confidence about the labour market.

Maybe about the, uh, the overall economy.

What?

What do you make of it, Larry?

So I think what happened over last Friday and then Monday I think everybody got a little bit premature thinking that this economy is going to roll over into a recession, that the Fed was going to have these emergency cuts and the reality is that the economy is slowing, but it's not collapsing.

And, you know, I think that that's what you're seeing with all the statistics that are coming out right now, we actually believe that this economy is going to slow the quarter that we're in, and next quarter we think GDP growth is going to be around 1% or lower, but we don't think we're going to see any form of a recession.

And so what are the implications of that for the markets, Larry and at what point?

Like, you know, we had obviously a dip.

Now we're coming back.

What is pricing in that type of a slowdown and cuts by the Fed in September?

What does that look like?

Has it already happened?

Well, it's a great question because we've been using our target of 5400 as our guiding light.

So when we've gotten above 50,400 when we got closer to 50,700 back in July, that's when we got a little bit more cautious on the market.

And obviously, now that we've fallen below 50,400 you can become a little bit more optimistic.

I think we've learned over time, right that the market loves these narratives, and you get to see these more extreme moves.

We tend to rely more on the fundamentals, what we think earnings are going to be, and then a reasonable valuation to see what our target should ultimately end up being.

I'm curious Larry to make our way through the month of August Here.

What other catalysts?

Potential catalysts would be on your radar.

Is it CP?

I, um Jackson Hole.

What would you be looking for, Larry?

Is it in video earnings later this month?

I think it's everything that you just said, right, Especially in the month of August, when you get a little bit more of the doldrums.

I think it would be important for the Fed to convey and telegraph that they are going to start their easing cycle come September.

So I think that will be important.

Part of the catalyst of that happening will be hopefully next week that we will see inflationary pressures continuing to move lower.

And I think that that is likely to be the case because from all of the signals that we see, you are seeing prices broadly speaking, continuing to decelerate.

And then you're right.

I think there's been a lot of questions around this theme of a I.

So obviously, NVIDIA's report will be very important to see the sustainability of that theme.

You know, our base case is that the A I theme is still very early stages and that it will continue to drive the tech sector for the foreseeable future.

So during this recent sell off, were you guys adding to a I related names?

Or is it just a matter of you?

Don't think people should be selling them?

Um, it depends on your exposure to the tech sector.

I will give you a quick tidbit here that yesterday, for example, that the mega cap tech stocks in aggregate actually went into oversold conditions, you know, and if you look back over the last 10 years, that's occurred nine times eight out of nine times.

12 months later, they've been up and they've been up on average about 35% outperforming the S and P 500 by almost 20%.

So that dip buying when it comes to these tech stocks that have pretty good visibility in their earnings moving forward, I think, ended up being a good opportunity to get into that space