Cracks are forming in consumer amid inflation: Strategist

Uncertainty remains in the market, stemming from a variety of factors— economic headwinds, geopolitical conflicts, an inert Congress, inflation — extending volatility. Investors are rushing to safer, more stable investments, but do they have the whole picture? Is there more that needs to be considered?

BloxCross Global Head of Markets & Strategy Keith Bliss joins Yahoo Finance to discuss the broader market and what investors need to pay attention to heading into 2024.

"The stock market hates two things: an increasing rate environment and a lack of earnings. Generally, they go hand-in-hand, especially in the financial sectors. So the market has not really come to grips with that." Bliss continues, mentioning the conflict in the Middle East as it pertains to affecting oil prices "If oil does get to $150 or higher per barrel as a result of this, then that just ripples down through all economies and inflation, and that would be very bad for consumers globally, and then as a result for cash equities."

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

RACHELLE AKUFFO: And Keith, you mentioned geopolitics as one of the risks here. And it did take months for markets to really even come to terms with what the fed was consistently saying about a higher for longer rate environment. What do you think are some of the risks that the market is still discounting at this point in the year?

KEITH BLISS: Well, I think they're still discounting the overall inflation picture. We're starting to see the cracks in the consumer as you just reported or will be reporting. Consumer debt is lifting. Dissaving has been going on. All you have to do is go to one of your local merchants and see the increase in prices, especially still around food inflation. It's pretty dramatic if you go to your grocery store or even to a Costco or Sam's Club or things of that nature.

So I think the market is still discounting what the inflation picture is going to look like. And then by extension, what the rates picture becomes into 2024, maybe even '25, and as a result, what it will do to force the fed's hand. You know Rochelle, the stock market hates two things mostly. And that is an increasing rate environment and a lack of earnings. And generally, they go hand in hand, especially in the financial sectors.

So the market's not really come to grips with that. As it relates to geopolitics, the situation going on in Israel and Gaza is different from Ukraine from the standpoint that the flare up in that region moving into a full shooting war, incorporating other players in that region, maybe even the US, that has the impact of spilling over across a wider area of the region. And then impacting the most valuable commodity we have on the globe right now, which is oil.

So that's why, I think, people are paying more attention to what's going on in Israel than they did with what's going on in Ukraine. And those are things that we're going to have to keep an eye on. How long this lasts. Does it spill over or does it impact our ability to produce oil? What happens to the oil markets?

And of course, as we know, if oil does get up to $150 or higher a barrel as a result of this, then that just ripples down through all economies and inflation. And that will be very bad for the consumers globally and then as a result, very bad for cash equities.

- Keith, bringing the conversation back to the US, we've got a house speaker in place now. But we're a few weeks out from another deadline, November 17, of a potential government shutdown. How big of a risk do you think that is for the market?

KEITH BLISS: Tough to tell right now, we'll see what happens with Speaker Johnson and how well he's able to negotiate not only with his own caucus, but also with the White House to avoid something like this. I mean, the mere fact that we got a speaker or I think was finally a result of the politicians, especially the maverick politicians in the Republican conference looking at the polling numbers and seeing that Americans were frustrated and tired of this nonsense going on down there. Put a speaker in place so they can start doing our business again.

But as it relates to the conversations around increasing the debt ceiling and therefore keeping the government open, I think we're still not on firm footing when it comes to those negotiations. Again, those mavericks that delayed us putting a speaker in place, they're still going to, you know, gird for the war that's coming on this. They want spending to stop. They want the deficit to be decreased and cut.

And continually raising the debt ceiling, especially with the spending programs that have been put in place the last three years, that's going to be a tough negotiation. So I think like they do every time, they'll walk us right up to the brink. We'll probably get another continuing resolution. But up until that point, you can expect markets to gyrate, especially, as we get closer to that deadline.