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Credit markets aren't seeing 'a monster under the bed': Strategist

Carson Group Chief Market Strategist Ryan Detrick joins Yahoo Finance Live to discuss consumer sentiment, credit markets, and whether or not there's a bear market rally happening.

Video Transcript

AKIKO FUJITA: Yeah, Rachelle, we are seeing that rally gaining steam as we count down to the closing bell. Just an hour left to go in the trading week. As you said, stocks headed for their fourth straight week of gains. And take a look at where they are right now. The Dow is up 332 points. The S&P 500 up 57. By the way, headed for their longest win streak since November 2021. And then the NASDAQ the biggest gainer on the day with those tech stocks rallying yet again, up about 1.75%.

Consumer sentiment certainly helping boost the markets today, as we got that index this morning, rising to a three-month high. The University of Michigan's reading coming in at 55.1. That is a 7% monthly increase from last month's 51 and 1/2 reading.

Let's bring in Ryan Detrick. He is Carson Group chief market strategist to break it all down for us. Ryan, the consumer sentiment we got this morning kind of rounds out what has been a pretty positive week on the economic front. The data that we got on CPI, PPI, all kind of pointing to maybe the questions, I guess, whether, in fact, we've peaked. Maybe too early to say, but how are you looking at it all?

RYAN DETRICK: Yeah, it's a nice change, isn't it? You think about it this week. We had a lot of good news. We know that I think it's pretty clear we were not in a recession. We don't think we're going into a recession immediately. But what's encouraging to me is just look at-- let's just talk about today's action, right? You got buyers coming in on a Friday.

Let's remember what we saw earlier this year on Friday. Everybody starts selling. You got some confidence here. I mean, that's a good thing, right? And to get a little geeky on you, but there's a lot of market breadth. There's a lot of participation on this rally, right? Small caps are finally going higher. Technology's going higher. We've got nearly 90% of the stocks in the S&P 500 above their 50-day moving average. What in the world does that mean?

Historically, that's pretty rare, guys. That's what you see off major market lows. It's extremely rare to go right back down to make new lows. You have that much breadth. There's a lot we can talk about, but the message of the market here-- not saying we don't know-- has been very strong. But to see that much breadth, that's a really good thing, probably for a continuation of this summer rally.

RACHELLE AKUFFO: You know, it's interesting because we saw Cathie Wood saying, look, the economy isn't that rosy. People are sort of overestimating the strength of the labor market. But most people are taking a different take. So in this sort of environment where people have had cash on the sidelines, what is the play here?

RYAN DETRICK: Yeah, well, I mean, Cathie's got some good points. I mean, things aren't perfect, but we are making 3.3 million jobs this year, which, again, probably means you're not in a recession. The truth is, what are we, up about 15%, 16% off the lows on the S&P 500, right? I mean, we still like equities here. And we still think there's a lot of opportunity with equities over bonds. I mean, bonds have had a rough year. Stocks have had a rough year.

But overall, this trend still makes a lot of sense. I mean, I like to say, we talk about fundamentals and earnings. Look at what the credit markets are telling us, right? The smartest guys in the room, credit spreads on high yield, and some of these other areas have really come back in. If there is truly a monster under the bed the second half of this year or later this year, the credit spreads and credit markets would probably be showing it. We're not seeing that.

So with the strength that I just talked about, the broad strength with credit markets hanging in there, with earnings, once again, coming in better than expected, that's kind of the game that is played, yes. But still, the reaction is what matters.

One more quick thing on this about reactions, right? We had the Fed hike rates a couple of weeks ago. Remember, we had three straight 1% up days around that. Remember, earlier this year, the Fed would hike. We go up the first day and then face plant the second day. Again, the message that we're getting now is much different than earlier this year, and that's a really good thing.

AKIKO FUJITA: So I mean, that begs the question, what we saw this week, is this just a bear market rally, or is there a meaningful shift that's happening right now? We saw the Bank of America report coming out today, pointing to investors being net buyers pretty much across the board.

RYAN DETRICK: Yeah, we think it's more significant. We don't this is just a bear market bounce. June 16 might have been the low. Remember, let's not forget, this is a midterm year, right? We had that early year March low in earlier this year. We said, historically, midterm years don't bottom until later in the year. Now we've got a really significant looking low with the participation. So sure, we're not out of the woods. We could pull back down.

But does June seem too low? At this point, we think there's a very, very above average chance that it, indeed, was. But let's not forget, right, second half of August, September historically, seasonally, potentially a weak period, but later in a midterm year, like we're getting into the fourth quarter, first quarter next year, some of the strongest periods of an entire four-year presidential cycle right around the corner, which is a good thing, I think, for people who've had a rough year so far this year.

RACHELLE AKUFFO: So then, Ryan, how would you characterize where we are in the economic cycle, given that backdrop that this is a midterm year?

RYAN DETRICK: Yeah, similar to that word "mid." Mid-cycle slowdown. We don't see a recession, right? I mean, you hate to say what year is it like. Well, 1994, the economy slowed down. The Fed was very aggressive. Rough year for stocks, very rough year for bonds. Sound kind of familiar here. More of a mid-cycle slowdown. And again, the stock market leads, right? We've seen that. The stock market's weak on the way down. Then the economy weakens.

Now the stock market's been strengthening, and some of the economic data is not perfect. We think maybe the stock market's saying, hey, by the second half-- by the end of this year, the economy is starting to come back in. And again, a mid-cycle slowdown means, again, when we had that 24% bear market earlier this year, that probably was a major buying opportunity 'cause that's about where non-recessionary bear markets bottom, right, at 24%, exactly where we did this year again. Kind of interesting how history repeats itself.

AKIKO FUJITA: Ryan, what does this mean from your strategy standpoint? I mean, are you starting to shift up some things, rotate some things out of your portfolio, and moving back maybe some of the higher growth names that you could have stayed away from over the last few months?

RYAN DETRICK: Yeah, we're overweight equities here relative to fixed income. We'll have some internal discussions on our team. We're still kind of neutral as it pertains to tech and growth. We still have a slight preference to value here with higher yields and a little bit higher inflation. But again, I think the key concept is, again, this is a big bounce off the lows. It's probably not it, right?

There's probably some more coming when you look at kind of just overall, there's still a lot of negativity out there. People are more optimistic than they were. So from that sentiment point of view, there could still be some upward bias, and even with the Fed becoming a little bit more dovish, inflation coming in. All the things you guys have been talking about for days now, those things are still there. And just be aware that there could still be some upside to equities here the rest of this year.

RACHELLE AKUFFO: So, Ryan, what do you think the market [INAUDIBLE] not accurately pricing in at the moment?

RYAN DETRICK: Oh, well, the geopolitical concerns potentially, right? I mean, the issues with China that are still there. We've still got the issues in Europe that are clearly still there. So those are some of the things that maybe aren't priced in that you say, let's not make it to say, let's get out of stocks here. But it is saying, let's be realistic that there are still some of those worries. And again, we've only had one-- well, I guess two, right? The CPI and the PPI.

So we've had one good month of inflation coming back down. We want to see a couple of months, obviously, of that to show more of a trend. But again, we're pretty optimistic that we've had peak inflation. And likely, it's kind of coming back now at this point.

AKIKO FUJITA: And Ryan, when you look at your portfolio broadly, I mean, are you still overweight US? Are you seeing any opportunities outside? What does that look like?

RYAN DETRICK: Yeah, we'd still be overweight the US here. Developed international, specifically Europe, we're kind of maybe a little bit underweight, emerging markets around that area also. I mean, honestly, a lot of the growth in the world is still coming from the US. And I know we just had two negative GDP prints. I'm understanding that. But we're seeing a lot of earnings growth and really a lot of potential. So we still stick with the US here. And we are in the models that we run.

RACHELLE AKUFFO: All right, great having your insights today. Ryan Detrick, thank you for joining us this afternoon.