Credit spreads are ‘still pretty tight’ despite recessionary indicators: Strategist
Cresset Capital CIO Jack Ablin assesses a recession's impact on the stock and bond markets, credit spending, and retailer inventory.
Video Transcript
RACHELLE AKUFFO: With less than 40 minutes left in today's session, let's take a look at how the markets are performing. As we can see, markets, despite a sloppy start this morning, off to the races, as we can see all three, the Dow, S&P, and the NASDAQ, in positive territory, as investors await earnings from Amazon and Apple after the bell. Well, joining us now is Jack Ablin, Cresset Capital chief investment officer, to break down the market action. So, obviously, we have the GDP print out this morning. We saw markets tanked, but then they rebounded. What do you think is strengthening them right now?
JACK ABLIN: Yeah, I think there's just a growing evidence that if we do end up in recession, it'll be a mild recession. We're seeing a lot of alignment from both the economy, prices, and also the bond market. One of the things I watch is credit spreads, the willingness of lenders to extend credit to lower quality borrowers. And if you look at credit spreads, they're still pretty tight, suggesting that lenders don't believe there are going to be widespread defaults going into any kind of downturn that we have. And the same thing for banks. Banks are not tightening their credit conditions the way I would expect if we thought there was a recession around the corner.
SEANA SMITH: So, Jack, do you think the market's reading this right, or are we just being a little bit too optimistic about the news that we've gotten in the past 24 hours?
JACK ABLIN: Well, the market is pretty optimistic. Certainly, the bond market is. And relative to the bond market, the stock market is somewhat skeptical. And so if the bond market is right, I do think we're going to get an equity market rally. The key to the whole thing, though, is inflation. You know, I thought it was going to peak in Q1. It didn't. We've got 9.1 coming now into July. I suspect that inflation will come off the boil. But I'd like to see a little more evidence to say, OK, now's a better time to get back into the equity market.
DAVE BRIGGS: Indeed. Been a busy earnings week. 71% of S&P companies have beat earnings. Today's a big one, though, $6.8 trillion in market cap reporting, including Amazon and Apple. Is there any thematic patterns you're noticing over the last couple of days and/or expectations on those two that report in just a bit?
JACK ABLIN: Yeah, I mean, I think that both companies have set up for a notion that consumers are paring back a little bit. Walmart, Target, those companies have talked about how consumers are really gravitating more toward necessities and shying away from discretionary higher margin purchases. That's leaving those companies, those retailers, with a lot of inventory. I suspect we're going to see the same thing from Amazon certainly. And likely, we'll hear something equivalent to that from Apple. And we'll see how many handsets they sell in this kind of environment.
RACHELLE AKUFFO: Definitely some market movers to watch there. A big thank you, Jack Ablin at Cresset Capital. Thank you so much.
