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The inflation and supply chain picture ‘looks pretty good’: Strategist

Carson Group Chief Market Strategist Ryan Detrick joins Yahoo Finance Live to discuss the state of the economy, recessionary versus non-recessionary bear markets, and the outlook for inflation and supply chains.

Video Transcript

- We have Carson Group chief market strategist. Ryan, it's great to have you back. So we certainly have seen a rally over the last couple of days. DOW up nearly 4% in the past four days. Where do we go from here?

RYAN DETRICK: Yeah. Thanks for having me back, guys. You're right. I mean, we were historically oversold this time just about a week and a half ago now. And like you said, we've got-- it was a 5% bounce on the S&P the last four days.

We'll put it like this. We think the lows for the year end-- we get into more of that. But just be aware, the second half of September into early October is one of the worst seasonal time frames of the year, right, like, ever. Some of the worst sell-offs have happened then.

So are we out of the woods? We'd say, probably not. There could still be some volatility here. But again, then as you get closer into the year, once you get through the midterm election, hey. That's when things tend to work higher. We think that's exactly how it could play out. So just in the near term, be a little leery still.

- Green Day, wake me up when September ends. But how could tomorrow's CPI number change all that?

RYAN DETRICK: Well, good question. There is a couple of different ways. I mean, I'll put it this way. We're in the camp-- look what happened last week, guys, right? Those used car prices down 4% month over month, one of the largest monthly drops ever. That's a big component to inflation, right? We're seeing a lot-- and you mentioned energy. My goodness, energy price is back.

So overall, we think, you know, this number is going to come in pretty good, right, negative, month over month, which is a positive thing. Is it going to change everything? We don't think so. The Fed has done a lot of hard talk. And the Fed has said they're going to raise rates or probably leave them there longer.

I don't think it's going to change too much there. But just that confirmation that we've had a major peak in inflation and things are continuing to roll over, that's our base case. And that still could be a positive for the overall stock market because the Fed-- we know what the Fed is going to do, right? They're going to hike and leave things there. But that's priced in. So much is priced in. And that's still what we see.

Now, who knows? Maybe the number comes in higher, and all this is thrown out the window. But we just think this number is going to be a negative number and be a positive for the market still.

- Ryan, that Fed survey that Dave was talking about at the top of the show, lower gas prices raising optimism that inflation is on the decline. They expect inflation to be 5.7% a year from now. What's your assessment of inflation? You just mentioned the fact that maybe it, in fact, has peaked. But looking further out into maybe a year from now, what do you think that picture looks like?

RYAN DETRICK: Yeah, we think the picture looks pretty good. I mean, honestly, we think there's a major peak, like we talked about, all these different components to inflation of the likely peak. I mean, look at shipping costs. I think I've seen shipping costs down 60% from the recent highs, right? So all these different things-- the supply chains are seeing improvement-- all these things are taking place.

Now, are we just going to go right back to 2% inflation? You know, probably not. But this time a year from now, we could be seeing 3%, 3 and 1/2% inflation. And maybe that's kind of the new world that we're living in.

And again, those are just the positives because it's all about-- the market, right, the market's all about what's priced in and what's not priced in. A lot of bad news is truly priced in here. We get any good news on the inflation front. You know, the Fed, maybe they're not quite as hawkish as they're making it sound here. The economy is still strong.

Look at the initial claims last week. I know you guys talked about a lot of initial claims are still really strong. I mean, we're not in a recession, right? In a non-recessionary bear market, you correct about 24%. We just corrected about 24% in this bear market. So I hate to say it feels normal because it doesn't feel normal. But it actually was a fairly normal bear market without a recession. That's just something people need to remember.

- But do you see the makings of a recession?

RYAN DETRICK: Yeah, well, I might be sitting in Las Vegas as we speak. We've got our Excell conferences, 1,000 of our best friends in the financial industry. And, you know, you can make a bet, right? You make a bet in Vegas. We're not making bets when it comes to how we see the markets. But we are saying, overall, we don't see a recession, right? I mean, right? We don't think we're in one.

I know we had two negative GDP prints in a row. But again, when you have employment this strong, industrial production is strong, earnings have still been solid, it's not perfect. We think it's more like a mid-cycle slowdown a la '94, '95. But we don't see a recession.

And again, as we move into next year, we think the economy can continue to expand, being led by a consumer who's still pretty solid and feeling better about things with the inflation, as we just talked about, with earnings, overall, still a little better than expected.

- Well, Ryan, we're also just two months away from midterms. I know you've gone back and look at how markets typically perform leading up to those midterms and then, of course, the couple of months after that. What do you think we could potentially see here and how the market would likely react if, in fact, we do have a mixed House and Senate?

RYAN DETRICK: Yeah, well, bottom line, midterm years, historically, are really volatile, right? And they're actually pretty weak. The first three quarters are some of the worst quarters out of an entire four-year presidential cycle.

What's that mean? That's kind of playing out this year, right? And once you get the uncertainty of the election out of the way, October and November, December of a midterm year, historically, are really strong.

And the truth is this. You know, when everything's done with this election, once you get the uncertainty out of the way, the market tends to-- tends to do well. But we think it's not going to be any big blue wave or red wave. It's going to be fairly close. And if you have a split type of Congress, that's usually pretty good.

But don't forget this. The best scenario for stocks is a Democratic President with both chambers of Congress Republican. There's a chance that could happen. We saw it in the late '90s, right, with President Clinton.

So I'll put a bow on it like this. We say, don't invest based on your politics, right? Invest based on, you know, the fundamentals in the economy. But still, the way things could shape out after November is not a reason to sell. In fact, it's probably going to be reason to buy. And stocks will probably do pretty well, we think.

- Yeah, those who are betting on this, you're in Vegas. They're suggesting we're going to have a Democratic House and a Republican Senate, divided government. Probably good for the economy.

A lot of people talk about the mid-'90s and the Volcker years. But you compare the setup here to 1962 and 1982. You're going deep. Why?

RYAN DETRICK: Yeah, I am. Well, those are some of the-- just to keep it simple, those were midterm years also, and some of the worst starts to year ever. Sound familiar? '62, you had supply chains. You had a new Democratic president. You had midterms. You had really aggressive kind of Washington. Sound familiar, right?

'82, issues with Russia. A very high inflation. Not that great of an economy. By the way, in '62, we did not have a recession. '82, we obviously did. So no two times are exactly the same.

The key concept we're trying to lay out here at Carson Investment Research team is this. We've had bad starts to year before. But those two years saw historic jumps late in the year. Had like a 19% bounce in '62, and even a bigger bounce in '82, late in the year.

So listen, nothing's perfect. But we've had bad times before. And we're optimistic we're going to have good times again.