Market strategist: ‘Things feel challenging,’ but there’s no recession in jobs

J.P. Morgan Private Bank Managing Director and Head of the Global Investment Opportunities Group Monica DiCenso joins Yahoo Finance Live to discuss the latest jobs report, recessionary risks, Fed rate hikes, and the outlook for the economy and markets.

Video transcript

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BRAD SMITH: Welcome back to "Yahoo Finance Live," everyone. We are set to get on a new read-- get a new read on inflation tomorrow with Wall Street expecting the consumer price index numbers for July to show a slight drop from June. There, you're looking at the expectations. And particularly here, this is following a better-than-expected jobs report Friday that could throw a wrench in recession talks yet again.

For more on what this means for the markets and investors, let's bring in JP Morgan Private Bank managing director and head of the Global Investment Opportunities Group, Monica DiCenso. Monica, great to have you here with us this morning. OK, so lay out the case for us as to why the jobs report numbers actually signal that we are not in a recession.

MONICA DICENSO: Well, I think we can all agree that technically we may be in a recession because we had negative GDP for two quarters. But when we think about a recession and what that means to most of us living in this economy, it's jobs. And it's job losses, it's a layoffs, it's feeling that crunch on our balance sheet, personally. And that just hasn't happened yet.

Now, meanwhile, the market priced in that this was happening. And now we're in this push and pull a bit of, will this data start to roll over tomorrow and in subsequent months? And if so, then you could see the Fed pivot. And that likely means that this will be much less dire than people thought a month or two ago.

BRIAN SOZZI: Well, how much damage would the Fed do whether it moves 50 basis points or 75 basis points at the next meeting? It's still a significant rate hike. How much damage would moves in either direction bring to the markets and the economy?

MONICA DICENSO: I don't think a near term hike matters all that much because people are expecting it. So I think if you were to see something meaningfully outside of expectations, that would have people starting to question this narrative that started to settle in the market that yes, we saw negative GDP, but that the Fed may be able to balance this in the coming months. So I think 50 or 75, it probably doesn't matter either way.

JULIE HYMAN: And Monica, I want to pivot and talk about earnings for a second here because as you point out, as many people have been pointing out, the earnings season was not as bad as feared. But warnings are piling up. We've been talking about another one this morning in the form of Micron, and it's only the latest chip maker to come out and warn. The retailers have been warning, right? We've had other companies in manufacturing that have been warning. So what does that tell you about the future path of earnings for the rest of the year?

MONICA DICENSO: You know, I think the challenge is we spend a lot of time talking about, is this a recession or not. I think we can all agree that things feel challenging. But that doesn't mean the market should go down another 20% or 30%. But there are clearly cracks that are happening because of what's happened from inflation and price pressure. And so that's what you're seeing in earnings.

The tension now is, OK, we had a correction, we've bounced off lows, is that enough to account for what you're hearing companies talk about now? And when you look forward at forward expectations, there's really very little incentive for anyone to be too bullish. And I think companies, you know, were quite honest. And the market said, OK, we can handle this. We've repriced for a lower growth environment.

BRAD SMITH: OK, and so for anybody who is still looking for an opportunity to put money to work right now, I mean, either you're kind of channeling the Cathie Wood's energy right now and looking at Nvidia and saying, you know what? This might be a buy on the dip opportunity, the dipity-dip opportunity. But where else would you be looking into some of those opportunities in the market?

MONICA DICENSO: Yeah, I mean, tech is always interesting because of the growth, right? So I appreciate that. Then I think you have to look at what else hasn't worked recently. We've seen a lot of money flow into defensives. So we're looking at some cyclical sectors and saying, you know, hey, could financials or energy see a little bounce back? And I'm talking about a near-term bounce.

Longer term, we still love fundamentals of defensive sectors, like healthcare. And I think healthcare is kind of interesting this year. We're in an election year and for once, we're not barraged by all these headlines about potential legislative changes and law changes that would weigh on that sector.

So I think it's a great time on this rally to look at what you have, figure out, is this what I want to own the next few years? Perfect time to do some repositioning. And for me, pockets of tech, looking at some cyclicals, but making sure you have a balance with defensives, like healthcare, and probably even some fixed income because rates are higher.

BRIAN SOZZI: Monica, any chatter on the trading desks about this return of the meme stock movement? What's driving it? How long could it last?

MONICA DICENSO: Yeah, I mean it's August. Liquidity is light. And you know, people are focused on a lot of things. So I can't say I've been having too many conversations about it. But certainly, if you look at how tech has performed recently, you've seen a lot of short covering. And that's probably what's driving some of this. You know, again, I think following the volatility we've seen, it would behoove people to look at fundamentals.

Fundamentally, I struggle with some of these names to say why they should be up that much. So I'm gonna focus more on the stories that I can be comfortable with longer term, rather than as a short term trade for a day or week.

BRIAN SOZZI: A top tip indeed, respect the fundamentals. JP Morgan Private Bank managing director and head of the Global Investment Opportunities Group, Monica DiCenso, good to see you.

MONICA DICENSO: Thank you.