Yahoo Finance

All right, for more on the latest market moves more broadly, let's welcome in Jim Smigiel, SCI Chief Investment Officer. Jim, it's good to see you here. Um and so we got PPI this morning, we're looking ahead to CPI, that consumer price inflation tomorrow read in morning. That reading, how are we feeling about inflation here? I mean, it seems as though most of the investment attention is shifted to labor, so it's interesting to see the reaction that we seem to be seeing to PPI today.

Yeah, I think that's right, Julie, and thanks, Julie and Josh, for uh, for the invite today. Uh a nice relief rally here to your point to add on to what the market took is being very, very positive employment news, being softer, uh softer employment. Surprising to see the big move in PPI today to be brutally honest, just given that we have really that more important shoe to drop tomorrow with consumer prices. So, uh obviously, I think the market is getting a bit ahead of itself. Our view on inflation is that look, we've been in this 3 to 3.7% range for really, really quite some time. We haven't really seen that breakout just yet, kind of back to a trajectory that makes us confident ourselves that we're going to be revisiting a fed target anytime soon. So call us skeptical uh with today's move. We think there's a lot of today, a lot of polyannas, maybe a little bit more of that pixie dust from Starbucks.

Well, Jim, it sounds to me like you think the market might be disappointed with what we get from the Fed this year then. We're looking right now at markets pricing and probably four cuts this year, 50/50 chance on a 50 bips cut in September. What does that do to the market if the market wants 50 basis points in September and it wants four rate cuts and the market doesn't get that? Is that kind of a key risk right now?

We think it is a key risk. What what's fascinating about that question, Josh, it's a great question is, is that this has really been the pattern over the last number of years. If you'll recall, we had six cuts priced in in January of this year. We had multiple cuts in priced in the year before. We keep kicking this can down the road and quite frankly, it hasn't really affected the market that much at all as we've been in this kind of raging AI led bull. We do think this time is slightly different. We think the market is poised for a disappointment. We see how much the market has reacted to these kind of small changes in the economic data. Four pri four cuts priced in, we're definitely taking the under. A full eight cuts priced in between now and next July, we are absolutely taking the under there. We think that this easing cycle, we're going to get a pivot from the Fed. The Fed wants to cut, they're going to deliver a cut, but we think it's going to be quicker, we think it's going to be more shallower than the market expects. Those are going to be some market headwinds that the market is going to have to contend with in the fourth quarter of this year.

Well, Jim, why don't you think the Fed is going to be cutting as aggressively? Are you not as worried about the labor market as the the market seems to be?

That is definitely a key point. I think the the impact of the hurricane was wildly understated. Lots of conflicting data in that last report in terms of how much hurricane barrel has had an effect on that employment. So we're we're going to we're going to wait and see until next month. Our sense is, there's a little bit more hurricane in there. There's a lot more immigration in the employment data that is a bit hiding the underlying robustness of the jobs market. We're not saying that we don't see softening at the edges, just like we see softening in the economy at the edges, but we don't see this kind of big acceleration that is going to require four and eight four cuts to the end of the year and eight cuts in the next 12 months.

So Jim, given that, what's the trade that's catching your eye then? Where are you seeing opportunity given that base case?

First and foremost, I know it's super boring and people are probably tired of hearing me say it, is diversification. Uh we like to be diversified. We are still fading away this concentration in the S&P. We see a little bit of renewal in this. It is amazing, isn't it, that the largest companies in the world in two days are up 10%? I mean, these are massive changes in market cap. We don't think investors should be taking on that much idiosyncratic risk, particularly passive investors. So if you're a passive investor, think about going active, think about maybe getting some equal weight into the portfolio. More directly, we do like commodities here. So if you think about our view, where really, you know, the job market's pretty strong. We think the economy is going to remain robust, particularly here in the United States. Look at the state of a little bit of commodities kind of coming off, particularly oil today after a strong day yesterday. We think we are in a longer term bull market in commodities. We're going to have our cyclical ups and downs. We're in a bit of a downturn right now, if you look out over the last two years. We think that now that is a very, very good time to add that to your portfolios, particularly if you don't have a whole lot of inflation sensitivity in your book already.

Jim, good food for thought. Thanks a lot for joining us. Appreciate it.

Thank you.