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US stocks selling off after a weaker than expected jobs report for July, the signs of a cooling labor market stoking fears the Fed has waited too long to lower interest rates and renewing concerns about a recession now on the horizon. Joining us now discuss all this is Jason Draho, UBS Global wealth Management Head of Asset allocation Americas. Jason, it's good to see you. So let's dig right into this sell off, Jason. Um, you know, it's clear more investors have some questions now about this US economy, Jason, just where it is and where it's going. What What are your thoughts?

Well, we just take the totality of the data, but looking particularly today with the labor market report, the way we've interpreted it is the data has been consistent with the idea that we've had that the economy's going to slow this year from an elevated pace last year. And that's consistent. It is uh the labor market's going to cool and sufficient so that the Fed could start cutting rates in September. Well, I wouldn't interpret the data we got today or this week has really dramatically altering the odds of a recession. We still think it's a soft landing. We think still think the reception risk is is unlikely. Uh and the reason I say that is if you look at just the overall state of the household and the consumer, we saw it actually tick up in March. The overall kind of health of the consumer is in good shape, but that is the most important part of the economy. And the labor market, certainly the job growth has moderated, but you haven't really seen any real uptick in initial claims. Yes, they've risen a little bit recently, but if you look over the past two years, it's still pretty flat. In past periods when you saw the labor market weaken, you saw the unemployment rise, unemployment rate rise, you'd also see kind of a corresponding increase in initial jobless claims. That has not happened. So what it looks like is we're seeing a moderation of job hiring, but also not a lot of layoffs. And the labor supply in the past years has increased. And that's why the unemployment rate has gone up. So it's kind of given a bit of a false, you know, say positive in terms of how much the labor market's weakened. And so we sort of remain confident in the overall trajectory of the economy right now.

So Jason, given that view then, I wouldn't call today a market panic necessarily, but maybe a market alarm, right? An alarm being expressed by some economists and strategists. Do you think that that um market reaction is unjustified and does that then open up opportunities for those who have a view similar to yours?

So I think the way we'd view it is if you know, the S&P is down 6% roughly from its all-time high just a few weeks ago and on July 16th. So the risk reward in our view is it's at least for the S&P is improved. Now the tech sector is down about 12% of that time. We like the tech sector. So I think the risk award again there has improved. In the very near term though, it's likely that the market's going to certainly remain choppy and volatile and given investor concerns about the Fed now maybe being behind the curve that growth is slowing. Now, if that gets any worse, if those kind of concerns rise, I think there's more risk to to some downside. But I kind of think this is a little bit of a replay with a twist to what happened last kind of late last summer, last fall. The S&P fell 10% on the concerns the economy was too hot and the Fed would actually have to make things more restrictive. Ultimately, that proved not to be the case and the markets rallied. I think this is a bit of a kind of a gross scare that's unwarranted to to some extent, at least in terms of recession risk. And at levels of maybe we're down 10%, that's where you start to get investors want to come in and kind of buy. So I think we're selectively looking at opportunities, but I think in the near term the next few weeks, next month or so, it might just continue to be kind of sideways choppy in this range before the kind of a real turning happens, potentially with the Fed actually starting to cut rates in September.

Yeah, I I want to pick up on that, Jason, because I'm interested what you think the Fed's next move is in September because there were certain plenty of of economists and and strategists today, Jason, who kind of I think they were looking at the data and saying, you know, J. Powell may not do 25, he could, he could do 50 in September. What What do you think?

So we changed our view. We were at a 50 cut, 50 basis points of cuts this year, 25 in September, 25 in December. Now we're seeing 100 total beginning with 50 in September. Uh, and the rationale is even relative just two days ago, when uh, you know, from the FOMC statement from the press conference, you know, Powell alluded to the they will watch very closely the labor market data. This is further data since just in the past two days that suggests a cooling in the labor market. We're also sort of making a bit of an assumption, you know, almost kind of going back to what happened two years ago when it was the Fed was accused of being behind the curve. They did a couple 25s and then very quickly they ramped up to 50 and 75 basis point, you know, uh, you know, rate increases to find inflation. If you think the economy is slowing and inflation is going to come down enough, and you think policy is restrictive, it's not clear why you need to kind of very go very gradual. If you want to get back to something closer to a neutral policy rate, say, you know, 4% or less, you should probably start with a bit of a bigger bang. You remove a 25 basis points to curtail the risk that maybe the recession risk is rising. So that's the justification for why we think they would go 25. Um, but again, that isn't our soft landing kind of view is not conditional on the Fed doing 100. We still think they'd be kind of be okay. I think that's a net positive in my view for risk assets overall if the Fed acts sort of aggressively and sort of offers insurance to the market.

Um Jason, it's really interesting that you say that because I would think if they cut a half point that that'll spook the market, right? That that they'll take the interpretation not as the normalizing that you're talking about, but rather, it's a dramatic move that I mean you've got some strategists out there, economists out there saying floating the possibility of doing an emergency cut even before that meeting.

So where I sort of differ in that view is that ultimately, we don't think the data is going to slow enough between now and then, like now and in September. If it turns out the data continues to deteriorate and deteriorate quickly, then it might be the case that, look, you know, you're kind of past the point of inflection point where the Fed really is too late. So doing, you know, 50 is a signaling that they they were concerned and it's already not enough. If the data continues to kind of hold up, like if we get a jobs print for August that is in line with this month, I think that sort of validates the view of 50 basis points, but it's also not a sign that the economy to me is about to kind of tip over. And now that the Fed is starting to cut, cut in line with the market's pricing, I think that would actually be a relief to the market that it's, you know, the adage of them, you know, the investors stop panicking when the policy makers start panicking. And a 50 basis point cut, I think would be interpreted more in that vein versus a negative signal. They know something that we don't know about the direction of the economy.

All right. Good stuff, Jason. Thank you so much. Appreciate it.

You're welcome.