US Equities (^GSPC, ^DJI, ^IXIC) are trading lower on Thursday morning, with the Dow Jones Industrial Average off more than 300 points, being weighed down by a drop from Salesforce (CRM). With lingering concerns over higher for longer rates from mixed economic data alongside strong earnings, what does this say for the market moving forward?

SoFi Head of Investment Strategy Liz Young joins Catalysts to give insight into the broader market amid the higher-for-longer interest rate environment.

Young points the uncertainty found in the market: "The fact that growth is still positive and consumer spending is healthy-ish, if not revised downward, I think is a good sign for this inflation fight. However, we do know that this year we're already dealing with yields higher than we originally thought they would be, and for a longer period of time than we originally expected, with some of these recent pops that occur, one of which we just saw, this week on weaker Treasury demand and some other forces in the economy. So we're still yet to be seen whether or not stocks and corporations can withstand this higher-for-longer environment very long."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video Transcript

We're about an hour and 15 minutes into the trading day and you've got the dow off nearly 400 points, extending those declines lead all three of the major averages, lower lingering concerns about higher for longer rates.

And also specifically within the dow, you got the drop in sales force and that's weighing on the index now to talk about the broader picture at play here for the equity market moving forward.

We wanna bring in Liz Young so far as head of investment strategy, Liz, it's great to see you guys.

So just talk to me just about where things stand right now.

We have the GDP print out this morning showing the economic activity is slowing just a bit squaring that with the earnings results that we've gotten here over the last several weeks, earnings growth remaining relatively strong here, very strong.

So how does that set us up here heading into the summer months?

And then of course, the second half of the year, I think so far, the the market has certainly looked at any weak economic data and and not necessarily made an excuse for it but looked at it as a false alarm, not something that's sending us into some sort of tailspin.

What we did see in the first quarter.

GDP was it was already below trend.

So the original reading was 1.6% growth quarter over quarter.

The revision today brought it into 1.3% quarter over quarter, most of which was revised downward in consumer spending.

So that's something to pay attention to.

Now, this is not something that I think is terribly concerning.

The Fed has said multiple times that they expect to see if not need to see a period of below trend growth in order to take care of the inflation problem.

So the fact that growth is still positive and consumer spending is healthy ish if not revised downward, I think is a good sign for this inflation fight.

However, we do know that this year we already dealing with yields higher than we originally thought they would be and for a longer period of time than we originally expected with some of these recent pops that occur, one of which we just saw this week on weaker treasury demand and some other forces in the economy.

So we're still yet to be seen whether or not stocks and corporations can withstand this hire for longer environment.

Very long.

E Liz is that signal that maybe that will keep equities that move higher in check just a bit, at least in the short term.

Well, what's happened since that little drawdown?

In April, mid April, which only amounted to about 5% which is far below the average annual drawdown that you see in the S and P. But since then the market did have a nice bounce and then we've sort of moved sideways for a while.

So what I think is going on right now is that we're in a quiet period.

We don't have that much economic data.

I know we, we got P CE coming tomorrow, but P ce tends to move markets less than CP I does.

We don't have a fed meeting again until June 12th and we're in sort of a quiet period of earnings as well.

Just a couple of companies trickling in.

But those big boats of earnings are behind us and we're waiting for the next season.

So there's not a lot of data that's giving the market a reason to find a new leg up word and stay there, which I think is why we're moving sideways and the market's been left to its own devices.

Lizzo taking a look at your most recent uh blog post up and you were talking about the correlation between the dollar and the trends when we're seeing times of market weakness.

Talk to us just about the significance of this and what that really tells us maybe about the strain, a lot thereof of the dollar that we could see here over the coming months.

Yeah.

The reason that I wanted to point this out is because there are effects that happen when the fed starts cutting rates, there are other things that change in the market and we don't tend to talk about that on a headline basis.

So if and when the fed does start cutting rates and the market is still expecting that to be sometime in fall, whether it's early fall or late fall.

What is likely to happen is that the strength that we've seen in the dollar will give some back, meaning the dollar starts to weaken, the yield curve will also move.

So a lot of times we talk about the dollar in times of stress.

If there's a lot of volatility in the stock market or risk assets, you tend to see the dollar strengthen pretty steadily.

But in this case, if we expect the dollar to weaken steadily, because the fed is lowering rates and because the short term yields are down, which would make the yield curve become less inverted.

You want to look at how stocks normally react to that and what sectors normally do well in those environments.

And it turns out that even though there's this belief that when the fed starts cutting rates, it's going to be very bullish for risk assets or it's going to be bullish for the market, that seems to be the reaction when we just talk about it and speculate the sectors that tend to do well in those environments are still defensive sectors.

So don't take your eye off the ball of understanding that if the dollar is going to weaken, you want to shorten up your duration on stocks and look at things like healthcare utilities which have done well this year staples and some of those defensive areas and not be throwing all of your money at the really risky baskets.

All right, Liz Young.

Always great to get your insight here.

Thanks so much for joining me this morning.

So I as head of investment strategy.

Thanks Liz.