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for more on the path ahead, and for what a rate cut or rate cuts would mean for investors moving forward. Let's welcome in Ross Mayfield, Bard Investment Strategies. Hey Ross. So, uh, you know, busy day that we've got going on here today. Um, do you think we're going to see a half point cut in September? And, you know, what do you, which sort, what are you hearing from clients? What are you hearing from colleagues in terms of the alarm and the change in sentiment that we're seeing today?

Yeah, it's a great question. I, I do think a 50 basis point rate cut should, should be on the table. Um, I think the Fed will consider it. Um, you know, I think with hindsight it's clear they probably should have started, uh, cutting in July. And if you just view a 50 basis point cut in September as a July and September cut, I think you can get there mentally. I think they'll probably avoid that intermeeting cut just because of what you said it will set off alarm bells and maybe look more panicky than they actually feel they need to be. I mean, look, it's, it's a weakening job market, but some of the action today in the equity market is acting like recession is on our doorstep. And I, I don't, we still have a broadly pretty strong economy. Um, cooling certainly, you know, constrained by rates, certainly, um, time to start cutting, for sure, but we're not on the doorstep of recession, despite the Sahm rule, you know, and the yield curve. So I think that 50 basis points in September, and then some really aggressive forward guidance for what they're looking at will be, will be enough to placate markets. The, the problem is you've got a long lag time until that September meeting.

So you mentioned Ross, the Sahm rule, the yield curve. I'm just interested. What, what other data points, what other metrics are you watching very closely as you try to gauge here whether the economy is just cooling, or no, it's really going to trip into a downturn.

Well, look, this cycle has been all about traditional indicators not working as well as they have, right? The yield curve, uh, the LEI, you know, so I, I this, the Sahm rule is obviously historically very powerful, but I think we should guarantee give recession kind of status. Um, the bigger problem is that the package of labor market data has suggested weakness. Jolts, PMI's, initial claims that the non-farm payrolls, we've seen unemployment tick up month after month, and the Fed has largely ignored those warnings. Now we find ourselves here where you've got a clear weakening of the labor market. So I think the thing you have to do is take the full package of data and say, all right, we have a cooling, uh, economy, it's clearly normalized post-pandemic. Now the question is, does it continue to weaken from here? I think you have to at this cycle, post-pandemic, all the idiosyncrasies, take the biggest possible slot of data into consideration, and not just rely on one or two indicators that's worked in past cycles.

Well, and, and not just the macro indicators, but what we've been hearing from companies, right? We're in the midst of earning season. We've had a lot of our, uh, commentary here, and some of it has indicated, for example, that there's slowing consumer spending. So how are you sort of reading those reports into this whole narrative?

Yeah, the consumer is, is tricky. I mean, obviously there's, there's a, a growing dispersion in how the individual consumer companies are doing, how the market is reacting to their, their reports. I think the thing that's really important to remember about the consumer is, you know, we talk about it in aggregate, but the consumer is, as bifurcated as it's been in a long time. You have a lower income consumer who is really struggling, uh, with inflation, food prices, rents, um, hasn't seen, you know, wage growth, and isn't benefiting from a higher stock market and appreciating home prices. On the other end, you have higher net worth consumers who are benefiting from all of that, um, who probably have, you know, are more likely to own their home, have locked in mortgage rates at, at a low percent, and have a lot more cash than they might have otherwise. So there's this consumer bifurcation that I think you're starting to see play out in the companies. So quick service restaurants have struggled. Um, it's not like high-end, uh, consumer companies have been immune to this slowdown, um, but I think it's worth noting that the consumer is not a monolith, and there's different pockets that have, uh, you know, different trends going on.

So Ross, add it up for us, you know, given kind of your, your general outlook there on the economy, the Fed, the consumer, how do you want to be positioned in the equity market right now?

To be honest with you, I, I think the sell off probably has a little more room to go. I think there are some technical factors at play. Sentiment is clearly flipped, you know, a rising VIX will trigger some cell signals and I think there could be a little bit more, um, selling in the near term, but personally I would, I would lean in. You know, one, we know that sell offs happen, the average intra year, uh, drawdown in the market is something like 14%. So this is kind of just table stakes, right? Um, you still have a pretty strong technical backdrop, you have falling yields, you have a Fed who I think is going to get on board, and the economy, while slowing, is still pretty strong, right? A couple days ago we were talking about a pretty healthy economy. One manufacturing PMI report is not enough for me to get spooked. So I, I would want to focus on high quality companies, um, you know, especially for a higher for longer rate environment, but I would be leaning into this sell off, to be honest with you. I think there's still more for the bull market to go, um, before it finally ends.

Specifically in tech, Ross?

I like to, look, I, I think that the, the adoption of AI, this whole cycle is going to be choppy, there's going to be air pockets along the way, but in this kind of environment, I think you want to be levered to secular growth themes. AI is very clearly that. I think you use weakness in the tech names and the growth names to add, um, especially the players who can consolidate share in downturns and in weaker periods. Um, but I think in a, an economy that at a highest of high levels is still a slower growth developed economy, you need to be levered to secular growth themes. AI is that, so I, I would be adding to tech.

What did you make though, um, Ross? I, I did think an interesting theme that kind of developed this earning season. I'm really curious to get your take on it was, it did seem like investors were, I don't know, pushing back, maybe a little skeptical than I remember of that mega AI trend kind of, they were sort of saying, okay, spend, spend, spend, but you know, where's the, the ROI? I'm just curious what you made of that kind of creeping skepticism.

Yeah, one of the, the sayings that I've returned to a lot, and I think is really powerful for AI is, you know, we tend to overestimate its impact in the near term and underestimate its impact in the long term of, of other big technological, technological changes, right? I think that right now consumers are rightfully saying, hey, you're spending all this money, where is the, the killer application on the other end? How does AI improve productivity at the utility company down the street, or the consumer staples company in my portfolio? I think all of that will come. I think there are real productivity enhancements to be had across the spectrum of industry and sector, but it might take longer than investors are comfortable with, and especially when you see these capex numbers quarter after quarter after quarter not immediately turn into earnings and, and, and market share and, uh, profitability. So I think it'll be choppy, um, but these are the types of themes we want to be levered to when we look 5, 10 years down the line. Um, and I think those, those killer applications that people want to see will be there. It'll just take time, same as it did for the internet, same as it did for the smartphone, um, and maybe longer than investors, you know, in the near term have comfort for.

Ross, great to see you today. Thank you for joining us and have a great weekend.

You do the same. Thanks.