October historically a ‘bear market killer,’ strategist says

Carson Group Chief Market Strategist Ryan Detrick joins Yahoo Finance Live to discuss recessionary risks, Fed tightening, inflation, and the outlook for markets.

Video Transcript


- For more on the markets and the Fed and surround sound, let's bring in Carson Group Chief Market Strategist, Ryan Detrick. Ryan, great to have you here with us this morning. All right. First and foremost, we just got to get your perspective on what we've been discussing more broadly here-- and the Fed, and its comfortability in kind of spurring a recession. And how deep long or protracted do you believe that recession could be?

RYAN DETRICK: You guys want to start off with something a little easier?


No, I'm teasing. No, good morning. Thanks for having me. I mean, listen. I think the Fed is hinting that they'd be OK with a mild recession. And although we don't think we're in a recession right now-- you don't have 3 and 1/2 million jobs created in a recession, in our opinion-- the truth is, again, things are clearly slowing. We all get that, right? So 9 months from now, we might be in a mild recession.

If you look at it, though, historically, the Fed hikes until the Fed Funds rate's above CPI. Right now, it's 3.25 versus 8.3. So there's still some room there. We still think inflation is going to come down fairly quickly. I know we had that sticky CPI number of producer levels, prices paid, chicken wings. There are some things really coming down on the inflation front.

But the truth, again, the Fed probably-- the Fed's seen the history books. Maybe the last comment. The Fed's seen the history books, right? It took a double-dip recession, early 80s, to stop that runaway inflation. We don't think we're going to necessarily need that, but they know you might need something besides just hiking rates, and that could be drastically slowing the economy maybe to a mild recession. And that could be kind of what stops inflation.

And honestly, guys, the stock market's pricing in a mild recession as we speak. Down 24%, maybe making new lows for the year on the S&P as we speak today. That's pricing in at least a mild recession. So from an investment's point of view, there are potentially some positives.

- Ryan, thanks for the hot tip on chicken wings. I may not be able to own a home, but I'm going to go buy those in low and just store them in my freezer at my place. That makes a lot of sense to me. But look, I'll push back on this. I think this market is starting to now price in more than a mild recession.

We are looking at a potential testing of the June 16th lows on the S&P 500 around-- let's say 3,600. And then the floodgates open after that. You can see the S&P go below 3,300. Is that a reasonable scenario if we start getting some really bad economic data?

RYAN DETRICK: If we start getting really bad economic data, it's possible. And let's not forget, $3,500 is actually a 50% retracement of the entire bull market. So that's a really big number to be aware of, $3,500. But again, you talked about it, Brian. Like, it's pricing against some bad stuff. Right?

You know, Look at that AAII sentiment poll. I know you guys talked about it. More than 60% bears last week. Only four times in history, all right near? Near major market lows every time that's happened. So again, everyone's thinking all this bad stuff out there. And trust me, we're aware it is.

When you look at bonds down 14% for the year and stocks in a bear market, this is, like, the worst year for a 60/40 portfolio. Only once was it worse, in 2008, when stocks dropped 40%. So it's a terrible year for investors. At the same time, so much bad stuff is being priced in when you look at all these sentiment polls and things. I would like to see the VIX a little higher. I would like to see put-to-call ratios a little bit higher.

But again, last comment. October is a bear market killer, right? '84, '94, '98, 2011. For whatever reason, October tends to be a bear market killer. We wouldn't be-- we'd just be open to the idea that that could be happening potentially once again this October, with a tad more weakness and then that seasonal strength around the midterm election into the third year of a presidential cycle, especially under a first-term President. That third year usually does really well. We think investors should be thinking about that, at least.

- Is a defensive portfolio the only play right now? Is there some other type of strategy that investors can explore?

RYAN DETRICK: Yeah. Well, good point. With stocks down this much, we think a little defensive, your utilities and staples. But honestly, start looking at some of those cyclical areas, right? Your financials and industrials. I

Mean, I know they're down a lot and they've under-performed, but honestly, industrials are starting to do a little bit better. So we think kind of a barbell approach right here for an investor. It makes sense, because if you go all in defensive right now, that's what everybody else is kind of doing.

And again, look what happened last week. Right? Energy. Energy's been doing awesome. Energy was down 9% last week, right? I think one of the things you need for a major low is to shoot everybody. And honestly, now that they're shooting energy and some of the previous leaders, that could be a good thing to finally make some type of a major market low here.

- What point, Ryan, do you jump in and buy big cap tech? I mentioned Apple at the top of the show. It is now leading this market low-- Microsoft down over 11% in the past month, Apple down 9%. These are huge declines in household names of companies that are still showing double digit sales and profit growth, impressive cash positions. Is now the time to jump in, even under the assumption that maybe we lose another 5% here?

RYAN DETRICK: Mm-hmm. Yeah. I'll tell you what, Ryan. We don't really like large cap tech here. We're still underweight that group. We think some other areas.

We like small caps, actually. We think small caps could do a little better than large caps going forward. At the same time, for somebody who's looking at a 1 to 2 to even longer-term horizon, there are some incredible companies you just kind of talked about. They're making a lot of money. They're still-- they aren't going anywhere.

Then again, if everybody's thinking like somebody isn't thinking-- that's just a quote I like to use a lot from Patton-- that a lot of people don't want to touch anything here. So maybe there's some opportunity and some of those can still do fairly well longer-term. We're just-- we're not too warm and fuzzy tech in general here, honestly, still.

- Carson Group Chief Market Strategist Ryan Detrick. Ryan, always a pleasure to get some of your insights, especially kicking off a new trading week here. Thanks.

RYAN DETRICK: Thanks, guys.