Market sentiment is being impacted 'by the potential erosion' of the job market: Strategist

Moneta CIO Aoifinn Devitt and MJP Wealth Advisors President Brian Vendig join Yahoo Finance Live to discuss the outlook on future Fed rate hikes, the job market, inflation, gas prices, and the impact of mortgage rates.

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- Here's the closing bell for today, Monday, July 18.

[BELL RINGING]

[MUSIC PLAYING]

- There you have it. That is your closing bell for July 18. Let's get to a reminder of how the markets closed today. We saw accelerated losses into the close. As we see there, all three major indices ending in negative territory. The Dow there losing more than 200 points, the S&P 500 losing about 32 points, shy of 1%, as well as the NASDAQ also losing 0.8% there, down 92 points. A very interesting day.

Well, let's break some-- break down some of this market action with our guests Aoifinn Devitt, Moneta Chief Investment Officer, and Brian Vendig, MJP Wealth Advisors President. So I want to first start with you, Brian. In terms of the market action that we've seen today versus where we left off on Friday, how much of this is Apple versus, say, other factors that are going on in the markets?

BRIAN VENDIG: It definitely seems like it's more of Apple this afternoon because once the headlines came out, the market definitely retreated as we moved into the close, as you said. I mean, in the morning, we saw a weaker dollar, good news in trading coming out of Europe, and actually stable earnings from the bank. So I really put a little bit more on this on Apple and also, I think, investors taking a step back and saying what's changed in the environment as we think about a 75 basis point, or 0.75%, increase next week coming from the Fed?

SEANA SMITH: Aoifinn, do you agree with that? Because we certainly do see the worry reflected in the sell-off that we saw in the final hour and a half or so of the trading day. Anything that you heard today, just in terms of-- or developments over the weekend, the likelihood that we will get a 75 basis point hike next week? Has that changed your expectations, at least in the near term?

AOIFINN DEVITT: Yeah, we're definitely seeing the odds now looking increasingly more towards 100 basis point hike. That's certainly coming out. We're seeing no sign of any softening in terms of inflation. What I see as being affecting market sentiment today, besides Apple, is really this potential erosion of the strength of the job market. You mentioned there were mixed earnings coming out of investment banks, and we saw the trading really carried the day while investment banking revenues were down.

We now have an indication that there are hiring freezes or hiring slowdowns across the sector, which has traditionally been a very bullish indicator. So for so long, the missing piece of this recessionary picture has been the employment picture because that looks so strong. Labor has been so strong. This has been the one factor that has maybe looked like we might not be looking like a recession. Now if labor is looking a little weaker, if cracks are starting to appear, that's where some uncertainty could start to develop.

- And Brian, a crack, if you will, as well, when learning about the bank earnings in terms of slowing hiring, and then, as Aoifinn mentioned there, the Apple report that they will at least slow hiring in some groups, do you expect that to spread as we follow through in earnings season?

BRIAN VENDIG: We do expect a weakening in the outlooks over the balance of the year because the cost of doing business, obviously, has gone up. We've also seen a weakening in demand, even though numbers are still coming back somewhat positive in the short term. I mean, for example, the retail sales numbers was above expectations. So we know the consumer's spending. The consumer's spending at a lower pace.

So I think it's not a surprise that we're seeing companies managing their profits, their margins, and their balance sheet in light of a supply chain that is still inefficient, and also a labor market that's coming into questions regarding demand moving forward. But keep in mind, we still have about two job openings for every active job. And I think our expectation is those job openings might be closing or decreasing as the balance of the year moves on while the labor market is still healthy.

- And Aoifinn, I know that you're keeping an eye on the consumer as well. How much do you expect that to continue to trickle into earnings and the forward guidance that we see? Obviously, consumers still spending despite the sentiment that we're seeing declining.

AOIFINN DEVITT: Yeah, we see a real difference between pent-up demand and run rate demand. So certainly, when we look at the hospitality stocks, the travel stocks, the leisure stocks, we're seeing the effect of this pent-up demand from the consumer not being able to spend as they may have wished to do so.

And what is the run rate likely to be? Once they get this revenge tourism out of the system, what's it going to look like going forward? And that's where we're going to see the impact of increased mortgage rates and just generally higher prices all around. That's going to affect the amount of discretionary expenditure.

And that's where those forecasts out of the companies are coming from. They are looking around the corner. They're looking at their building inventories. They're looking, perhaps, at softening demand going forward. And that's where we think we're going to see some of this weakness that your other guest already mentioned.

SEANA SMITH: Brian, on the inflation front, we certainly have seen oil prices come back a bit. That's being reflected in gas prices. The debate is whether or not we've seen inflation peak yet. What do you think?

BRIAN VENDIG: Well, when we break down the components of CPI, we definitely see that wages, rent, housing, that's the stickier part and probably will stay elevated. Now, when we look at the numbers from June to July, it looks like there's a little bit of a lag on the housing side, with general overall home prices slightly coming down, so that might help the headline number in July. However, when you break down the parts on energy, food, household furnishings, and apparel, we actually do see a little bit of a give back, but that didn't really show up in the June numbers because a majority of those decreases happened towards the end of the month and are now really showing up in July. So we are optimistic that headline inflation will come down over the balance of the year, but definitely far away from the Fed target of 2%.

- And Aoifinn, Brian mentions real estate. I know you're keeping an eye on that. And some interesting data in the last couple of days, including Friday. Redfin reporting that inventory actually up for the first time in three years, albeit only 2%. And then today, home builder sentiment plunges 12 points, the second biggest drop ever, only rivaled by the early days of COVID. What does that indicate to you?

AOIFINN DEVITT: Certainly that this mixed picture is continuing to be very mixed, as we see. Why do you think that inventory is up? Perhaps because sellers who were holding out on the sidelines have seen the writing on the wall now. They've seen that there is a much softer demand picture.

Perhaps there isn't that-- that something sitting on Zillow or Redfin for a lot longer than previously, and they're beginning to perhaps see no light at the end of the tunnel for mortgage rates. So that's all the complexity of many factors being taken into account. And certainly, we mentioned before, there is a reticence on the part of the consumer to make that big investment today. So perhaps that's where the home builder sentiment is coming from.

- All right. Thank you both. Aoifinn Devitt and Brian Vendig, thanks for your time today.