Fed: It may be 'incredibly optimistic' to consider recession calls premature, strategist says

Marketgauge.com Partner and Director of Trading Research & Education Michele Schneider joins Yahoo Finance Live to weigh in on Fed rate hikes, labor force participation, earnings season, and more.

Video transcript

SEANA SMITH: Michele, it's great to see you. So we just heard from Jen what we got from the Fed Beige Book. And squaring that off with what we just heard from Minneapolis Fed President Neel Kashkari saying that there's no signs that inflation is slowing-- more rate hikes do, in fact, seem to be needed-- what's your reaction from that and the losses that we're seeing play out in the market today?

MICHELE SCHNEIDER: Well, if you start to look at all the economic data right now, you can get kind of dizzy because there's contradicting things going on out there. Although the labor market is strong if we just look at that, the labor participation rate is still declining. And there's this whole movement out there among the younger generations called quiet quitting, on top of the fact that many people don't want to work. So I think it's very regional and very corporate-based in terms of where they're struggling to find people and where they're still begging for help.

So if we just take all of the stats and the interest rate rises, and just look at what I think are really key factors right here on whether or not we'll get a soft landing, a recession, more inflation, or what have you, is if we just take a look now at the indices. They're all, except for the Russell 2000 and the NASDAQ, above a 200-week moving average.

And all of them, including the Russell 2000 and NASDAQ, are well above a 6 to 7-year business cycle moving average measured by 80 months, which means that this destruction that we're seeing in the market is certainly hurting. And rates are having a lot to do with it. But we still don't really know what's going to happen in the future.

At this point, the deep recession calls may be premature. I know that sounds, like, incredibly optimistic. Of course, we have to be prepared for the worst. So that's kind of how we're looking at it with the dollar as well. Super, super important right here, is what happens with the future of the dollar, which, right now, has still been, right, a flight to safety.

DAVE BRIGGS: Then you've got Jeff Bezos with a little gasoline on the fire, saying we need to batten down the hatches. So let's look at earnings. We've got United. We've got Delta. We've got Netflix. We've got the big banks. What are you learning that might be in stark contrast to all the predictions of a recession?

MICHELE SCHNEIDER: Well, I think basically that reality may have not fully set in terms of the impact of these higher yields on one level. And we know the consumer, obviously, has been hurt to a degree, but is still relatively strong. So, like, airlines, for example, is a great thing to look at. Actually, airfares and clamoring to travel has gone up. And so Netflix, of course, was a big surprise. The banks, they're getting most of their money based on deposits because people are putting money in the bank because they're getting higher rates.

But none of it, I think, really reflects what we could see going forward. And that's where-- today, Tesla will be an interesting, I think, barometer because Tesla is going to be-- we already know they've delivered a lot of cars. But really, it's going to be demand going forward. Maybe that'll give us a clue. But right now, we're in a big soup. I don't think anybody really knows exactly what's going to happen, except for the fact that inflation that everybody keeps thinking is peaking doesn't seem to be peaking. Europe-- historical highs for inflation since 1982 today.

SEANA SMITH: Michele, when we take a look-- I know you're watching some key levels here, S&P falling back below 3,700 today, as we have just around 50 minutes to go in the trading day. It's right at 3,680. In terms of the key levels when you're trying to figure out if there's more downside risk or when the market is going to remain bullish, what are you looking for?

MICHELE SCHNEIDER: Well, that 3,600 has been extremely pivotal. And that is exactly where, Seana, we were just talking about that 200-week moving average, which is kind of an indicator that's often overlooked. But it's a four-year cycle. So 3,600 is pivotal. We broke through it, as we know, a couple of weeks ago. But now we're back through it.

So if it holds here, that would be good. If we can get through 3,800, that would be amazing. We could just chop for a while until we have more data on what happens with the next Fed meeting, more earnings reports. And of course, what happens, really, with the Bank of England's been a factor, too, because people think, hmm, how far will the Fed go here before they finally say, you know what? We're going to have to start buying bonds back because we don't want things to crash. And again, it goes back to the dollar.

DAVE BRIGGS: At least they have reined it in. A lot of people are pointing to the housing sector to suggest things are going to get bad. What are you seeing there?

MICHELE SCHNEIDER: Well, again, that's regional. It depends on where you live. If you-- like New Mexico, where we live, in Santa Fe, the housing market is still tight because there's a shortage of housing. Other areas where they went crazy with new construction, obviously, are feeling big declines. I know the housing numbers came out today with, like, 8.9% decline. Mortgage rates obviously have to hurt.

But then, again, who's going to sell their house right now? Because if they have to buy a house with a mortgage, they're going to have to pay, if they refinance during the drop, they're going to have to pay double, triple what they paid back then. So like everything, Dave, it is so complicated. So to sink your teeth into one aspect and say, that's the defining reason we're going to a recession, I think right now, might be a little bit remiss until we have more data coming out and whether we can see these numbers can hold here, as I said, in this 200-week moving average.

DAVE BRIGGS: Interesting times, indeed. Marketgauge.com partner and director of trading research and education, Michele Schneider, good to see you. Thanks so much.