Consumer sentiment: ‘We don’t see a recession in 2022,’ strategist says

Ryan Detrick, chief market strategist at LPL Financial, offers his take on why there won't be a recession later this year and what other optimism that consumer sentiment suggests.

Video transcript

- We'll talk about those two developments with Bob Nardelli, which will be interesting, Jared, to hear about Walmart. For more on the markets, let's bring in Ryan Detrick, the LPL Financial chief market strategist. Good to see you, sir.

So let's talk about some of the optimism that comes from what Jerome Powell said, that it is very challenging, but it is a healthy economy. He still believes we'll have a soft-ish landing. And not entirely clear what he means by soft-ish. Sounds like you're optimistic.

RYAN DETRICK: Yeah, Jerome Powell is covering his bases there. I don't think he said anything that caught us off guard. But like Jared just talked about, buyers are stepping in this afternoon. I mean, let's not forget, though, where we are, right? S&P down six weeks in row, hadn't been down seven weeks in a row for, like, 20 years.

So we know we're awfully oversold here. Then you come in today, and you've got industrial production pretty solid. You got retail sales pretty solid. You know, things aren't perfect. But we just think so much of this negativity that is priced in after this, you know, near-bear market-- I mean, a week ago we were flirting with a bear market on the S&P.

Median stock down, like, 25%. So you're almost in a bear market. You know, it's just a little overboard for us. And we think this very well could be an opportunity for longer-term investors here.

- And we have had guests say, look, this is the time to perhaps get your shopping list together. If you were to get your shopping list together based on historically how you've seen the market react after these corrections, what would be on it?

RYAN DETRICK: Yeah, well, you know, what's the old saying, right ? The stock market's the only place things go on sale, and everyone runs out of the store screaming. So you know, things are on sale here. We almost take, like, you know, a two-pronged approach here.

You know, who brought you to the dance? I mean, you just mentioned, you know, some of the materials are doing well. Some energy's doing well. I mean, those two groups you like.

But the other side of things, that's kind of your cyclical value. The other side of things, I mean, tech, right, we're more neutral tech. But I'll tell you. The second half of this year, yields start to go lower. The economy can pick up.

We finally have some good news. I mean, these tech names have just been obliterated. We all understand that. But the second half of this year we think tech could be a group that could do well. And you know, don't forget how strong and influential that group is. So those are two-- have a two-pronged approach that we think make makes a lot of sense here.

- Ryan, let's take a look at the retail sales number because of they're strong once again in April, the fourth month in a row that we've seen an increase in retail spending. Do you think we're making too much of the fact that obviously inflation is a huge deal? But maybe the consumer's simply more resilient than we had anticipated.

RYAN DETRICK: Mm-hmm. A great point. I mean, we've said for a while the US consumer is one of the-- the linchpin, right, of the largest economy in the world, makes up about 70% of GDP. So this is just one example. I mean, let's not forget on Friday, we're talking about that Michigan consumer confidence number coming in, I think, what, the lowest in about 10 years.

So, you know, consumers are saying one thing, but they're kind of doing another. And that's why it's so important to pay attention what they're doing. I mean, things aren't perfect. Let's make that very clear. But with the consumer, they're still in awfully good shape.

I mean, balance sheets are healthy. Spending is strong. We all know the employment backdrop is relatively strong as well. If you want to get a higher-paying job, this is one of the best times in a couple generations to go do that.

So, you know, the consumer still looks good to us. And that's one reason, one of the main reasons, honestly, we don't see a recession in 2022. I know some people do. But we look at the consumer's strong, you know, with some of the other things we've been seeing, and it just makes sense. You know, this is a mid-cycle slowdown, á la '94 kind of. We just don't see us heading into a recession here.

- It sure is nice to hear some optimism. And we will take it. You tweeted about a BoA fund manager survey which shows the most cash on the sidelines since 9/11, indicating what?

RYAN DETRICK: That's right. I mean, you know, it's cliche to say, right, cash on the sideline. How many times you guys had someone on a show the last few years talk about it? But it's true.

When you look at the Bank of America Global Fund Manager Survey, kind of a mouthful there, there is a lot of cash, right? And it makes sense. I mean, stocks are done poorly. We all know the scary headlines.

But there really is a lot of money that could come back into this market soon. I mean, retail investors, they've been banged up, right? They've got a lot of cash also. So this is just one contrarian indicator. Put-to-call ratios are high. Various sentiment polls are flashing levels we've seen at major market lows going back the last couple of decades.

So, you know, all these things together suggest expectations are so low from a contrarian point of view. If we can get any good news-- and maybe that good news could be, hey, instead of 10 hikes this year, it's, like, seven or eight. That's not necessarily a dovish pivot, in our opinion.

But maybe that could be some good news with an economy that can keep growing. All that money can come back. Not all that money, but a lot of that money could come back and likely push stocks up a good deal higher in the second half of this year.

- And we did see a lot of retail investors panicking when they did see the-- especially a lot of these tech stocks start to go down. If you're a retail investor and you're wondering what to make of this, do you buy the dip? And what sort of strategy do you use? What advice would you give them?

RYAN DETRICK: Yeah, I guess it always depends on a time frame. But for your average investor, I mean, you know, when you look back at history, guys, if you don't have a recession, right? You rarely have stocks down more than 20%. We had, like, 1978. You had '98. You had 2011 and 2018.

S&P pulled-- S&P pulled back 19% all those times. You did not have a recession. If you have a recession, yeah, you know, all bets are off. Things can get worse. The only time in the last 50 years we've had a pure bear market, down more than 20%, was in '87, OK?

So again, if you're not in a recession-- we just pulled back 18% on the S&P. For your average investor listening, things are scary. But if you're not in a recession, like we don't see happening, this could be a time to remember the dollar [INAUDIBLE], continue to invest for the long run because, again, stocks will likely be a good deal higher 6 to 12 months from now. That's what people need to remember.

- So Ryan, given that outlook, do you think it's fair to say, do you think we have seen the bottom, at least for now?

RYAN DETRICK: Yeah, for now, we do. I mean, we wouldn't be shocked at all if there was some type of a little summer rally. I mean, what we saw last Thursday, the last hour and then Friday's continuation and, cross our fingers, today's is continuation, this very well could be a multi-week maybe multi-month bounce. Do not forget this, though.

Midterm years are very volatile. I think we can check that off. They tend to form the ultimate bottom late August, September. So maybe we can go back down and retest this. But for the near term, we think a well-deserved bounce from historically oversold levels makes a lot of sense.

But we don't think we're going to just crash right through there. Maybe we retest them. And that, again, from an investor's point of view is looking for several years out. This is a good time to continue to add, even on more weakness, continue to add here.

- Certainly some refreshing optimism there. We do appreciate you joining us today. Ryan Detrick there, LPL Financial's chief market strategist. Thank you so much.