(Bloomberg) — Dreary headlines wash over investors every day — war in Ukraine, inflation, the unending spread of Covid-19, supply-chain troubles. All the gloom has market analysts downgrading prospects for U.S. growth and predicting a recession.
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But what if their projections are overblown? Sylvia Jablonski, the chief executive officer, chief investment officer and co-founder of Defiance ETFs, joined the “What Goes Up” podcast to talk about why she’s optimistic about the market’s prospects for the rest of the year and why she likes stocks tied to the economic reopening.
Below are lightly edited and condensed highlights of the conversation. Click here to listen to the whole podcast, and subscribe on Apple Podcasts or wherever you listen.
Q: How are you making sense of recent market volatility?
A: If you ask the average investor, my guess is that they would say it doesn’t feel super good to be invested in the market this year. It’s not as fun as it has been for the last decade, let’s say, or even those few months post Covid where everything just started going straight up and all of our trading accounts looked great, we all looked like geniuses. And now, the market just has a lot of headwinds. There’s a lot of uncertainty in the market right now. You have a Fed that wants to raise rates to lower inflation and not create a recession. You hear about this soft landing. Inflation has been higher than ever, you have issues with geopolitics, you have a war — the Russia-Ukraine situation. You have a strain on perhaps major commodities — oil, gas, and then you start going down, depending on how long this goes, into wheat and different things. And you have a lot of, essentially, fear that the combination of Fed hikes and inflation will create a situation where we’re in stagflation or perhaps just don’t have great growth in the future.
But, my take on this is here we are, it makes sense. There are a lot of these headwinds to the market, but what that means is that you’re going to have this range-bound volatility. The market’s going to trade in these levels, whether it’s the S&P 500, other indexes. But what I think is that inflation, Fed hikes, geopolitics are likely, at this point, priced into the market. And the consumer remains strong. Historically tightening monetary policy is followed by solid gains, the S&P rising at about 9% or so — companies have money, consumers are spending, inflation has likely peaked. So I actually think that we’re going to have a pretty decent year — I just think that in the short term, it’s going to be not so fun.
Q: In the past, when we talk about market downturns, at least some of the bigger shocks to that market turned out to be more centered around the financial system. And I’m wondering if you see any of the economic weaknesses that everyone’s pointing to today, whether that has any real material carryover into financial markets in the sense that it could cause some sort of destabilization in capital markets?
A: If a lot of the topics I just discussed were to go in a different place — for example, if the Fed hikes more aggressively and doesn’t feel satisfied with inflation falling, and you start to see a hard landing — then I do think that some of that will start feeding into the market. Banks are in good shape — this isn’t 2008, right? Credit is in pretty good shape, the consumer is in good shape, the debt-servicing ratios are stronger than they’ve been in decades. So consumers essentially have this $2 trillion in savings, they have lower amounts of debt than they’ve ever had before. So I think that the market can be more resilient this time.
Q: If we are seeing a tradeable bottom right now, what are you recommending people should be investing in?
It’s important to classify what type of trader you are, too. So if you’re looking for short-term returns, I think that’s trickier. The machines and high-frequency guys do a great job with that, but the average investor that was doing well with day-trading over the past year, it becomes a little more dangerous just because you do have so much range-bound volatility. But if you have an appetite to be a long-term investor and to get really the deal of a century, I think, take a step back and look at names like Apple, Google, Microsoft. You’ve got negative real rates, companies with strong balance sheets, pricing power, consumers willing to spend money, retail sales rising.
And then just the theme of cybersecurity, cloud, metaverse, web 3.0 — the future of all technology hangs in the balance of these companies. And even the semiconductors, like Nvidia and AMD, they’ve just been absolutely crushed. I just think the longer-term outlook for those names is going to be what buying Apple was 10 years ago. You’re going to see those compounded returns.
I also love the reopen trade. We know that spending is going from goods to services, and it is increasing. But lifting the mask mandates, this post-Covid getting-out-of-the-house thing — there’s just so much pent-up demand to travel. The Delta earnings call was pretty awesome. That’s a good trade — hotels, cruises, casinos, airlines. That’s a good place to look in the near term.
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