Nancy Daoud, Ameriprise Financial Private Wealth Advisor, and Ed Butowsky, Chapwood Capital Investment Management Managing Partner, join Yahoo Finance Live to discuss the market outlook as stocks close on lows, pulling out investments ahead of expected losses, buying opportunities, the Fed’s handling of interest rate hikes, and inflation.
RACHELLE AKUFFO: All right. Welcome back to Yahoo Finance. Edging ever closer just seconds away from the closing bell, right now we’re seeing the S&P and the Dow still in red territory. The NASDAQ still deciding if it wants to close in the red and join them for Valentine’s Day. To break down what’s been happening with the market panel, we have Nancy Daoud, Ameriprise Financial Private Wealth Advisor, and Ed Butowsky, Chapwood Capital Investment Management Managing Partner. Thank you so much. So we’re taking a look now. Still in the red for the two, but the NASDAQ still trying to hang on there.
[CLOSING BELL RINGING]
BRAD SMITH: And there you had a live look at the closing bell at the New York stock exchange. Major averages close and lower here on this Valentine’s day. You are seeing plenty of red, but perhaps not what the investors were looking for as a gift.
Dow Jones industrial average right now, it closes down by about half a percent, 172 points in the red there. The S&P 500, you’re seeing some fraction of declines there is where we end the day down by about 4/10 of a percent, but round that off to 17 points in the red. And the NASDAQ, it just barely ended the day in negative territory. Flat just barely to the downside, not even a full point. We’ll see what tomorrow’s trading session brings for all three major averages. And we’ll see if there is any type of buying that comes into play, especially considering the levels where we find ourselves at right now.
For more on that, let’s bring back in Nancy Daoud, who is the Ameriprise Financial Private Wealth Advisor, and Ed Butowsky, who is the Chapwood Capital Investment Management Managing Partner, joining us here. And first, Nancy, I want to go to you because particularly here, as we continue to weigh the Fed and the impact right now that we’re seeing play out in the markets and markets trying to price in what the Fed may do, as the fed put itself in a position where it may have to be more aggressive earlier on in their tightening policy.
NANCY DAOUD: Yes, I think the market is surely reacting more so to the news of the 7 and 1/2% inflation in January, which was excessively high. But I think that was somewhat expected. I mean, it’s not a button that’s going to be pushed where everything is going to be smoothed out easily. It’s a tough challenge for the Feds to get ahead of this inflation curve as they’re trying to increase interest rates and taper. And it is very much just speculation now that Feds are going to have to become more aggressive and maybe raise interest rates a little bit higher than anticipated, instead of a quarter of a point, perhaps half a point, which would accelerate this whole process.
BRAD SMITH: And so Ed, with what we’re tracking across equities right now, do you expect any type of inflows at the kind of price points that we’re looking at across the board, where, again, we’ve had this buy-on-the-dip mentality before show itself strong and show up in the markets? But is that same mentality do you think going to kind of show itself strong once again, even as we’ve seen this leg lower over these past few sessions?
ED BUTOWSKY: Yeah. I will tell you that any inflows is stupid money at this point. You must be taking money out of this market. I mean you have everything that is laid out perfectly for the market to go lower. You have higher interest rates. You have slow earnings. You have slow economic growth around the globe. And there’s no good reason to see this market go higher. We’re already about 37 and 1/2% overvalued based on expected earnings growth over the next 12 months.
So to me, any new inflows is really, really silly to do at this point. You’re really committing– I don’t want to comment of financial suicide– but basically, it’s really not a smart move at this point.
– Nancy, what do you think about that? Is cash where investors should be rotating to at this point and away from equities? Or are you seeing some potential opportunities here given some of the volatility we’ve been seeing?
NANCY DAOUD: Well, there’s always an opportunity. I always say that someone’s misfortune is always someone else’s fortune. And I think the most important factor involved is time frame. If you’re in it for a short period of time, then yes, I agree with my counterpart here that you should not be getting in right now. But if you’re in it for the long haul, it really doesn’t matter because ultimately things correct and they get better.
So I think it all has to do with your appetite for risk and your time frame. And if you’re already invested, I don’t believe, I disagree that you should get out. I think you should stay the course. Because if you had to take any corrective action, that should have been done long before now.
We all knew, I mean, these are all things that are very well-known already. The Feds were going to raise interest rates. They were going to taper. We already knew all of this. It’s a question of how and when and what’s the collateral damage that’s going to occur. But in time, the math always rules.
– And Ed, given some of your concerns about where stocks may be heading in the near term for now, what do you think that catalyst to get back into the market is going to look like? What are you going to look for to say, now is the time to be buying and getting back into stocks here?
ED BUTOWSKY: Yeah. Great question. Lower PE ratios. And the only way you get to a lower PE is either the P has to come down or the E has to go up. But no matter what, we always have to go back to what historically are the great metrics. And that is price-earnings ratio. And you have a PE going forward of 20 to 23 and where the 10-year treasury is, which is at almost 2%. The acceptable PE in the market is 16. So you’re going to have to see the prices come down because earnings are not going to go higher.
And again, I agree with my counterpart that this is not a great time to be getting out of the market. But if you’re overallocated, which many people are, they should revert back to a lower balance of equities in their portfolio. Look at senior rate floating notes. Look at business development companies. Look at preferreds. Don’t get completely out of the market per say, but reduce your exposure in the market.
And the catalyst is going to be a lower price earnings multiple. Just like it’s always been. And everybody who says, this time is different, it’s not different. It’s just not going to be different.
RACHELLE AKUFFO: And I want to bring in Nancy here. Nancy, you said that you’re positive on the 2022 outlook barring any derailment of fundamentals. But with producer price inflation data out Tuesday and the Fed minutes out Wednesday, what signals do you think investors should be paying the most attention to?
NANCY DAOUD: How the Fed moves. I think if they get too aggressive and interest rates rise too fast and too much all at once, that could really shake up the market. Also, there’s some geopolitical things going on to what we thought was unlikely a week ago with Russia, the Russian invasion of Ukraine is now very likely. And that’s not really going to affect us as much as Western Europe. But if it escalates into a full blown NATO thing, which is very far-fetched right now, things could change.
There’s so many things going on, so many factors. Oil prices are going up. There are so many factors to consider. But being proactive is very, very important and staying within where you should be in the first place as an investor. Trying to time the market is harder.
RACHELLE AKUFFO: Indeed. And it is always a balancing act for the Fed. Ed, I want to bring you in here. We saw that St. Louis Fed President James Bullard told CNBC that the Fed’s credibility is on the line in its quest to bring down inflation down from the current 40-year high of more than 7%. Is that a fair statement given how long it took the Fed to really change its tone about how persistent inflation was going to be? And how does it get its credibility back?
ED BUTOWSKY: Yeah. There’s no question about it that the Fed is behind the curve here. I mean, you have inflation at 7 and 1/2%, and you have the Fed funds rate you know at 25 basis points, 50 basis points. It has to rise. And normally, when you have interest rates rising, it’s because of a strong economy. You don’t like to do it to combat inflation. But that’s what they have to do.
The economy is not so strong. And that’s the reason why we’re seeing inflationary numbers. We’re seeing inflationary numbers for many other reasons. But you have to get the fed to start moving and a lot more aggressive. As Nancy said, a 50-basis point move is probably necessary. But then a number of moves after that in order to slow the inflation down. And I agree that the Fed’s reputation is at risk there because they’re always being told or we’ve always been told that the Fed is there to slow the economy down when it starts to run away. But it’s already running away. It’s in a sprint right now. And we’re falling further and further behind the longer we wait to raise rates.
BRAD SMITH: Yeah. It’s got strack shoes on for sure. We do know. Nancy Daoud, who is the Ameriprise Financial Private Wealth Advisor, as well as Ed Butowsky, who is the Chapwood Capital Investment Management Managing Partner, joining us today with the insights and the breakdown. We appreciate the analysis.