(Bloomberg) – Sad headlines wash over investors every day – war in Ukraine, inflation, the endless proliferation of Covid-19, supply chain problems. All gloom has market analysts downgrading the outlook for growth in the US and predicting a recession.
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But what if their projections are exaggerated? Sylvia Jablonski, CEO, Chief Investment Officer and co-founder of Defiance ETFs, joined the podcast “What Goes Up” to talk about why she’s optimistic about the market’s prospects for the rest of the year and why she likes shares linked to the economic reopening.
Below are easily edited and condensed highlights from the conversation. Click here to listen to the entire podcast, and subscribe to Apple Podcasts or wherever you are now listening.
Question: How do you understand the latest market volatility?
A: If you ask the average investor, my guess is that they will say that it does not feel super good to be invested in the market this year. It’s not as fun as it’s been for the last decade, let’s say, or even the few months after Covid, where everything just started going straight up and all our trading accounts looked good, we all looked like geniuses. And now the market just has a lot of headwinds. There is a lot of uncertainty in the market right now. You have a Fed that wants to raise interest rates to lower inflation and not create a recession. You hear about this soft landing. Inflation has been higher than ever, you have problems with geopolitics, you have a war – the Russia-Ukraine situation. You have a load of maybe big commodities – oil, gas, and then you start going down, depending on how long it takes, to wheat and different things. And you have a strong fear that the combination of Fed increases and inflation will create a situation where we are in stagflation or may just not have much growth in the future.
But my view on this is here, we are, it makes sense. There are many of these headwinds to the market, but what that means is that you want this interval-bound volatility. The market is going to trade at these levels, whether it is the S&P 500, other indices. But what I think is that inflation, Fed increases, geopolitics are probably priced into the market at this point. And the consumer remains strong. Historical monetary tightening is followed by solid gains, S&P rising by around 9% or so – companies have money, consumers spend, inflation has probably peaked. So I actually think we’ll have a pretty decent year – I just think it’s not going to be that fun in the short term.
Question: In the past, when we talk about market declines, at least some of the major shocks in that market turned out to be more centered around the financial system. And I wonder if you see any of the economic weaknesses that everyone is pointing to today, does it have any real material transfer to the financial markets in the sense that it can cause some kind of destabilization in the capital markets?
A: If many of the topics I just discussed should go somewhere else – for example, if the Fed raises more aggressively and does not feel satisfied with falling inflation and you start to see a hard landing – then I think , That some of it will start flowing into the market. The banks are in good shape – this is not 2008, is it? The credit is in pretty good shape, the consumer is in good shape, the debt service conditions are stronger than they have been for decades. So consumers have essentially those $ 2 trillion in savings, they have lower debt than they have ever had before. So I think the market can be more robust this time.
Q: If we are seeing a marketable bottom right now, what do you recommend so people should invest in?
It is also important to classify what type of trader you are. So if you’re looking for short term returns, I think it’s harder. The machines and high-frequency guys do a good job with it, but the average investor who did well with day-trading over the last year is getting a little more dangerous just because you have so much range-bound volatility. But if you have an appetite to be a long-term investor and really get a century of trading, I think, then take a step back and look at names like Apple, Google, Microsoft. You have negative real interest rates, companies with strong balances, pricing, consumers willing to spend money, retail sales are rising.
And then it’s just the theme of cybersecurity, cloud, metaverse, web 3.0 – the future of all technology hangs in the balance for these companies. And even semiconductors, like Nvidia and AMD, they’ve just been completely shattered. I just think the long-term outlook for those names will be what Apple bought 10 years ago. You are going to see these compound returns.
I also love the reopening trade. We know that spending goes from goods to services, and it’s rising. But to lift the mask mandates, this post-Covid-to get out of the house- there is just so much accumulated demand for travel. The Delta earnings call was pretty amazing. It’s a bargain – hotels, cruises, casinos, airlines. It’s a great place to look in the short term.
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