All right. Well, joining me now to go more in depth on what is moving the markets.
What we need to know about all the different asset classes from stocks to bonds
to cash
is Ken K
chief investment Officer at Carolina's Wealth Management. Karen, welcome.
Thank you very much, Chris.
We're so happy to have you.
So let's just start by talking about the overall narrative in the market right now.
Stocks near record highs. Do you think that's sustainable? And if so why
I
think, I think
that the line up is not always a straight line.
So I, but I do think it's sustainable and it,
it's because of what you were talking about before.
It's about earnings and it's nice to be talking
about earnings because that's really what is driving markets.
And we've been talking about the fed so much.
We've been talking about the A I, we've been talking about tech,
but it's really at the end of the day,
it says earnings and those company earnings are moving forward
and that is, that's, that's what really drives markets.
So,
so what I like, I see so
and so I think it is sustainable but again,
the line up is not always a straight line. Yes.
So for investors looking at their portfolios of this time of year,
always a good time to look at it to the start of the year.
We technically in the first week of February,
but still not a bad idea if you haven't got to it quite yet.
What is the asset allocation that you would suggest between
stocks bonds and cash in this type of environment?
Well,
it depends on your age, it depends on your liquidity needs.
It depends on a lot of personal,
different criteria but, but
you want to be in the stock market if you want to see growth.
Now,
the good thing is that bonds and finally returning something
you could get over 5% in investment grade bonds.
And, and we haven't seen that in it's been decades and,
and also cash cash has been now is an actually an alternative asset class
for so many, for so many years. It was zero.
Now there's six trillion in money markets.
And there's a reason for that because cash is returning a significant,
it is risk free,
but
that is not risk free in terms of opportunity costs.
And when the market runs, investors are,
we want to see that growth and they want to be part of the stock market.
So we recommend an allocation of stocks bonds and some cash to Ford.
So
investors who maybe have some cash or money on the sidelines with the fed expected
to cut rates this year might not come as soon the markets would hope.
But certainly the fed has forecast at least three rate cuts in 2024.
Do you think it is a good time to start to pulling some money in the stocks?
Absolutely. Because these money market rates are not going to last forever.
And if you can get in, especially if we do see a pull back of February is,
is notoriously not such a great month.
It's not a September, but it's, it's not, sometimes we will see a pull back and yeah,
I do think that investors should get into stocks
so that they can see that growth long term.
Let's talk about the breadth of the market, right?
I mean, technology does still seem to be driving a lot of the gains,
the NASDAQ of 42% last year.
A lot of that on A I
I did come after a bad
frankly 2022 for the market,
right? But do you think these technology names will continue
to power the market?
I think they will, I would like to see a little bit more breath in the market.
But at the end of the day,
technology is at its place because because of their
earnings and if you take a look at what
we expect for the rest of 2024 earnings growth
in the technology sector is double digit growth.
And how could you argue with that?
So the reason that these technology names are out there, the
is because they're earning that
there are.
But that's not to say you should ignore other sectors and a lot of people talk about,
oh, I want to, I want to be where the puck is going to be.
I want to skate to where the P is going to be.
Well, you can take a look at something like the health care sector where
earnings are not so good because they're coming
off a high comparables for this quarter.
It doesn't look so stellar.
But then if you take a look further down the road in 2024
you're going to see a big jump in double digit earnings growth.
So
there are other sectors, you just have to be a little bit more selective,
but it would be nice to have that, that, that breath.
But companies are going to need to actually show
their earnings growth in order to achieve that.
What else do
you
need to know when it comes to the market this year and managing their own money?
Well, they need to know that right now, cash seems safe but,
but there's a potential that that money market rates will drop,
especially if the fed is going to cut interest rates and
the fed probably will cut interest rates later on this year
and that will be a tail wind to the market.
But they, they have to know that, that stock market timing,
trying to time the market is probably the worst
thing you can do that over the long run.
Stocks do well and they go up because good companies do well and they,
and they create profits and value.
What's the timeline for someone to be in the market? Right.
I think we've seen a lot of volatility. I mean, that's just a fact.
Right, these past few years
and I think
emotions at times, you know,
even just needing money with inflation to get by is certainly been a factor.
What would you recommend to someone in terms of sticking it out in the stock market
volatility? It does come back.
Actually, the big
has been somewhat subdued.
So it's, it's not that we've had a lot of volatility,
but I would say try not to look at the markets
every single day or don't look at your portfolio every day.
It's a good idea to keep an eye on what's going on.
But if you look day to day, it's going to,
it's going to be a little bit disconcerting to see markets
go up and down and look at last week when,
when
Jerome Powell, the fed chair spoke,
the market started out as up and then all sudden drop 300.
I mean, that's,
that's the kind of roller coaster that investors
really don't want to see every single day.
So
probably it's a good idea to take a step back, international stocks.
Do those look attractive to you?
Internationals are a tough call because they uh the valuations are
compelling but the growth is really not that that compelling.
So I take a look at something like international
developed Europe and they're heavy on financials and industrials.
And there's not so much of a tech sector where in
the United States that tech has really been driving our markets.
So that's why we're not seeing such a big jump up in international,
but it's great for diversification.
Valuations are good and there are some definitely good buys out there.
You just have to be selective.
Ok. Good to know. Now, in terms of a soft landing, everyone wants to know, right?
Can this economy remain resilient? What is your take?
Well, I think that it will be somewhat a soft landing.
I don't think there will be no landing.
It usually takes about 23 months for the employment indicators
to really start feeling the effects of since the first rate
rate hike. And it's been about 23 months.
I think we're going to start to see some employment effects so far.
It has not been pernicious or
pervasive,
but
I think we'll start to see that and I think that
the fed has the
hand to cut rates whenever they want to cut rates. But I think we will see some,
some slow down and we will soon see some effects in the employment market.
So I think it will be more of a soft landing
but not a no landing where we just freeze by this.
I think we will see some effects to it other than
the fed and of course earnings which you mentioned power,
the markets
as we know what should investors be keeping on their radar this year?
Well, I always take a look at,
I always keep an eye on China because this is the second
largest economy in the world and their economy has been ailing,
but they have been showing signs of, of
maybe reaching a bottom. So that could be a good driver of global economic growth.
One thing I don't try to, I tell investors, try,
try not to try not to keep your eye on Washington too much.
Try, try not to Washington to proof your portfolio.
There's a lot of noise, same thing with geopolitical landscape
that does cause a lot of knee jerk
reactions.
But at the end of the day,
take a look at those good companies and the companies are
moving the ball forward when it comes to their earnings.
So it sounds like the election,
the 2024 presidential election will see what happens in Congress as well
isn't necessarily something that you would need to plan for financially.
I would say no because you know,
you really don't know what's going to go on and sometimes you end
up making a knee jerk reaction that probably isn't positive for your portfolio.
There's always often a lot of noise.
So, so it's a try, you just keep your eye on what, you know,
and those are the companies and what they're reporting for their profits.
It's been fascinating to see how long
and how strong strongly tech has driven this market with A I,
do you think that that's, that's the future? I mean,
someone diversify. Absolutely.
But it's not just, it's not just tech because other companies are using A I to be more,
to be more productive.
And that is going to be the key A I is in
the productivity and driving productivity because we wanna see productivity,
that's what's gonna drive economic growth.
So um other sectors will be using A I and are using A I right now.
So, but I think tech is, is, is a great place to be because really it's,
it's showing those that growth and there's, there's a,
there's an argument to, to be said to, to, you know,
stay with your dance partner that brought you here to the dance. And
but on the other hand,
in a higher industry environment, value stocks offer
offer a place we've been saying for so long, you know,
all this is a year for value versus growth and that hasn't been the case.
But at higher interest rates, value stocks are also
going to come into play and those dividend stocks that are paying dividends as well.
So
don't ignore tech but don't ignore the other sectors as well.
And just to clarify for our viewers, my final question here when you say tech,
you mean
the NASDAQ, do you mean technology stocks in particular?
Do you mean specific names? How exactly
the
bank
f
for whatever those are, those are really driving all of the, the gains.
But technology is in general is where the growth is. So the tech sector
and then
you do see, you do see growth in other sectors as well,
but just grow versus value both have their merits but but
technology just in general is going to continue to drive markets.
Karen Ka,
chief investment Officer at Carolina's Wealth Management.
Joining us from South Carolina today, Ken.
Thank you.