let's turn back to the major indexes again, a bit of a mixed day,
but a little bit to the downside.
In fact, the dow shedding about half a percent, 100 and 71 points.
I do want to bring an art Hogan chief market strategist at National Securities Art.
It's good to see you this afternoon.
What do you make of the market action today and the threat of a potential
invasion into Ukraine by Russia?
Yeah. You know, it's interesting today was really one of those wait and see days.
We certainly had a lot of inter day volatility
close significantly off of the lows of the day.
And I think everyone's trying to figure out what's next in the,
in the in the story with Ukraine and Russia.
And if we can get to a place where we're
more comfortable understanding that perhaps diplomacy can win out here,
then I think the market can settle in a bit,
but I think really what we're seeing is a is a sum
yeah.
Market participants really trying to say, Okay, we're gonna have to wait and see.
We've seen this play before 2014 to Crimea. We know what the market did.
So I think that we really need to take a moment to wait and see how this plays out.
I think that's exactly what markets are trying to do today.
I think I hear the interns in the background art,
I know your beloved dogs that you tweet about a lot if that is them.
I hope you're
not gonna let one in in one second. He's
ready
to come inside. I love it.
Cavalier king Charles spaniel, my dog of choice personally.
We had one growing up as well.
So let me ask you this um, art as you do tend to the interns as well.
When it comes to the price of oil, we continue to see it rise.
There have even been some calls that it could surpass $200 a barrel
and that of course leading to inflation that we see across categories,
putting some downward pressure on the stock market as the Fed is prepared
to raise rates.
Any call for how high oil could climb and what kind of pressure that
might put on stocks as these tensions still persist of course in eastern europe.
Yeah, that's a great question.
It's much more about how long it stays at that higher price.
We certainly can see it spike above $100. Certainly if we had an official
incursion by Russia and the Ukraine,
you're likely to see that happen almost immediately.
Supplies are very, very tight, inventory levels are very low.
And I think you've got a situation where it's just a functional for how long,
if it spends a period of time and then and then pulls back down,
which is typical of the kind of geopolitical uh, oil reactions.
And I think that we're probably gonna be okay and not
have to take much off of our earnings estimates for 2022.
If we spend the entirety of the year north
of $100 that's gonna be a whole different picture.
That's just not our base case right now.
We're seeing oil hit seven year highs today.
Of course fueled by those Russia Ukraine tensions.
Our rate rises also very much on the docket and ST louis Fed President James
Bullard saying today that he does think those
rate hikes should be front loaded this year
to combat against soaring inflation that we see across
nearly every category just from december
to january.
What's your expectation are in terms of the timetable and the
rate at which those interest rates might rise this year.
Yeah,
I think that's really the number one topic we should
be really thinking about as it pertains to markets.
So uh,
ST louis Fed President Jim Bullard certainly shocked markets a bit last week
just talking about getting to 1% and and hikes before july one,
which is very,
that's not a consensus.
Everyone has gotten more hawkish over the course of the last month or so.
But the debate over, you know, the front
Front load this with a 50 basis point hike in March
Really sits on the street at about 5050 and I think when Jim Bolin
came out again today and talked about it and repeated what he said,
he also made it blatantly apparent that this is just his view,
not the committee's view and obviously they'll have a lot to talk about in March.
My guess is unless and until we actually hear from a parade of Fed speakers that leans
more hawkish li like front end loading and
and and rapidly starting the quantitative tightening process.
We're likely going to be at something more moderate,
meaning we'll see a 25 basis point increase in March.
The Fed becomes data dependent at that point in time,
likely raises a total of four times this year and likely starts the passive
unwind to the balance sheet in the second quarter into the second half.
So I think that's probably consensus right now, that's likely what gets delivered,
unless we see inflation remains sticky beyond the first quarter of this year,
we're gonna have one more really ugly cp I print for next month and
then things start to ease in the in the base effect comes down,
we'll likely see supply chains get a bit better and hopefully at
that point in time we're seeing things like energy prices come down,
something industrial materials come down.
So my guess is right, when they're starting to hike rates,
we'll likely see inflation pulling back, certainly not towards their target,
but a lot better than some of the readings we've had over the last couple of months.
Is it true, are from an economic standpoint that raising rates,
albeit gradually can actually effectively in
and of itself bringing down inflation.
Well, what what you really want to do is make sure there's
it's a very tricky equation. Right?
And, and, and,
and higher rates tend to take some of that capital that otherwise
would be going into demand for goods um out of the economy.
Right.
So I think it's that, that's what we're hoping and then referred to as a soft landing.
I think at the very same time you've got inflation that has nothing to do with
our interest rates are right now and it's
inflation that's really caused by lack of supply,
especially of goods.
And I think that once that supply of goods gets a bit more normalized,
some of that inflationary pressure will come down with it.
And at the very same time as we head into the springtime,
we'll likely see more expenditures on services versus just good.
So we spent the better part of the last call it
18 months demanding more goods than we typically do historically,
quite an imbalance.
So, you know, typically in any given year were about 60 to 65% services and 35%,
you know, call it goods
Over the last 18 months, we've been 65-70% goods and the balance being 30% services.
So we're upside down on that and that's causing that sort of
shortage of a lot of the goods that we need one,
once that normalizes and supply chains on glue a bit,
I think that the raising interest rates
to more normal levels is certainly appropriate.
And, and hopefully, you know,
for the first time the Fed will be able to orchestrate a bit
of a soft landing without having to push the economy into recession.
How do you
invest in this market?
Are are you recommending that people buy the dips in the major indexes?
Are there certain sectors that look attractive to you that people should buy
certain sectors at the same time that investors should be looking to sell?
Yeah, well,
I'll tell you this if your if your balanced and you have exposure to both growth
and cyclicals on a barbell approach and keep
that level every couple of months by rebalancing,
I think you're going to have a better year than the S.
And P.
500 this year on year growth side though,
you want to make sure that you don't have
exposure to things that are measured in price to
sales or price to revenue because they'll continue to
be under pressure and a rising interest rate environment.
We've seen a lot of multiple contraction in that space and it's all
those sort of newly minted I pos very fast growing software companies,
security companies that just a pre earnings and they get hit the hardest.
That's the that's the thing you want to avoid.
But think about old school technology that actually has P. E.
Multiples that will likely do well on the other side
of that barbara you want exposure to things like financials,
they do well in a rising interest rate environment, better economy,
materials and industrials.
But you don't set that forget it.
You want to make sure that you're looking at that every couple of months and saying,
you know, do I still have an equal allocation of those in my diversified portfolio?
I think that's the best way to look this. What you really want to avoid.
Those those those companies that in a zero to the
low interest rate environment do actually well because the discount to
NPV multiple is much lower.
Then you can you can certainly see why they've exploded,
especially some of the pandemic darlings.
But as you go forward,
you want to understand the higher interest rates go
lower the multiple you ascribe to those fast growers.
So just avoid that sector.
Alright, Art Hogan, chief market strategist at National Securities,
making an appearance with the interns this afternoon.
Our thank you as always. It's great to see you