Quant Insight CEO Mahmood Noorani and Blanke Schein Wealth Management CIO Robert Schein join Yahoo Finance Live to discuss Fed Chair Jerome Powell's comments on interest rate hike cycles impacting the market, volatility levels, inflation, and opportunities in the tech and energy sectors.
RACHELLE AKUFFO: And that is our closing bell today for March 21. Let's see where the major indices settled on the day. All three major indices in the red. We'll start with the Dow. The Dow is down between 0.58%. That's down 201 points. The S&P 500 down just a fraction, 0.04%. And then of course, the tech-heavy NASDAQ, at least not the biggest loser of the day, down 0.4%. That's 55 points.
All right, well, let's turn it over to our market panel now to weigh in on the news of the day. We're joined by Mahmood Noorani, Quant Insight CEO, and Robert Schein, Blanke Schein Wealth Management's chief investment officer. Thank you both. Robert, I'll start with you. In terms of what we saw from the Fed today, those comments from Powell, a little bit of a joke. Perhaps didn't go over too well, sort of that joke about the 50 basis points. What's your take on how much this is affecting the markets and how they feel about how aggressive the Fed might be this year?
ROBERT SCHEIN: So the choppiness is directly related to the comments. As soon as Federal Reserve Chairman Jerome Powell stated that exact commentary today, it was a shock to markets. Markets sold off specifically the NASDAQ. and so on and so forth. That being said, the Federal Reserve is way behind the curve. In fact, last week, they didn't quite admit that they were, but they kind of hinted towards it.
And we're not even a week away. We came off, you know, 6% on the markets last week, best performing for the averages since November of 2020. And now you have the markets really poised to sort of make some progress, as we're eyeing first quarter sort of earnings reports. But in the middle, you have the headlines of the Fed moving markets, the volatility. But we believe that volatility is going to create opportunity for long-term for our clients.
BRAD SMITH: Mahmood, when you think about where we find ourselves at this point in time, and particularly, how far forward the markets are looking through the commentary that's coming from Fed Chair Jerome Powell, once again, just a week after we saw that tightening start to initiate, how far forward would you believe that the markets are looking into the future?
MAHMOOD NOORANI: Well, I think that looking at what the market's done today and taking the Powell comments into consideration, it all makes sense because from our perspective, and we look at the data to try and tell us what the real relationships are under the surface, what we see is that real interest rates are a big driver of equity, the big equity indices. And what we saw in over a couple of week period last week was real interest rates dropped given that yields were relatively stable, but inflation expectations were rising.
And the other big factor last week-- and I think we need to watch this very closely-- one of the big drivers of markets is corporate credit spreads. So the cost of corporate borrowing, that came in or fell quite significantly last week. And so from our perspective, the Fed is already priced in the market. Six to seven hikes are already priced, so it's going to be no surprise if they deliver on that. At the margin, what's going to have an impact now is what's happening to credit spreads.
When the Russia crisis first started, people became very worried about linkages and possible higher default rates and banking sector exposure. That has now faded. So credit spread's number one. Number two, real rates. Is the Fed going to get more aggressive than six to seven? Probably not. So if they just deliver what's expected, they're not going to have too much of an impact. And finally, economic growth. Those are the three things to watch.
DAVE BRIGGS: And Robert, back to what Powell joked about that nothing would stop them from 50 basis points hike at the next meeting, what circumstances do you believe would encourage the Fed to make it 50?
ROBERT SCHEIN: Well, it's the inflation. And again, the markets have already priced in exactly where the Fed actually should be. Now, it would be extremely disruptive, markets, capital markets, and even the bond market specifically, if Fed chairman goes more than 50. Let's say if he goes 100 basis points, they should, simply because I don't believe they have the time that they think they do over the course of the next year or so, even the seven months that they're talking about.
So that's why he brought up the 50 basis points because, one, I know-- I'm acknowledging I'm behind the curve. And two, we're going to tighten until something breaks. And that's either breaking the back of inflation, or growth is going to slow, whether the consumer is feeling the pain at the pump.
And ultimately, that works into corporate balance sheet. So again, we kind of want to keep our eyes focused on we already have the Fed behind us. We know what they're thinking. They're constantly going to move the markets. The shocking sort of headlines from the Fed are going to give us opportunities. We're going to be now focused right now because we have last week behind us on corporate earnings.
And I think that's going to tell a story because keep in mind, every corporation this last quarter said negative guidance. And that negative guidance, I'm pretty certain that they're going to exceed expectations. And the next last 10 days, we have corporate rebalancing. So you have a big portfolio shift and institutionally as well. So we're more constructive, I think than most, in the short window of opportunity just because we have some clarity. And but the headlines are going to continue to persist from the Fed. They're going to try to do what they can.
RACHELLE AKUFFO: And Mahmood, speaking of those opportunities, then, obviously, only so much is within the control of the Fed. There are other headwinds that they can't control-- for example, how long the Russia-Ukraine fallout lasts, other things weighing on inflation, food prices and such. Where do you see the opportunities?
MAHMOOD NOORANI: So our analytics-- and we made this very clear a couple of weeks ago-- now point to tech. If we do have this stagflationary world where you have stubbornly high inflation and weak growth, then tech stands out as a beneficiary. And we're sticking with that for the moment because that does, indeed, look like the world over the next few months-- stubbornly high inflation, weaker growth, as the Fed removes accommodation.
And when we think about the intuition behind that call, it may well be that tech is not as vulnerable or as exposed to rising input prices. You know, industrials, manufacturing are probably far more exposed to that. And so we see tech as the outperformer.
RACHELLE AKUFFO: And Robert, same question to you, because some people were saying, look, this is the time to get into buying tech. We saw Dan Ives from Wedbush saying it, others saying it depends on the type of tech. What's your take?
ROBERT SCHEIN: Yeah, large cap, big cap tech, they are cash kings and cash cows. And so we believe the same, and we're accumulators. Absolutely, I think for the longer term, markets are overreacting and pricing in a little too much what's actually going to play out. So if you take the long view, you're going to take advantage of markets while they're down. These are ultimately going to be outperformers. We believe that as well.
BRAD SMITH: To the extent that oil prices are still playing an outsized type of role in the activity that we're seeing here, on top of what the Fed is saying, how much of a headwind-- added headwind or just continuance of one, do you expect that to be, especially amid the latest today out of the European Union and their ambitions to try and figure out where they can add even more pressure to Russia's economy, considering the invasion of Ukraine and ultimately, the reliance that they have on Russian oil in the EU? Mahmood, I'll put that one to you first, and Robert, would love to get a reaction.
MAHMOOD NOORANI: Yeah, I think it's very difficult for central banks to be too reactive to energy prices. We've seen that crude oil was at 135. Then it dipped below 100, a 30% move. And so I think that the policy makers at central banks are doing their best to try and not be too reactive to short-term energy price changes.
ROBERT SCHEIN: On that note, I think the policymakers are going to have to sit this one out, simply because what our guest just said, you can't really control what's happening in the short-term. Long-term, what I believe is good as a result of this is that narrative is changing here domestically. So whether it's the energy independence conversation, again, we have the backend of the year, which are our midterm elections.
If energy persists and it continues to stay higher, above $100 a barrel, it's going to eat into consumers. Consumers are going to have the ultimate word at the end of the backend of this year when they go and vote. And so that's really bringing back our conversation here in the US for the long view. So in the short-term, we have pain. Longview, potentially, some things could change for the better.
BRAD SMITH: Mahmood Noorani, who is the Quant Insight CEO, and Robert Schein, Blanke Schein Wealth Management chief investment officer, great to have you both here with us today, helping us break down some of the headlines that have played into today's tape. Appreciate it.