The stock market may be off to a great start in 2023, but investors should be “mindful about not being bullied” by the rally, says Wealth Enhancement Group’s Nicole Webb.
(Bloomberg) — The stock market may be off to a great start in 2023, but investors should be “mindful about not being bullied” by the rally, says Wealth Enhancement Group’s Nicole Webb.
The firm’s senior vice president and financial advisor joined the “What Goes Up” podcast to talk about the speediness of the recovery so far this year.
“When you see some of these big names — plus-40%, plus-50%, plus-70% already year to date — that’s such a huge variation where there is a bit of fear of missing out on that big performance,” Webb said. “We’re not bullish on the stickiness of this as we don’t see any type of Fed pivot,” in the near term.
Here are some highlights of the conversation, which have been condensed and edited for clarity. Click here to listen to the full podcast on the Terminal, or subscribe below on Apple Podcasts, Spotify or wherever you listen.
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Q: We got inflation and retail-sales data this week. What do you make of the market’s reaction?
A: The marriage between strong retail, strong CPI, strong labor — it confirms a hawkish trajectory for the Fed. There is a lot of misinterpretation of Powell’s comments and the words that get blast across headline news versus some of the underlying content if we dig deeper. The Fed has not wavered from their very clear communication around a 2% target. Also if you listen to the words of [Neel] Kashkari, the Minneapolis Fed, he’s very clear in, “We picked a target and we’re working to the target,” not interpretation of data as it comes and softness in what the end-goal is. And so our takeaway from that is we trust that the Fed, unless they tell us otherwise, is sticking to that mandate. And with that, we came into 2023 with the expectation that to create the demand destruction necessary for real price stability, our best bet was 5.25%. And I think as we continue to see some of this strong data, we’re all starting to adjust if we go even higher than that.
Q: What do you make of the Fed’s 2% target?
A: We heard Kashkari say, “We are totally committed to hitting a 2% target.” That was a little moment of awe for me. There was this expectation that, at least at our firm, things were going to normalize to some degree organically, and that there were going to be elements of inflation that were transitory in nature. It was just going to be a longer roadway for the settling. What we’re seeing, though, with the resilience of the consumer, the labor market, which structurally I have so much curiosity about where we go from here because there’s things we can’t fix with interest rates alone. All of that to say: if the 2% target is real, that feels like a bit of a brick wall that we’re running toward.
Q: We used to have a debate over “hard landing,” “soft landing.” Now we’re hearing there’s “no landing.” You said there are many potential outcomes for what comes next and the market may not be pricing in all of those outcomes. Tell us a little bit more about that.
A: When we think about a no-landing scenario where growth remains strong in light of persistent inflation, there just needs to be a bit more words — there’s no landing right now, meaning we haven’t gotten to that point where the captain comes over the microphone and says, “We’re 20 minutes from landing, we’ve started our descent.” We’re just not there. And 2022 was all about the imminent nature of a global recession. We’re halfway through quarter one of 2023. The no-landing scenario — my interpretation of it is we’re just not in descent yet. There has certainly been some damage that has occurred thus far, even outside of housing, manufacturing, confidence across the board. And so I would say we’re just delayed in our landing. And the rollover or the effects of tight money are going to trickle through into the system. And this expectation of earnings growth at 3% seems wildly optimistic to me.
Q: You say, “I accept that I have underperformed in the year thus far.” Can you talk more about that?
A: Our job at times is to be mindful about not being bullied by a rally. And this year has certainly been one of those times. To us fundamentally, does technology make sense from a valuation standpoint? We’re looking at companies that are trading 45% above their 10-year average on PE in a 2% real-rate environment. To our best estimation, much of this rally in mega technology, or if you even want to just call it a Nasdaq rally year to date, it’s a little bit of an unwinding of the selloff of last year, probably closely followed by a bit of a FOMO rally, meaning there’s just so much cash still on the sidelines chasing participation.
–With assistance from Stacey Wong.
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