Bay Street Capital Holdings CIO William Huston and Ted Oakley, Oxbow Advisors Managing Partner, join Yahoo Finance Live to examine this week’s bear market indicators, Nasdaq outlook, inflation, the Fed’s interest rate hikes, and crypto and digital asset investments.
† Here’s today’s closing bell for today, Friday, April 29 at the New York Stock Exchange.
† Man, I always wonder how you manage applause after a day like that. That is your closing bell on Wall Street ending a volatile week for stocks with the majors closing with these devastating numbers on your screen. It’s hard to put it all in picture, just massive route. Broad based sell off. Worst month for the NASDAQ since 2008.
Let’s bring in our panel and talk about it. Ted Oakley, the Oxbow Advisor’s managing partner, William Huston, Bay Street Capital Holdings chief investment officer. Ted, what are they reacting to?
TED OAKLEY: Well, I think generally, people are not realizing, which they should have, that the numbers are going to be hard to come by this year for the companies. But I think more than that, I think you’re in a classic bear market, where you get selling, they buy the dip, it doesn’t work, so they turn and resell. And I think that’s the type of thing you’re getting today.
† OK. And so with that in mind, going forward from here, if you are even expressing any type of appetite to get back into the markets right now, I would wonder, William, where you might be looking at any opportunity? Or if you’re saying, you know what, we’re just going to stay on the sidelines right now.
WILLIAM HUSTON: I think going into a weekend, you know, the market’s selling off. People don’t want to be nervous going into their weekend, so they want to reduce some risk right now and see how things play out. There’s been a lot of uncertainty that’s happened in the last couple of weekends. So when you’re looking at, you know, you’ve got COVID back on the menu, China is back on the menu, the war is still going on, the supply chains going on, and trying to time where the bottom is going to will be difficult.
I will agree that, you know, we’re seeing– we’re in a downtrend. We hit a peak, and we’re in a through coming down. But I think a lot of companies still have fundamentals there. So for someone looking to get in, I don’t think they’re trying to time it as much as they’re trying to see where was there an overreaction, and some of the names we saw today that trade is significantly lower than the rest of the average.
† And Ted, as you look at some of these mega caps versus say how other parts of the tech industry are doing, do these mega caps give us a real bellwether of how the entire sector is doing?
TED OAKLEY: Well, you know, a lot of those companies were already down more than the mega caps were. And those things were really what we’re holding in the market up here, if you take those top six to 10 stocks. But now they’re breaking, and so they’re actually catching up with a lot of the rest of the market, even the tech side. So I don’t think that’s unusual.
And if you look at it, everybody owns those top 10, so where are they going to sell? They’re going to sell under those top 10. And you can see it, because you just clipped a new low, new recent low the NASDAQ today, and the S&P 500. Not the Dell yet, but it probably will. And I think as you’re getting those kinds of numbers, you have to just perk up, because it probably means more to come.
† William, your reaction to that, again, worst month for the NASDAQ since 2008. Will things get worse before they get better? Thankfully it’s the last trading day in April.
WILLIAM HUSTON: There could be some more wild cards for sure. As it pertains to the NASDAQ, I think, personally, technology is the way forward in a lot of the situations we’re looking at. You know, as it pertains to supply chain, technology addresses that. As it pertains to Amazon’s disappointing earnings, what they’re doing is investing in technology to address that. I think from a demand standpoint, we saw it ratchet up.
Right now, I think a lot of people are trying to determine with all these wild cards is the man also one of those wild cards? A couple of weeks ago, I think the thought process was, hey, there’s an undersupply for the demand. Right now, I think people are trying to determine is the demand holding up before I make a quick decision.
† Ted, given that the comps are only going to get more difficult from here, what does that tell you about how much companies may have pulled forward some of their results and the ability to accelerate growth?
TED OAKLEY: Well, I think what happens, and when you’re in a bear type market, what happens is– I think people don’t realize, but I know I’ve been through a number of them, but you– and we do fundamental analysis, don’t get me wrong. But what happens when you get into these kinds of markets is the fundamentals don’t do you a lot of good, because you’ve got a lot more sellers than you do buyers, and so it presses pricing.
And if you look at it, you know, we’ve had about 14 years where we’ve really never had a classic bear market in that length of time. I’m talking about a one to two year bear market. So there’s a lot of players now that have never been through anything like that. And so it’s going to be hard for them to see that coming, I think.
And so we look for the markets to be under pressure. You have to remember, May through September, October, is pretty much the worst time. It’s not a great time to be in the market anyway. So we’ll see how it plays out, but I do think that the pressure will stay on it as you go into the next two to three months.
† And William, as you look at the timing, obviously you’ve said in your notes that the fed has to be careful not to surprise the markets. Given what we’re already seeing and how much of– how many basis points the market has already priced in, what are we then expecting when we finally do hear from the fed at its next meeting?
WILLIAM HUSTON: I mentioned I think they’ve been well telegraphed, that rate hike, and I think that the market wants to see them do what they say that they’re going to do. The market normally is going to welcome lower and lower interest rates. But since inflation is high, I think everyone at this point is in agreement that rates need to continue to rise at the rate that the fed has mentioned, because the market is also very worried about inflation.
† Ted, clients are calling in panic, presumably. What are you telling them?
TED OAKLEY: You know, that’s what’s interesting about this. Not many of them are really worried about it. I think it’s interesting to us that the complacency level is still really high. And you can tell it in the trading. You really– it may look like it’s capitulation to you, but it’s really not. The volume is not that high. We haven’t seen people really get that worried about it. It’s interesting.
When you used look at something like Ark, which is down 70% plus, and yet they brought in almost a billion last week. So I don’t think people are at that point yet. We don’t see that out there from investors.
† Will, do you think people are at the point of looking at other assets? We’ve been discussing and tracking crypto, of course, and Bitcoin back below 40,000. Do you think this is a time where people are saying, you know what? If there’s not a ton of opportunity that I see, personally, for my portfolio in the equity markets, does that push people to other asset types?
WILLIAM HUSTON: I think a lot of people have performed well over the last several years. And so there isn’t too much panic, because there are such outsized returns over the last several years. And a lot of clients are holding cash right now. They’ve been holding cash since January or February. They’ve got a larger cash allocation.
So to your point, are they deciding to increase an allocation to another sector that is supposed to perform well during an inflationary period? They’re considering that. Are they considering taking some of the cash they have on hand and putting that into less volatile things like real estate? Perhaps.
Are they considering more volatile asset classes? I would say if they understand them, but I don’t think people are rushing to invest in something that they don’t understand. And I don’t think there’s a panic situation, because, again, from peak control standpoint, that’s what we’re looking at. I think folks don’t like the uncertainty that’s coming up, but the investors are really wanting to make sure, hey, moving forward, let me make sure that what I am holding fundamentally is a good investment. And on a long term horizon, I can be happy that as it came down I was able to purchase at a discount.
But not everything has fundamentally evaporated. We’re just seeing a correction for the broad market.
† We’ll have to leave it there with our market panel. A big thank you to you both, Ted Oakley, Oxbow Advisors managing partner, and William Houston, Bay Street Capital Holdings chief investment officer. Thank you both for joining us.