Joining me now to break it all down is Eric
Lynch, Managing Director of Sharp Investments. Eric,
thanks for joining. Thanks for having me today to
talk about in the stock market. Our viewers see
a mixed market today. The fed as expected,
a pausing on rate rises. What do investors need
to know? Yeah, I think it's quite clear
. Fed has basically said look, our priority is
inflation. We're going to bring it down. We
don't care about full employment and that was basically Chairman
Powell's first statement in the press conference. We're worried
about those that are suffering from inflation. What happens
next? Where do stocks go from here? And
how does the economy factor into that? You know
, I've looked back at the last four rate hike
cycles and all the way back to 1989. And
it's been basically kind of shockingly surprising that there's about
a 12 month lag between when the fed pauses,
not when it increases the rate for the first time
, but when it pauses the hike for a recession
to occur. So if that's the case, the
implication is that this kind of bull case sentiment that
the second half of 23 is going to be a
re acceleration of the economy and earnings could be premature
. And especially now after today, because I think
Powell basically said in no uncertain terms, we are
here to slow it down, we want employment to
go down. Do you see a recession on the
horizon? Yes. The question is when that's not
profound. We've all been wondering this for a long
time now, but you see it in the leading
indicators, you're seeing it basically, even though people
are kind of excited that the economy is hanging in
there. Remember that its GDP and employment. These
are always the last two generals to fall in every
economic cycle. And so it's just a matter of
time because the Fed has basically said in no uncertain
terms today, we will slow this down. So
the takeaway for investors is really what do we do
? Where do we find opportunities to still get price
appreciation if the market itself is going to be facing
some significant headwinds? And what are some of those
opportunities that you see in the market? Yeah,
I think it's an earnings recession playbook, right?
And the bad news is this earnings recession we're in
probably is going to continue as this credit tightening continues
to impact the economy. But there's always ways to
make money. That's the good news. And what
you want to do is find companies that are still
growing in this environment. One way is to basically
shift play, the shift and spend from goods to
services. So the revenge travel space right, booking
holdings is doing great target Home Depot or bring guidance
down. That's one way another way is to invest
in businesses whose earnings are GDP in sensitive health care
is a name that grew its earnings double digits in
8 2009, the heart of the financial crisis because
they just ship pills from A to B. And
then finally, a third way is really to invest
in companies with a lot of cash. Cash is
king because it gives you three levers, you can
buy back shares and increase your profits. That way
for share, you can issue dividends or you can
buy companies. So all those allow you to grow
your earnings even in a economy. So for investors
dipping their toes back into the markets right now,
those are some of the sectors that you would suggest
short term or long term. I would say intermediate
term. Yes, they should all do. Well
, I expect the economy to slow. The fed
is going to make it slow. Earnings are not
going to bounce back. And so you got to
find non GDP correlated earnings growth. Those are good
opportunities. Let's talk about cash because for some people
even in a high yield savings account, they're getting
4% maybe even a hair more in certain high yield
savings accounts. Should that money stay there? Parked
in cash at 4% or do you think it is
time to perhaps unload some into stocks? It's probably
wise to make small reallocations along the way. So
you're not making this binary decision. It's a great
question. I think, you know, obviously the
problem is if interest rates do start coming down back
after this year or next year, let's say next
year, you're going to have reinvestment risk, right
? And the client or investors are going to have
to put that money to work at lower rates.
So it probably would be wise to slowly build some
equity, particularly if those clients or investors are kind
of underweight in equities. And in terms of what
we see globally, I also want to talk about
the international market because us stocks obviously are a place
to play international stocks, developed markets, emerging markets
, of course, oil, these are all options
as well. Any particular views on those asset classes
. Yes, it's a great question. This looks
a lot like the set up in 2000, Kristen
where at that point, tech stocks the world in
the late 19 nineties and so international stocks value stocks
, small cap stocks all lagged terribly. But then
from 2000, the financial crisis, the non tech
leadership assumes leadership of the market and so international looks
great. Those valuations are several multiple terms less than
the US. The S and P 500 is trading
at 20 times 23 earnings. The MSC aqui U
is trading at 12.7 times so much reduced valuation.
Japan is also very interesting that Japan has been this
great hope for years that they would get focused on
corporate governance. You just saw the Toyota news here
today, but it is happening. They're getting some
teeth and I'll tell you why the Tokyo Stock Exchange
is now basically threatening delisting in 2025 if Japanese companies
do not improve their corporate governance. And so what
you're seeing is already some significant share buyback announcements.
Citizen watch basically announced a 25% reduction in their share
count. Stock went up in proportion of 25% this
year. Sony just did a big buyback announcement.
Honda just did that as well. So I expect
Japan which has had a good run so far,
but the multiples are still cheap to continue to outperform
in the years ahead. Yeah, there's been a
lot of talk about Japan. I think in the
wake of certainly the banking crises that we saw this
year. Buffett coming in saying Japan looked attractive,
one of several markets guests just that I've had on
the show in the past few weeks that do say
Japan looks attractive so maybe our viewers can give it
a look as well. Eric Lynch, Managing Director
of Sharp Investments, Eric, thank you. Thank 00:06:26.209 --> you.