Chuck Lieberman talks latest market trends on Opening Bell.

Opening Bell

Chuck Lieberman

for more insight on early morning trading. I'm joined by chuck Lieberman partner and see io at advisors capital Management chuck, Welcome back to the show. Always a pleasure. The SNP is on pace to finish the week flat despite the slew of corporate earnings beats and C. P. I. Data we've been seeing all week. What's your take on this week's market activity? Well, it's being driven first and foremost by inflation concerns and the need for interest rates to go up the bond market got crushed yesterday. It's rebounding a little bit this morning, but I think investors are figuring out that interest rates need to move higher. The Fed is not in favor of inter meeting interest rate hikes for 50 basis point rise in March. Do you anticipate a more reactive central bank at least later in the year? Either with a number of rate hikes or at least in size? Absolutely. This Fed has not been preemptive at all. They have been very reactive. In fact, they've been slow on the uptake. The data clearly shows a strong economy and considerable inflation pressures. And this Fed is still hoping that inflation moderates on its own without significant intervention by policymakers. So they're slow. They're certainly behind the curve. The market is following the Fed, The bond vigilantes are dead, They're gone. So we're waiting for the Fed tackling inflation also means reducing the Fed's balance sheet as you well know chuck. Is there a concern that there hasn't been much talk about what the central bank bank plans to do about this. Well, there has been some we know that they have to reduce their balance sheet. They know they have to reduce their balance sheet. They're still trying to figure out the pace at which they do. That I'm sure that that there are deliberations going on behind the scenes, but they haven't reached any conclusions. And when they do, that's when they'll let us know what they're thinking. Do you anticipate household spending could decline this quarter, given the rise in prices that we're seeing just about everywhere? What is your outlook on consumer sentiment? Well, I don't really care about consumer sentiment. The consumers spend dollars they don't spend sentiment. Uh that's an old line of mine. Um and the fact of the matter is that we still have very strong job growth. We've got wage growth, consumers have the capacity to spend. Um yes, prices are higher, but so are wages. And so I don't think we're going to see any pullback from the consumer. I think the economy is going to continue to roll ahead at a pretty good clip. And in a sense, that's the problem, the economy is too strong relative to growth potential. That's why the labor market is so tight. That's why we're seeing wage pressures, why so many job openings relative to the number of unemployed. All of that's consistent and I don't see the economy really slowing down for a while. It's the biggest constraint on the economy is not lack of willingness on the consumer to spend or the ability to spend. It's the fact that there are a limited number of people to hire and that constrains the growth of the economy. The NASDAQ is set to finish the week up about .5%. However, index is down 5% over the last four weeks given the the inflationary environment, how should investors rethink their portfolios? What opportunities do you see within this technology chuck? Well, the technology sector is really in a very difficult place because it tends to trade at high pE multiples and high p multiple stocks are most vulnerable to rising interest rates. That's why the tech sector has underperformed why all the high flyers, all the very strongly performing stocks during the pandemic have done very poorly and that's going to continue. Interest rates haven't normalized yet. There's more to go. And as interest rates do normalize, that puts more downward pressure on tech stocks and high multiple stocks than it does on value stocks. So we still favor the value trade over the reopening over the pandemic trade and we also favor reopening. There are a lot of companies out there that will benefit as the economy reopens. I've been on the road quite a bit over the last couple of weeks and I'm astonished to see how back to normal things are, but there's more to go. And so that's the way I want to play the equity market. Financials have climbed nearly 3% in the last five sessions. What's your outlook on the financial sector for the quarter? Well, that's one of the the largest beneficiaries of some of these trends As interest rates rise, their profit margins widen, they pay low interest rates close to zero on deposits and their lending rates will rise along with market interest rates. So their profit margins will widen considerably. That's called an interest margin. It will rebound and that's very, very positive for banks up and down the line. So the big money center banks will do well. And so will the region's expect the banking sector to be one of the strongest parts of the market for the year. Energy is up over 23% year to date. What do you make of energies performance chuck over the last four weeks. And what long term challenges do you see impacting the sector? Energy started off from a very low base because oil prices were weak during the pandemic and it really hurt a lot of those companies. And of course, there's this backdrop of, of renewables. So that combination was almost lethal to a lot of companies and it was certainly harmful to even the biggest ones. But as things normalize as the economy comes back, energy demand is rebounding, we're seeing a large pickup and production even domestically because Opec has really reined in the supplies that it provides the western world and Russia is doing the same thing by the way. So the end result is that oil companies that especially that are domestically based are extremely well positioned. Now long term renewables will take larger mortgage here. That's without a doubt. But for the next 5, 10 years, I think we're going to continue to be significantly under supplied. And that's very good for pricing and it's very good for the profitability of these companies. Moreover, they can't even invest as much as they would like to in their business anytime a company wants to lay down a new pipeline, they know it's going to be a multiyear slog through the courts because the environmentalists are going to fight them at every single possible term. So existing infrastructure is much more valuable. These companies are very well placed to generate very large increases in earnings and also with dividends and probably also in stock buybacks. Any industries you do see with potential upside, uh, the two that you just mentioned financials specifically the banks, but also the insurance companies and energy of the two at the top of my list. Others are more variable. For example, real estate investment trust, They will also benefit from higher inflation, but some of them are quite expensively priced tower companies. Industrial companies trade at high multiples, uh, heels are low, whereas there are others that will benefit from the reopening trade. One of the sectors or sub sectors within reads that I really like are the companies that are um, in nursing homes, nursing homes will do extremely well. And that's one of the places where I'm very heavily positioned. Very interesting. Alright, chuck, Lieberman, partner and Ceo at advisors Capital Management, we always appreciate the insight chuck. Thank you so much.