Markets opened higher on Thursday despite ongoing uncertainty amid the Russia-Ukraine conflict. John Petrides, Portfolio Manager, Tocqueville Asset Management joined Cheddar's Opening Bell to discuss early market activity.

Opening Bell

Markets Open Higher Despite Ongoing Tensions in Ukraine, Inflationary Risks

now let's get some more insight on early morning activity with john Petrides portfolio manager at Tocqueville asset management of course joins us now. Glad to have you on this morning the market, It really has been experiencing what I call just a seesaw of activity, right? Kind of sharp gains followed by sharp losses, followed by sharp gains again. Um, you know, this mid kind of the tension between Russia and Ukraine, obviously amid kind of, you know, Fed chair Powell's comments, the continued kind of inflationary picture, what's your take on on the recent market activity? You know, that from the big swing? So there's all the information that investors are digesting. Yeah, I I think that consistent with how we ended the year, we did expect volatility throughout the year because in 2021, you really didn't have any. And we knew coming into the year, the Fed was going to have to raise rates at some point in time. But man, if you're a traitor in this market, it is, it is really tough going because just when you think that the market is going to go down, it goes up and just when you think we've all systems go, it goes back down again. But I think if you can put your long term investing hat on there, there's definitely value to be had and at the end of the day, with your, with inflation high, your cash earning nothing and yields on bonds so low, you know, over time, all paths are leading right back to stocks, although it's going to be in a very choppy environment. You know, what's your kind of advice and insight in terms of trading or just investing in this market amid kind of the situation where obviously continuing to see between Russia and Ukraine, you know, while there were peace talks again yesterday and there's been hope for peace to come. The reality is I would imagine as an investor, you probably have to plan worst case scenario and worst case scenario, how do you kind of deal with the market volatility of deal with sectors like like the oil market or even find areas of opportunity? Yeah, I think, you know, in the environment that we're in now is really the hallmark of diversifying. I know that, you know, it sounds cliche and it's not overly exciting, but you know, for the past five years, investors were really not paid to be diversified because the lead horse with technology and growth stocks and now finally you're catching a bit obviously an energy gold is up, bonds are providing some safety, although they're down for the year. So for the first time commodities are catching a bit obviously basic material stocks. So for the first time in a very long time, an investor that had their bets spread out across different asset classes are being compensated and you know, it's not the time now to start diversifying its something you want to do because you know, the reality with investing is we just don't know what the future holds and that's why I think spreading out your bets is extremely important. I want to get your thoughts on, um, the Fed chairs kind of testimony yesterday, you know, before members of the House, members in Congress in the House. Obviously the Fed is going to be testifying. The Fed Chair is gonna be testifying today before the Senate. He was pretty explicit in a way that that I have not recalled him being explicit, you know, in the past. And certainly the Fed in general not being this explicit in terms of talking about recommending a 10% rate hike. Did you expect that? So, yes, we did expect that, you know, I didn't get really the warm and fuzzies from Powell's comments, You know, I know a lot of market strategists are out there feeling comfortable that, you know, at least he was definitive and saying only one rate hike where the market was pricing into. But I think that's kind of shortsighted In the sense that, you know, inflation is in a spiral upward. We're going to get the jobs data tomorrow. And the wage growth is going to be high. You do have an inflationary shock from what's going on, the oil prices now and what $110 a barrel. Uh, and until really we get a combination of the Feds slowing the money printing and and the supply chain easing inflation is going to be an issue now, the growth of money right, which is inflation? We do think that growth rate does slow by year end, but it's going to be above trend from where we were over the past decade or so. There's no question about that. So, I think yesterday and even today is follow through, uh, you know, I know Powell's comments are getting a lot of attention, but I think it's more on the headline that china is looking to ease restrictions on, on on covid. Um, and because that should help unlock a lot of the bottleneck in the supply chain, because china being so strict with their covid standards, particularly the ports, has been the main culprit as to why the supply chain has been so backed up. So, I think that has been that headline I think is driving more of the market more than any, more than really what Powell's definitive comments were on one quarter rate hike. That headline would also kind of give people more incentive. I would imagine to, to proceed with, you know, a quarter percent interest right interest rate hike in terms of inflation potentially, you know, supply side of things easing up with china kind of, you know, unleashing, um, you know, the ability to kind of manufacture more and get goods over here more and the supply chain for sure. Um, obviously Powell gonna speak today and I think investors, top of mind is really gonna gonna be, is he gonna be even more explicit and really indicate just how many rate hikes we could see over the course of this year and into next year. Do you anticipate that he will do that? And how do you think the market's gonna react if or if not? So, no. I think actually uh in a strange way the Russian Ukraine conflict has given him a pass here because I think that had you not had that variable which can add multiple shocks too slow in the global economy to have a real big impact. Um He's allowed to use that now as sort of an exogenous variable that he has to keep an eye on and doesn't want to overly or aggressively raise interest rates where it could add a financial shock to the stock market uh and and to slow down the economy and maybe um at at an untimely point in the cycle. So I don't think we're going to get any more color than that. I think he's going to use the Russia Ukraine Ukraine conflict as uh an ability to wait and see. Listen, he pointed out, he tipped his hand a bit, the jobs data tomorrow should be pretty strong. I mean he said how strong the U. S. Economy is doing despite you haven't seen the impact yet on gasoline prices and inflation through the consumer, but the big box retailers that you've seen, you know Macy's calls Nordstrom's, you know, their their results target walmart, their results are really really strong. I mean, the consumers out there spending despite all the inflationary pressure and despite what we saw with the omicron interrupting the economy. So, um, you know, the Fed is clearly walking a tightrope here and I'm not sure how much more powerful can commit to to a definitive timeline at this point. Yeah, I'm sure at a point he doesn't want to kind of lock himself into into a box and put himself in the corner, so to speak. Um given that there is a decent amount of uncertainty. Um, and events seem like they are ever changing moment by moment, minute by minute. Um, let's pivot to the labor markets. And you touched on that there, Let's start with jobless claims that came out this morning, obviously better than expected, 215,000 I think was the number As opposed to the expectation right around 225,000. What is that signal about the labor labor market especially kind of ahead of the report that were supposed to get tomorrow. And given that obviously jobless claims just as a slight a slightly better kind of lag time in terms of, you know, immediate data from, from the prior week. Well, you know, the Fed starts every meeting saying their mandate and their mandate is maximum employment and price stability. Well, you know, Powell has said repeatedly that they have reached maximum employment in the job market is quite healthy now, they're in a rut because inflationary pressures are starting to spiral. And you know, you're at a point almost where the labor market is so tight. Uh and and and and and to some degree, there are a lot of people who just don't want to or not, don't feel incentivized to come back to work. That's forcing companies to increase wages, which again adds to an inflationary spiral. So, um, you know, this is not a surprise that the job market is very tight and strong. Now, what's going to be interesting is now that we've had omicron, uh, you know, that behind us and you know, the next few months with inflationary prices, so much those people that have been sitting on the sidelines. Well, look there gasoline, their price of their car, the pump has gone up, The price at the supermarket has gone up. You know, the cost of living is significantly more expensive. And if you don't have an income coming in, you're going to go out and need one to help offset that. So I would expect even more of a push into, into the labor market. Again, that should help, you know, unwind a lot of the supply chain bottlenecks that we're seeing. And hopefully by the end of the summer, you know, we're seeing a lot, at least from the supply chain open up and in the economy is really basically taking it to the next level, which at that point, you would expect the Fed to raise rates further to offset growth to offset inflation now. But I want to make one quick comment on inflation and interest rates, you know, here we are, talking about the Fed is gonna be a quarter point, half a point when it's going to happen. The bottom line is we take a step back, interest rates are going up now, we can debate and argue the time and and the pace. But the fact of the matter is that interest rates are going up and if you're trading the market based on short term movements or expectation of interest rates, I think someone is, you're missing the bigger picture here, is that interest rates have to go up. So you have to look at investments that get impacted when interest rates go up and what does well, and what doesn't, that's that's the bigger picture here. You know, we, you know, my new show over weeks and months and quarters as to where interest rates are going to be, but, you know, the reality is they're going up so the wind is at your face if you're trying to play the, you know, the interest rate story Really quickly here, I've got less than 30 seconds, but you made a really good point there, and it just makes me think outside of the investor side of things from the consumer's perspective, at what point do we see relief on these inflationary pressures? Obviously, you're mentioning the headlines out of you know china and supply chains potentially easing up, you know this summer, The supply side of things has really been a part of the probably the biggest factor that has driven inflation up higher. So when is the ease kind of coming? Is it in the fall? It's a good question. I think I think honestly the biggest factor is how long will energy and oil prices stay elevated? Uh, you know, at what point in time does opec come in and and add supply to the market? Is there are the united, is the US able to a negotiated I deal with Iran where they where they add more supply to the market? Um That's the big deal. If if oil stays elevated, spent 100 and $10 a barrel or something or even higher potentially for an extended period of time, you know, the U. S. Consumer has proven to be extremely resilient over the past two years. But how long will that last? Is uncertain. So I think the bigger fulcrum here is how long and how high will oil prices and natural gas prices stay? If if if we have some ease to the Ukrainian Russian conflict and were able to see oil prices come back down to $80 a barrel. Something along those lines. Okay. But if we're between 101 130 140 something like that, That would get me nervous. Yeah, we'd love to see oil back down to $80 and 141 150 number that has come up over the last two days is, is being even more higher probability. That has been certainly scary to hear, john. Always good to have you. Thank you so much, john Petrides portfolio manager at Tocqueville asset Management.