Thomas Hayes, Chairman at Great Hill Capital, joined Closing Bell on set at the NYSE to give his take on recent trading action, and look ahead to what the rest of 2022 may hold for the volatile stock market. 

Stocks Close Higher Tuesday as Investors Seek Holiday Rally

And let's turn back now to the major indexes, I'm joined by thomas Hayes Chair at great Capital Tom, thank you so much for coming on the show. Good to see you in person. Finally again, wow. Great to be here amid the pandemic is wonderful to have you. So a decent day. A decent day for stocks. No question. Yeah. What do you make of the market action? Well, I think Kristin, no one is positioned for any good news and you're seeing a little bit of a chase up. If we look back back to the Bank of America Global Fund Manager survey just about a week ago we saw managers have the highest cash level still since the pandemic lows, since the great financial crisis lows since the tech wreck close. So any bit of good news is going to drive this market higher and that's what we're seeing today. So I think what you're trying to tell me is that there is still a lot of money on the sidelines, right? Money that does at some point need to be put to work. No question about it. And people are worried about inflation. There's no question about it. But when You look back throughout history, even in 1982, which was the worst inflation about the S&P dropped only 27%. We dropped 25% peak to trough in October of 1982, Volcker came out while inflation was still close to 7% and he said we may change tactics and that's all he needed to say within four months. The market recovered all of its losses within a year it was 20% above its all time high. So I'm not saying that's gonna happen necessarily today, but we do have the favorability of seasonality post midterm election. So on average markets up 18% 12 months after the election and november through May is the best time to be in stocks. Well, let's go back to the Fed because I think some people are expecting that right? As soon as the stock market does start to turn, I think a lot of potential retirees are hoping that the stock market really does rip can Fed policy impact the stock market in that way. Yeah, it has impacted the stock market and they've been talking down the stock market, although we did have mary daly from san Francisco yesterday, she came out and she said that the financial conditions are so tight right now, it's as if the Fed funds rate is at 6%. She's a break from the consensus, which means they may be getting ready to dial things back in a sense, in december going 50 basis points versus 75 we've had four emergency as you know, that's some serious tightening so 15, maybe 25 then maybe pause if the market starts to sniff that out. People are not positioned for that and you're gonna see days like this over and over and santa may come to town santa. Like for the santa claus rally right, okay, well that would be a positive last five trading days of this year. First two trading days of next year, santa claus rally good for more than a 1% gain on the S. And P. That's right. And and also you see some season in in december as well, you know, I like Warren Buffett. He says if you wait for the Robins to sing, it's already spring, everyone's looking for these earnings revisions to come down okay earnings revisions for next year. I've come down about 8% in the last five months and you have analysts out there saying they're going to come down another 10% another 20%. But if you look at the last five periods, the stock market bottom 6 to 12 months ahead of the trough in earnings. So if you, you do believe earnings are going to come down 10 to 20% that's not a reason to stay out historically. That's a reason to start to add in the highest quality stocks. And I think that's something that investors should remember to write. I mean typically the stock market is 6 to 9 months ahead of kind of where main street usually is right. You got it. Exactly. It's a discounting mechanism. So everyone looking for the recession, they're looking forward at the gloom. That's going to happen. But they're not looking back at the 25% peak to trough correction we had in the S. And P already the 33 some odd percent correction in the NASDAQ. So I think it's the time to start to ease into the highest quality stocks that are on sale and there's a lot of them out there. Okay. What are some of the highest quality stocks that people should be biting at for maybe some of these black friday deals? You know, I follow Warren Buffett, I think it's really interesting while most managers were sitting sucking their thumbs, worried waiting for china to to invade Taiwan, Warren Buffett went in with $4 billion. Taiwan Semiconductor. That's trading at 13.5 times forward earnings. It has a five year earnings growth rate of 21.5%. Moving forward. They have a moat around their business. You look at amazon, amazon has been cut in half. Why they over spent on warehouses during covid they thought that would be extrapolated that forward, that was going to happen forever. They're cutting those costs back. Amazon is going to be fine. We saw Disney with bob iger, that's another stock down. 55%. They've got a huge mode. If you look 3 to 4. Yeah. Are more people are going to go to the parks or less people more subscribers on Disney plus subscribers grew the parks grew 36% in the most recent quarter year on year. The problem was the spend on Disney plus and they took care of that by getting rid of bob and bringing back in bob iger. And he's going to bring some great creativity. So how do we make sense of the Disney stock price move though? Because it was initially up with a nice pop on the surprise iger news. But then I do see it well, it's the knee jerk reaction. Then then the next step is, what's the plan? What are you going to do for the $27 million that they're that they're giving you over the next few years. And I think bob will certainly be out in the next couple of weeks with that plan. And I think the market will be very comfortable moving forward. He has the relationships, he's going to invest in creative content and he's going to cut the cost at Disney Plus to make it worthwhile. So let's talk about the dreaded r word recession since your forecast imply recession. Tom on the horizon. Well, I'll tell you, we may have already had it and and it hasn't been declared yet. You know, first two quarters of this year, negative GDP growth as you know, the third quarter X 11 off exports. We also had a negative 110.6%. Even though the headline number was plus 2.7, those are one off energy products. So we may have already had three consecutive quarters. What would happen to the market if next week neighbor came out and said, oh by the way, we did have a recession in the first half of this year and people are in all this cash, highest cash levels since the great financial crisis market would take off. That's not to say that won't happen. But even if we do have a recession moving forward, I think a lot of that may already be discounted into stock prices of high quality companies and there's opportunity here. So going back to some of these retail results that we've been getting and will have Nordstrom here on the docket momentarily double digit pops now, is that just in case so much bad news was baked in the pen Level is so palpable right now and the consumer is really strong. They still got a ton of savings left over. The average homeowner has $207,000 of equity that's across the entire country. They've got record savings still. I know that you're seeing the credit card spending move up, but the consumer is still in good shape and that's why our base case is a softer landing, maybe below trend growth for next year, but not necessarily a recession. And even if we have a lot of it's certainly priced in with great stocks. So look into your crystal ball. Okay, got to dust it off, Dust it off. When does the stock market finally turn around? When can we see a bottom? Yeah, I mean, it's it's unclear, you know, he who picks bottom, gets stinky finger. However, uh, we may have already seen it. I mean, we had the bottom in, in june, we had the retest in october, you know, and we actually uh went below that. I wouldn't be wholesale buying the industries, I would be buying the highest quality blue chip companies that have been cut in half on sale. Like the Disney's, like the amazons, maybe the Taiwan semiconductor, if you're a little risky now, now that the dollar is coming down, international stocks, stocks are going to start to come back and play in the next 12 months. So there are opportunities. There are a lot of things to do out there. We'll have to have you back on the show to talk about this international stocks because still so many questions right about europe amid this invasion, but perhaps some deals to be had. So thomas Hayes, chair at Great Hill Capital, thomas, thank you. Thanks for having me, kristen