Chuck Lieberman, Chief Investment Officer at Advisors Capital Management, joined Closing Bell to give his take on Wednesday's trading action as investors consider midterm election results so far, and look ahead to the Fed's upcoming decision on interest rates ahead of the CPI report due out Thursday.

Closing Bell

Stocks Close Lower as Investors Digest Midterms

but you hear kind of the loud noise behind me on Wall Street. So let's turn back to the major indexes busy day in the wake of those midterms yesterday and I'm joined now by chuck Lieberman partner and chief investment officer advisors, Capital management chuck. Thanks for coming on the show. So stocks ending your session lows and you gotta tell me, is this all because of the midterm results that we've received so far? Yeah, I think so. I think you've called that correctly, um, markets, I think we're hoping that there would be more gridlock. I think we are going to get gridlock. It just won't be quite as sharp as we thought. It was likely. It's a mild wave as opposed to a tsunami. So it'll be difficult to get stuff through Congress and I suspect the market is still going to get the outcome that is hoping for. Well, certainly we see stocks under pressure as investors take risk off the table chuck third quarter earnings still coming pretty much above expectations, but not as many beats as we usually see which investors making the layoff announcements that seem to be really kind of ramping up this past week, meta. Obviously with the announcement today and then Salesforce announcing some of its own layoffs earlier in the week. Yeah. But when you put those numbers into context, these are not huge numbers. Um, in the case of meta, 11, 12, 13,000 last month we hired close to 300,000 for the month for the entire economy. So these are marginal changes. Obviously they're part of the overall story or perspective that chances are still good that we're gonna have a recession. Uh There's no evidence of a recession as of yet. But the Fed is trying to contain growth that prefers to have slower growth, much slower growth than we've seen. So this is part of the way of getting there, but we've got further to go. Yeah, I think a lot further an investor is a little bit worried. It seems like as to whether or not the bottom has been put in chuck. What would you advise investors that they look at the still shakiness in the stock market? Yeah. Well the stock market is likely to be pretty volatile at least until we get true clarity and that may take a while, but when you step back from the trees and look at the forest, the market's down quite a lot from the highs. Uh a lot of stocks are trading at inexpensive valuations, more than 20% of the S&P trades at a multiple of 10 or lower. There are lots and lots of good values out there. So when you ask yourself the question is it, should I get out, Is it time to get out? I think it's long past the point where it was reasonable to get out at this stage of the game, it's too late. Uh Is it too early to buy? And I think it might be, we might see lower prices. But I think when you step back and look at current valuations, if you ask, am I gonna be happy if I buy something today in a year or two? I think the answer is yes. So I think it's an appropriate time to start putting a toe in the water, interesting. So dipping in bit by bit chuck and investors are prepared to do that. What's the best way to go about it? We'll certainly figure out where you want to be. Uh do you want to be fairly aggressive in your positioning? Do you want to be fairly conservative over what time frame work? Are you comfortable getting into the market? Should you layer in periodically? I think it's a very appropriate way to handle it. Uh From my perspective, I think valuations are attractive enough. I would put a significant slug of any cash that I'm planning to invest into the market today. But I can readily understand some people being a bit more cautious than that and wanting to wait until there's really more of a sign of a turnaround. But I think that also means you'll miss the big turn because often when the market starts to recover it rips. Yeah, I know it happens fast, right. Historically. Some people wondering if this time is different, obviously, the Feds saying it's going to continue its restrictive policy, at least for the foreseeable future and that rates will end up being higher than the Fed had originally expected. I think the Fed, you know, people can say it was behind the curve, certainly when Powell called inflation transitory just a little over a year ago in september of last year. But to the Fed's credit, I don't think it could have foreseen. Certainly Russia's invasion of Ukraine. Perhaps even another major lockdown that we saw in china toward the early spring, end of winter of last year as well. So as we head into these winter months knowing that the pandemic is still with us and Russia's invasion of Ukraine is still happening? What are the risk factors that investors need to know? Well there are plenty of them. There always are. I love the line that forecasting is very difficult, especially when you try to forecast the future, there's still lots of opportunities for things to come along and bite us. The Ukraine situation could get worse. We could run into global shortages of energy for any one of a variety of reasons. You mentioned the pandemic? There could be another strain that comes along? Um There are always things that can come along. But again, step back. Are these valuations attractive from a long term perspective, do they make sense? Are there a lot of risks in buying in today? And I think at current levels, the market is actually fairly cheap and so I'm comfortable buying, but I can also understand people wanting to be a little more cautious, at least on an interim basis, but I think it's also very interesting looking at the markets behavior when things sell off, they sometimes sell off sharply, but they don't go down very long. They tend to bounce back and sometimes the bounce backs are also pretty hot, pretty sharp. So that tells you that there's a lot of money on the sidelines and people would love to be able to buy in at lower prices, which tends to limit how much the market can go down. So how forward looking chuck is the stock market for anyone who's trying to time it or at least basically plan right, what to do with their money going forward, Knowing that the broad expectation is a recession will hit next year. More layoffs probably in the tech sector are to come, even though we know there are still plenty of jobs, millions of jobs that actually need to be filled. Um, and so with the notion that the stock market is forward looking, what is the time horizon that you think we might start to see a turnaround in stocks? Well, it's really driven by a couple of key elements. Uh, certainly the question of how many times more the Fed is going to tighten monetary policy, where is the peak? And interest rates were at 4%. I think most of us expect the funds rate to go to at least five, if not 5.5. Um, so that expectation is built into the market. If we ever came to think that the Fed is close to being done, then I would think the market would have tremendous upside. So that's one of the variables that I think will drive considerations. Another is the performance of the economy. We need to see slower growth and it's almost a precondition for the Fed to stop hiking rates. So keep, keep a close eye on payroll employment every month. We need that number to go down to somewhere between zero and 100,000 on a monthly average basis because anything more than that means that the underlying unemployment rate is still falling. So the Fed is not making progress towards slowing the economy down enough. So those are the variables to keep an eye on. So, you know, there's been a lot of discussion check, especially amid pretty big layoffs that we've seen in the technology sector. Again, meta salesforce, even twitter since Elon musk has taken over in the past week. All of those twitter layoffs that we covered on friday of last week as well that the tech stocks, these tech companies, there will never be the same. I mean after what was massive growth in the wake of the financial crisis, I think a lot of people thought these technology names, their leaders, stocks, they were just invincible almost. I mean, are there structural changes happening for technology companies and thus technology shares? Well, it's a much more complicated answer, I can't give it to you very quickly. First of all start off with Twitter, Twitter is a small company in terms of headcount, they laid off half their workers. That's only about 3700 workers. It's not enough to move the economic needle. Uh, it matters a lot if you're an investor in Twitter, which of course Elon Musk is. But you got to look at these technology companies one at a time because they have very, very different economic fundamentals. Some of those companies are still going to be great leaders in the economic recovery when it occurs and the question is whether those stocks have fallen enough to be attractive at current levels. I think in the case of technology stocks where the multiples are high, make that judgment is a bit higher harder. We think that these are good companies long run, you can't really down Microsoft alphabet or or apple. These are great long term investments amazon they trade at high multiples, multiples have collapsed but nonetheless, they're still on the high side. So those are all difficult individual decisions and we like a lot of those companies longer term, the short term might still be pretty rocky for them. On the other polar extreme we have lots of companies trading at low multiples where the issues are not so hard, take the banking industry, banks trade across the board at low pE multiples. There are a number of banks, major banks that traded price two books of one or less. Those are cheap stocks. And yes, there may be some losses that they take in their loan book if there's a recession, but they're highly prepared for that. They have very, very good capital bases behind them. The Fed forced them to build up those capital bases, so they're in a great position to handle the recession. I think a recession when it comes is likely to be mild. So I think of the banks pretty much almost across the board, it's very, very attractive from a long term basis. I think you can still differentiate, but you could also throw darts and you'd be very happy. All right chuck. We're gonna leave it there. Great to get your insight, especially on, you know, kind of a volatile day for the stock market, with the outlook a little bit uncertain to that is chuck Lieberman, partner and Chief investment Officer advisors, Capital Management.