Jason Ware, Chief Investment Officer at Albion Financial Group, joined Closing Bell to break down recent trading action, and chat about some companies that are making investors happy in this volatile stock market.

Stocks Close Mixed Tuesday as Investors Turn to 2023

joining me now is Jason ware chief investment officer, I'll be on financial group, Jason, I hope you had a great holiday. Good to see you in some festive christmas colors there. What do you make of some of the market action that we're seeing heading into the end of the year. Hi, good to see you happy holidays to you as well. Kristen. So you know, great question. What we've seen is some weakness going into christmas here the last five trading days before christmas was certainly, um, not a welcome gift for Wall street and that's, you know, not unprecedented, but it is unusual. Typically if you go back over 50 years of market data, you'll see that about 75% of the time the market rallies into christmas, we didn't get that this year. So what I think that means for a really short term oriented market watchers is that if we don't get a rally in the next five days and indeed on the other side of the new year for the next couple of days. In other words, the santa claus rally as it's known, then I think that could portend for some extenuating, did you know, short term weakness in the stock market, The old saying, you know, Santa should fail to call. Then bears may come to broaden wall. That certainly could be the case as we turn the page into 2023. Um, so a lot to watch over the next few days. Yeah, Jason. Um, and I think probably kind of a finish into 2022 as to what we've seen most of the year, right? Certainly with the NASDAQ under Performing the S&P. Kind of in the middle and then the Dow doing just a hair better but really not by much. And the Dow of course still lower along with the major indexes for the year as the chief investment officer. What are you advising your clients heading into 2023? How should they manage their money? Yeah. Great question. So for the last several months, based on our internal economic forecasting model that we have used for a long time that really looks at the what we consider to be the seven best um leading indicators of the economy. Those have been telling us that recession in 2023 is likely. So that's our base case and we we we we remain quite disciplined and we follow kind of a rules-based model that we have internally. So what we've been advising clients is you want to stay fully invested right because we're still structurally bullish on the U. S. Equity market when you look several years down the road, we think certainly prices today are nice opportunities for longer term investors but we also have to respect the short term path that we're on in the near term macro headwinds and those macro headwinds are likely recession. The Fed that's still raising interest rates, inflation that's starting to come down but it's still problematic earnings estimates that are too high next year and there are likely to come down as well. So we think it's gonna be a bumpy ride. So you want to make sure you get the asset allocation right for your goals and your time horizon, your risk tolerance. We do that for our clients constantly based on their financial plan. But we also want to adjust the equity allocation to try to smooth the ride. And we've been doing that over the last few months by tilting away from our higher beta growth stocks and more toward low volatility, high dividend type stocks to try to again smooth that ride while we stay fully in. Mm Hmm. I'm just curious. Jason in terms of what you might advise clients to have cash on hand, cash on the sidelines. If and when this market does start to turn right. I mean, you're right. We expect rates to rise for the foreseeable future based on what we heard from the Fed Chair. But how much cash would you advise investors have at their disposal as we head into 2023. So we we retain a fully invested posture for our clients. Cash is not necessarily a market tool to time when the equity market's gonna pivot, but instead, cash is more a function of short term needs, you know, if you if you need cash inside of the next couple of years, it should probably be in cash as opposed to the stock market because obviously, if you have, if you had cash The beginning of 2022 and you needed to use that six months later, that would have been a terrible place to have or the market would have been a terrible place to park that money. Instead keeping it in cash, keeping it stable is a better way to go. So cash is not so much something that we advise clients to hold based on our outlook for the stock market, but rather it's a function of what a client needs in terms of liquidity over the near term and anything that's inside of a couple of years. you should stay in cash. So short, short answer is we don't play the market with cash, we stay fully invested. Instead we turn the dials on the type of exposure we have in the equity market. And again, we're a little bit more defensively tilted right now than we have been in years past. Are their defensive names, Jason or even defensive kind of broader sector. EtFS mutual funds that you think do look attractive right now. Yeah, great question. So Lockheed martin is a great example of a stock that we've added to all year. I mean obviously we're seeing um a an improving unfortunately um you know, bull case for Lockheed martin, we're seeing, you know, global defense budgets going up not only obviously here in the US but just across the board in developed nations because of what's happening in Ukraine because of the saber rattling with Taiwan and china. So Lockheed martin has a great multi year business and is trading at a reasonable valuation with a nice dividend, but it also has a very low beta relative to the S and P. 500. So we've been adding to Lockheed martin position all year. We've also been using an E. T. F. L. V H. D. It's a low volatility high dividend. T. F. That is well diversified. It owns over 100 positions but is tilted more more toward defensive sectors like healthcare and consumer staples and utilities. Which lowers again that data I. E. The volatility relative to the market but still allows us to retain fully invested posture. If we're wrong on a recession call in the market were to rally next year, L. V. H. D. Is going to participate a little bit less so, but a lot more so than cash. If our call on the economy is correct and we see the market take another leg lower, which we think is likely to occur than L. V. H. D. Is going to follow that directionally. But it's going to do so in a much less acute fashion. So that will be the source of cash in getting back into the market when our economic model suggests that the recession is likely nearing its end. All right. Jason where Chief investment officer, I'll be on financial group. Jason, happy holidays