U.S. stocks closed Monday's session near session lows after posting their second best showing of the past 12 months last week.  The Dow dropped 0.2%, the S&P fell 0.3%, and the Nasdaq had the biggest decline of all the major indexes, ending 0.8% lower.  Tim Pagliara, chief investment officer at CapWealth, joins Cheddar News' Closing Bell to discuss.

Closing Bell

U.S. Stocks Close Near Session Lows

all right, turning back to the major averages joining us now is Tim petrolera chief investment officer of the wealth management firm, cap wealth. And we want to ask, what is your reaction to how markets closed today. I think it's to be expected. We're going to be in a wait and see period as earnings and fed action and everybody's response to inflation um, kind of takes hold so I wouldn't read too much into it. I expect more of this to come now. You say investors should focus on one investment at a time and not be tempted by indexes or E. T. F. Why do you think this is a better option? Well, when you buy the index, you're buying a lot of junk right now, You know, you're buying companies that don't have earnings don't have revenue, don't have proven business models. And it's, it's shown itself, I mean peloton was 100 and $86 a share in july of 2000 and 21 I stopped looking when it got down to 10 or 12, that's the kind of thing that's still embedded in these indexes and it's not going to be an easy ride out. This is going to take a number of years um, for that to happen. You know, Goldman Sachs put a sell recommendation on roadblocks, Ebay and netflix all on the same day after they had already dropped at least 50% some 70%. So there's also a mistrust of south side analysts and how effective they have been in guiding investors um, through all these problems. So there's um, it's not a good time to be indexing and passive, you wanna know what you own and make, you know, commitments to companies that have proven business models, earnings and profits, excess capital that they are earnings that they can distribute in the form of dividends. Now, cap wealth has said that for its clients, it is currently looking at companies that are well positioned for recession. So let us in what are some of these companies looking at. Well, this is what we always do, but you know, for example, um company like lumen um is one of our larger holdings, we feel like it uh captures a lot of what will happen with the infrastructure bill and the need to bring high speed internet traffic to different areas of the country. We see that as a growth business and they're well positioned to move forward and we see things like CVS as a great value play, good dividend, essential service with a good business model. Our largest holding right now is Williams Group. Williams is a natural gas pipeline um consortium of companies and so you're going to, we're gonna pump more natural gas and they're gonna make money as they do it. So there's not any real um magic to what we do. We just know our companies, we've had relationships and been building positions and a lot of them many times for 20 plus years now. You also said earlier today that when supply chain issues subside, we will still have inflation that could take up to 3 to 5 years to adjust. Why do you believe it'll take that long? What is the reason for that timeline? Well, if you look at what is driving inflation, we've got a shortage of energy, we have a shortage of housing and finally we've got bad government policy. And until you eliminate those shortages and energy and housing, you're gonna have inflation embedded into the system of 3 to 4%. And then government policy, they talk about quantitative tightening. But even if you take $100 billion a month out of the Fed's balance sheet, you're still borrowing 1.5 to $1.6 trillion on deficit spending. So all you're really doing is slowing the growth of the Fed balance sheet. And then what people need to be concerned about is that if you have economic activity dropped, like they're projecting no GDP growth in the second half of the year, then you have a problem with tax receipts and you have to even borrow more money. So the idea that you can solve this inflation problem, it's been building over a number of years and it will take a number of years to rectify. All right, keeping with the optimism stocks last week posted their second best showing of the last 12 months. So what do you think was behind this? And do you believe in though? It might be hard because of how we ended today. Do you think that can continue this week despite stocks obviously ending lower. I think it's again, it's company by company. You had said earlier in the program that the market was oversold. And I think part of this is that there's still a lot of money in the system. You know, we created 40% more money from february of 2000 and 20 than ever existed. And so there's cash everywhere now. It may be depleting from inflation and consumers that they after they um, you know, spend some time, you know, traveling and whatever. Um, but their wallets are shrinking by inflation and, and that will show up. I believe in the 3rd and 4th quarter of this year now as Covid deaths continue to remain low. And Covid seems to be easing. There's vaccines for youngest americans now and it seems like we're inching closer to the end of the pandemic. So what impact do you think this will have on the markets? Well, I think it'll be relief. And it's one of the things that I think we can look forward to to check off the box of one less thing that we have to worry about. And while, you know, the health care providers are still concerned, I think what we've arrived at is a manageable position now between vaccines and and immunity in the population and the decrease in the seriousness of hospitalizations related to when people get covid. So it's basically relief. It's one less thing to worry about. I like one last thing to worry about TIM I really do to tim bagley, chief investment officer at Cap. Well, Tim is a pleasure to have you on. Thank you so much for joining us.