Jamie Cox, Harris Financial Group Managing Partner, and Matt McCall, Stansberry Research Senior Technology Analyst, joined Yahoo Finance Live to talk about technology and cybersecurity stocks ahead of the expected retaliatory cyberattacks from Russia as well as the schedule of the Fed’s interest rate increase.
Video Transcript
EMILY MCCORMICK: Welcome to Yahoo Finance Live. I’m Emily McCormick, here with Brad Smith and Rachelle Akuffo. We want to get a final analysis of the markets before the closing bell, because a rally is being held on Wall Street. We have all three major stock indices that are stable in positive territory. The Dow Jones Industrial average was up more than 600 points, or about 1.8%, the S&P 500 was up nearly 1.9%, and the NASDAQ was up nearly 1.7%. And here is the bell.
[BELL]
RACHELLE AKUFFO: All right, there’s already the closing bell as we look at how things are fixed. I would like to bring our panel. Jamie Cox, managing partner of Harris Financial Group, and Matt McCall, senior technology analyst of Stansberry Research. So as we saw there, quite a turnaround, seeing all three major indices end in green now. We see the Dow up 1.79%today, the S&P up 1.86%, and the NASDAQ ending 1.62%. So a strong day all around.
Jamie, I want to start with you first. You’re talking about going beyond massacre when it comes to software stocks. What are you watching there? And why are you so bullying them?
JAMIE COX: Well, these particular companies have very strong revenue streams and growth prospects. I mean, the absolute killing you see in software stocks like ServiceNow and Shopify, these things actually happen very often, maybe almost once a year, in the case of some of them. And we see corrections of these stocks all the time seeing them drop 20 plus percent, only to return to high profitability after 18 months. So if you get opportunities like this, you should pay attention to ServiceNow, Okta, Zscaler.
And within the software, you should pay attention to cybersecurity stocks because when you see all the things happening in Russia, these companies will look to try to help people for these attacks. There will be higher revenue they will receive in the next two months, so in the next two quarters. So, in my view, these are the types of companies that you don’t get too many opportunities to buy at these levels. So if you’re looking for places to find an opportunity, these are the perfect places to find it.
RACHELLE AKUFFO: And Matt, in terms of some of these long -term buying opportunities, what are you looking at, what do we see in history after some of these geopolitical scenarios have calmed down and the market has returned?
MATT MCCALL: Well, Jamie has a good point. Software stocks have been beaten. Tech in general, I mean, the NASDAQ, just a few days ago, about 47% of all NASDAQ stocks dropped at least 50%. So just to get back to where they are, that’s 100% benefit. That’s double. So I think there are a lot of opportunities now in tech stocks. And a lot of people are focusing on what the NASDAQ, the big indices, does. But under the hood, many stocks have actually lost.
And yes, they were a little ahead of themselves then, but these geopolitical concerns will wrap them up with inflation, higher interest rates. I believe it is all priced in many of these stocks of growth and change. And regardless of geopolitical concerns or who is in office or inflation, change will win over time.
So I think this is a good opportunity now. During the crisis often come great opportunities to buy from high-quality companies. Short-term, you never know what’s going to happen every day in the headlines, but if you’re looking for the long-term, which most investors are, I think you’re starting to look at the sweet spot and start picking up shares. here in the chin.
BRAD SMITH: At what point, Matt, the dip purchase starts to break down, especially if you have people setting long positions and saying, OK, I bought at the last dip. I am set for my long-term horizon. Where do you go on to see more rotation perhaps within their portfolio?
MATT MCCALL: That’s a very good question because looking back, and lately, you’ve seen that we were reduced, obviously, in early 2020 to COVID. In late 2018, we had a big decline in the markets, which almost landed in a bear market. You know, and if you look at any big winner in five, 10 years, or more, most stocks will have pullbacks of 20 plus percent several times, as Jamie mentioned, stocks of software. So for me, you have to know, you have to deal with the ups and downs.
For me, as long as the reason I bought that stock for the long term doesn’t change, the business model doesn’t change, the trend still continues, you have to realize, you have to go beyond that. And most people usually have power on the side, and they can use that for the next downturn that happens in the stocks they want to enter.
BRAD SMITH: And so, Jamie, I’m bringing you back here– and I’m glad you released the cloud names because I’ve been tracking some of them throughout the year. I think this 30% plus is less that we’re also watching in Salesforce, which we’re just also getting new data from yesterday. And so with all that in mind, there is still within the technology landscape the rising interest rate environment that many of them were reactionary even before this week or even before the international battle.
And so how long do you expect them to be reactionary even if Fed Chair Jerome Powell signals that he will support the 25 basis point hike? How much more do you believe they will continue to be kind in this situation and perhaps be in their own illness until the Fed clearly signals how much interest rate hikes will happen and the depth of those heights?
JAMIE COX: Yes, you hit the head. I mean, you see that since November the Fed has said it will delay interest rates and stay on its current path relative to the dot plot, and then just a month later, in December, and in January, you will hear the complete opposite. . Oh my God, we need to raise rates fast. And so the markets are really having a hard time digesting exactly what the path rate will be.
And that’s really ground zero for high growth names. If you start raising interest rates very quickly, you will start to see cycles in them in stocks that have value. That’s exactly what you saw. So as we go through January and mid-February, where the 50 basis points in the lift-off kind of became the consensus forecast for March, you know, you start to see these names really lose out.
But, you know, I think Chair Powell wrapped the ribbon around it today and said, we’re not going to be 50 in March. In fact, we get to 25 and then slow down because we magnify the uncertainty on two things. The first is that we have a Russia-Ukraine conflict of an indefinite duration. We don’t know how that will play into the many unintended consequences of penalties and things like that.
In addition, let’s not forget, last night, in the State of the Union, there were no masks. COVID is a common type of washing. And so you see what could be the peak of inflation. And the Fed may not have to go fast. So if you are– so if you expect there to be a big shift from goods to services, which is likely to happen, if COVID restrictions will reduce travel friction and things like that, you’ll see rate environment, they may not have to be as fast as people think.
And if that’s the case, it’s more confident in our argument that these stocks have lost too much, and most interest rate, rate path– the rate path, the increase, the rate of change is likely to be priced at it. stocks related thereto. So that’s the kind of thing that I think most investors should pay attention to, that the Fed was generally skeptical of some of its harsh rhetoric in early February and probably had a slightly different perspective. , perhaps looking at balance. the reduction versus the Fed fund rate is rising as its way to reduce inflation, which may be in the process of popping up now.
EMILY MCCORMICK: And Matt, I want to give you that Fed question as well, because of what we heard from Fed Chair Jerome Powell earlier. What do you expect the Fed to telegraph in a few weeks in terms of how much interest increases might be on the table for this year?
MATT MCCALL: Well, I think they’ll say it’s data dependent. And within that data would be geopolitical conflicts, in my opinion. So it’s really going to be a meeting to meeting decision, I think is what they’re going to say. But that said, I think we probably have 25 grounds for the next four or five meetings. And I think it’s priced.
And Jimmy made a good point. I think we priced the likely worst case scenario of 20 to 5 and probably possibly about 50 basis point rate hikes throughout the year and into early 2023. And I don’t see that happening. I think it’s going to be slower than most people expect. And growth stocks, again, are priced in the worst case scenario. Then you add what is happening in Ukraine on top of it. I think we’re seeing generational opportunities in some of these stocks going down 50% to 60%.
And, you know, about COVID, I’ve been in Florida these past few years, moving here recently. You didn’t know there was a COVID here. I can’t tell you the last time I wore a mask. And if it hints at what the rest of the country and world will look like, things will go very fast.
And I like a lot of service companies out there. Some of the fitness facilities are opening and evolving, you can’t get in right now because there are so many people. So I think you will see a boom in the economy. And remember, corporate revenues are expected to be the highest of all time this year. And again, stock prices are moving up and down. Long term, they will follow the tube. And that’s why I think we’re going to have new all-time highs in the next 6 to 12 months.
BRAD SMITH: All right, Jamie Cox, Harris Financial Group managing partner, and Matt McCall, Stansberry Research senior technology analyst, thank you so much to the two of you for joining us here after the closing bell with some insights going forward from here.