Laffer Tengler Investments CEO Nancy Tegler weighs in on recent comments and Fed policy action and how the market is responding.
Video Transcript
RACHELLE AKUFFO: All right, all right, let’s go straight to our market visitor for more review. Let’s take Nancy Tengler, Laffer Tengler Investment CEO and chief investment officer. So, Nancy, as we try to understand what happened between the Fed’s announcement and its continued selling that we see, how many of these are signals that investors are actually looking at versus the market noise?
NANCY TENGLER: Well, thank you so much for having me, Rachelle. I think the Fed presser is disappointing. It lacks urgency. It lacks the credibility of a Fed chair to have anything to do with inflation. We heard him say he would be nimble and humble. However, he very quickly ruled out a 75 basis point hike, which may, in fact, be necessary. And so the bond market took off. In fact, we’ve only seen 75 basis points so far, but if you look at two years and 10 years, the movement has been pretty dramatic, as well as in three months.
But the market is generally forecasting stagflation. The long end is that yields are rising. And that tells you that the market thinks that growth is going to be slow or that this Fed is going to make a mistake and bring us into recession. So I was disappointed. I thought the rally was premature, to be sure. And I think we still have a little bit of work to do here on stocks before we can declare a bottom.
SEANA SMITH: And Nancy, I want to ask you about that. You say we still have a little work to do until we get to the bottom. How long, I think, when you look– is this something that will happen in the next two weeks? Are we talking in the next two months? How do you see that timeline?
NANCY TENGLER: So there are some historical guides, Seana. I mean, you can go back to other midterm election years, and we’re pretty much on the right track. I mean, they usually– the market usually sells in the first three quarters of the year and then rallies in the back half. But now you have all these other factors to consider. We have high inflation. And you can just go up to the Atlanta Fed and look at sticky inflation numbers at around 4 and 1/2%. So it will take some time to work on the system.
The other side of that argument, however, is corporate revenues, the companies we own actually had a good quarter. I hear a lot of analysts talking about bad earnings in the first quarter. But they increased by 10%. The companies really raised their guide. And for us, a really important indicator is, are governments raising dividends? And they are, and they kind of raised them. So often, managers won’t do that unless they think long -term sustainable earnings power is sustainable.
So I think, watch for revenue changes. We get them because the purchasing manager’s indexes roll. And so we know that– we already know that we’re slowing down in terms of growth. So you want to own trusted growers, companies not tied to the cyclicality of the economy. You want to have dividend growers. And I think you can get through it well. And then you will look great when it comes to the other side.
RACHELLE AKUFFO: So for the profits to come out, which one do you want? And how should people think of it in terms of a strategy?
NANCY TENGLER: So I think you hear that technology stocks are directly tied to interest rates. So if rates increase, technology stocks will decrease. But that is true of non -profit companies, which have a lot of debt on their balance sheet. But you look at a report like it came out from Microsoft. They beat on every scale. They raised the guide. The company is in the sweet spot where our economy is heading, the fourth Industrial Revolution, if you will. Cloud is driving that, and they’re a big player in the cloud. And they grew fast.
So I think you used that across the tech pummeling board to pick a name like Microsoft. ServiceNow is also a cloud data director in the cloud. And that company was defeated at every level. And the CFO started the call by saying our product is deflationary. I mean, if we have a labor shortage– and it appears we have– the turnout numbers are pretty staggering this morning. If we have, in fact, have it, companies will do more with less by investing in tech capex. And in fact, we saw that. Tech Capex now surpasses the old economic capex. This is more than 50%. So I think you want to be clear-eyed and have a reasonable time horizon of three to five years and use that as an opportunity to buy companies like that.
SEANA SMITH: Nancy, we know at a time like this that the consumer is very important. The consumer is fueling the economic growth we have most recently seen. But if you look at the basics right now, are the fundamentals for the consumer still strong?
NANCY TENGLER: You know, they are like that. I mean, definitely, real disposable income is negative. I mean, we’re getting increases, but prices are going up. But there is still $ 2 trillion in excessive savings at pre -pandemic levels that consumers need to cooperate with. I mean, I was in Scottsdale. You can’t get a restaurant reservation without booking a month in advance at either some kind of reasonably high end or good restaurant. And it was busy and hopping. And I think there’s a lot of activity outside of the Beltway and outside of Wall Street that investors don’t necessarily pay attention to.
Travel and recreation– it’s hard to get a hotel room. I had to make a change to a hotel room in New York, and they were upcharging me because they didn’t have many rooms. So I think individuals will come out. They will spend. Spending will be different. And I think they are moving away from goods and more towards services. And that’s OK too, because that’s an important part of the economy.
RACHELLE AKUFFO: And I want to talk about layoffs here because you’ve noticed that we’ve seen with mortgage companies and Netflix and Robinhood, we also see now that Facebook is going to have a hiring freeze. What effect do you expect from this?
NANCY TENGLER: I think eventually, Rachelle, that could be problematic, because right now, what we could say with confidence is, you will not have a recession without weakness in the labor market. We have 11 and 1/2 million jobs left in JOLTS. We have 6 million people looking for work. But we’re starting to see the budding signs of layoffs slowing down and hiring. And that will speed up as confidence, small business confidence goes down.
I mean, yesterday’s numbers were disturbing, the productivity and labor unit cost numbers. Those bother me more than anything I’ve seen in the past two weeks, because it tells us that small businesses aren’t getting– and any business for that matter– is not getting the productivity they need to get stuck. their workers. Now they are volatile in the short term, but ULC is rising by about 8% a problem.
SEANA SMITH: Nancy, quick, what do you do in the bond market? Because there’s been a lot of talk about the 10-year transition recently, obviously, more than 3%. It said more than 3% today. How high do you see the crops grow?
NANCY TENGLER: That’s the question, Seana. We last said in August of 2020 that bonds are more risky than stocks. And since then, TLT, which is a 20-year ETF, has dropped 31%. And even on the route we had yesterday, stocks rose 29. So I think from an investment perspective, I think it’s too early to start nudging into bonds. We were looking and kind of licking our chops.
But I think you want to let it fix. And even if you get– miss a few ticks on the way down, that would be a better entry point than earlier this year or in August, when the 10-year was at 50 basis points. I wouldn’t rush, because at the end of the day, you’ll just get your coupon payment, if you hold the maturity, whereas at least with stocks, you’re getting a growing income stream paying you to wait while the market is settle down and gather for the next rally.
SEANA SMITH: Nancy Tengler, it’s always good to get your perspective. Laffer Tengler Investments CEO and CIO.