Roundtable: Volatility, Defense and Where We Go From Here

by | Feb 17, 2022 | Market Updates

 

In this week’s edition of the WealthPress Live Roundtable, Roger Scott, Jeff Zananiri and Lance Lance discussed everything from the Russia-Ukraine conflict to copper prices — but volatility was a common theme of the conversation.

Two years have passed since the COVID-19 crash of Spring 2020, and yet the CBOE Volatility Index (VIX) is still much higher than pre-pandemic levels.

Scott’s first question for the group addressed the topic head-on:

How long will the current volatility last, and what catalyst will end it?

Lance noted that many large tech stocks like Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL) and Microsoft Corp. (Nasdaq: MSFT) have held their ground during the recent selling action.

 

These stocks account for huge portions of the major indices’ overall movements. So in Lance’s eyes, a Big Tech rally after earnings season could lift the market out of its choppiness, while a breakdown could sink it.

How will geopolitical risks, interest rate risks and near all-time highs affect the markets? 

Jeff was clear about his bearishness… He said the S&P 500 will be down 20% at some point in 2022, which would be another 14% fall from its current level.

He also said the VIX will stay “north of 20” for the first half of the year, which means above-average volatility (20 is the baseline average).

Stocks like Alibaba Group Holding Ltd – ADR (NYSE: BABA), Pinduoduo Inc. – ADR (Nasdaq: PDD) and Rivian Automotive Inc. (Nasdaq: RIVN) are “still broken,” experiencing sharp downturns every time investors think they’ve stabilized, Jeff said.

Which sectors beyond Information Technology and Consumer Discretionary look good? 

Lance said that he bought Macy’s Inc. (NYSE: M) calls ahead of earnings because he sees some retail stocks as undervalued… And growing travel volumes will drive consumers to clothing and shoe stores in the months ahead, he said.

Jeff disagreed, citing elusive profits in the retail sector as a reason to avoid it. He also said the end of COVID-19 stimulus payments, expanded child tax credits and higher mortgage rates will leave consumers with less disposable income.

Both Lance and Jeff, however, are bullish on commodity stocks. Jeff mentioned Freeport-McMoRan Inc. (NYSE: FCX) while Lance cited “the XME stocks” — components of the SPDR S&P Metals & Mining ETF (NYSEArca: XME) — as good places to look.

Jeff is also bullish on energy — as “oil is not retreating” — and banks in the current macroeconomic environment.

Roger said he’s bullish on credit card companies as stimulus money dries up.

How long will the Federal Reserve take to change its tune if rate hikes tank the markets? 

Roger’s answer was simple: “72 hours.”

Jeff said just the prospect of higher rates is already affecting the market, even though the central bank has yet to hike them.

A rate hike could lead to a six-to-12 month “garden variety” recession with a bear market — but a mild hike could be a “tradeable event,” he said.

Which defensive assets and sectors are worth looking at? 

The group agreed defense contractors like Raytheon Technologies Corp. (NYSE: RTX) and Lockheed Martin Corp. (NYSE: LMT) will see more government money because of rising tensions between Russia and Ukraine, regardless of whether or not they lead to war.

What are some good non-oil commodity stocks? 

Lance, as mentioned earlier, is bullish on metals, and he said gold may break out to around $1,900 per ounce after holding at $1,800.

He mentioned Barrick Gold Corp. (NYSE: GOLD) and copper stocks like FCX and Southern Copper Corp. (NYSE: SCCO) as strong performers.

When should we turn bearish, if at all? 

Roger said we are heading into a nasty market at some point, but we have “at least another two quarters” before we get there.

Earnings and retail data have both exceeded expectations overall, he said, and the market is holding near its 200-day moving average.

In Roger’s eyes, we don’t need to turn super defensive until the Big Tech stocks start to break down.

Lance and Jeff disagreed, pushing for a quicker turn toward bearishness.

Lance said more speculative tech stocks have already broken down, and that he has lost money on DraftKings Inc. (Nasdaq: DKNG) and Penn National Gaming Inc. (Nasdasq: PENN).

 

Jeff called the current market “a tale of two tapes.” Big, healthy tech stocks like Apple are still making investors money, he said, while more speculative names are suffering. Stocks like Roblox Corp. (NYSE: RBLX) could be “sub-$20” if the Nasdaq breaks down, he added.

The group agreed that the Fed is way behind the market in its policy, and “won’t react until things get much worse.” Jeff said the Fed’s data on cost-of-living and rent inflation is flat wrong — its most recent figure, a 3% increase, is far below the 15%-20% increases cited by outside experts.

Roger’s 5G Investor Guide

Roger closed out this week’s WealthPress Live Roundtable with a discussion of his No. 1 5G stock for 2022, a pick that “stands to gain billions in revenue” from the global 5G rollout. The stock isn’t strongly correlated with the broader market, meaning it should be safe from current volatility.

Even better… he’s giving away a free report on this pick to Overdrive Profits members, who have enjoyed an impressive win rate in recent trades, hitting on 15 of 16 dating back to early October!

Learn more here. 

You can see a replay of this week’s Roundtable here. Please subscribe to the WealthPress YouTube channel to make sure you don’t miss the next livestream at 11:30 a.m. EST each Wednesday!

WRITTEN BY<br>Jeff Zananiri

WRITTEN BY
Jeff Zananiri

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