Fed rate hikes will be ‘tough for a long period of time,’ market strategist says

Matt Maley, Miller Tabak managing director and equity strategist, and Michelle Girard, NatWest Head of US, join Yahoo Finance Live to discuss how the Fed might react to the April jobs report and what areas of the market investors should gravitate toward amid high inflation and volatility.

Video Transcript

BRIAN SOZZI: Welcome back. It is jobs day in America. We just got those non-farm payrolls. They increased 428,000 in the month of April. We saw the unemployment rate remained unchanged. Also saw downward revisions to the prior two months of jobs by 39,000. Initially, stocks popped on this report, but we’re seeing some of those gains given back here in the early going.

BRAD SMITH: Well, let’s bring our guests back into the conversation. We’re continuing our jobs conversation with Miller Tabak chief market strategist, Matt Maley, and Michelle Girard, who is the head of US for NatWest Markets. As we continue to think about this, Matt, looking at the reaction for the major averages right now, reading that good news is bad news type of scenario because the Fed could perhaps continue to just look at this and that add fuel to the fire for their strategy on rate policy.

MATT MALEY: Well, I mean, one of the biggest things that really concerned, I think, investors, and I was thinking when he said it on Wednesday, I was surprised the market didn’t react to it really, but they did react yesterday, obviously , is that, again, he talked about how they cannot impact the supply side of this equation. And usually, inflation is very, very good– it was as good because the economy is doing better. It’s inflation is gradual, people make more money, and they have better jobs, so they can afford the higher prices.

When it’s supply driven like it was during the 1970s, when we had the oil embargo from the OPEC oil embargo, it’s the same type of thing. People can’t afford those higher prices, so they have to pull back from other areas so they can pay their rent, pay their mortgage, and put food on the table. And that’s what the big problem is. It’s going to take a while for this to play out.

And again, I really think that the war in Russia, and as Michelle mentioned, the situation in China, is going to make this tough for a long period of time. If people embrace this and not fear it, I think they’re going to be able to come out at the end of the year, coming out much better. And they won’t be the ones selling at the absolute low when that eventually comes.

BRIAN SOZZI: Michelle, after yesterday’s carnage in the markets, where do you go, and what do you do?

MICHELLE GIRARD: Well, I mean, again, we’re not an equity shop, so I can’t speak to specific equity or investment strategies in that realm. But, you know, but I think as Matt was saying, you always want to take a longer term view. And the actions that the Fed are taking now are incredibly important to put us on a sustainable growth path. Looking– if the Fed were not being aggressive on inflation, as we were talking about, far more detrimental due to US economic health to have inflation that just continues to move higher.

Then you get into a situation where, ultimately, the Fed does pass to engineering much sharper downturn in order to eradicate it. And so you do want the Fed to be moving quickly, in my opinion, to get policy to a more appropriate stance. There are supply issues, but there is also very strong demand. We are still seeing strong demand as a continuation of persisting from all of the stimulus that we saw in both the monetary and the fiscal side to consumers, to businesses.

That has really helped to sustain very strong underlying economic fundamentals. And again, there is that– there are actions that the Fed needs to take to be sitting with interest rates this far below the neutral level at this point in the cycle with this kind of inflation. It’s just not a situation the Fed is right to be looking to address.

JULIE HYMAN: All right, so we’ve got to take our medicine. Matt, I’ll ask you the question then. Where should you go in this market?

MATT MALEY: Yeah, well, I mean, we learned in the 1970s and you look at history in the past, hard assets. And this is one of the reasons why the energy stocks continue to work well. And I think we’ll see some pullbacks from time to time. And nothing moves in a straight line, but I think energy, agricultural names, I mean, the Archer Daniels, Midlands of the world. They may not be the sexiest names in the world, but they’re ones that are going to do very, very well. And they’re not going to– shouldn’t go down. They’ll certainly outperform.

And, you know, and it’s funny, too, is that everybody’s worried about this issue of a real estate bubble, but, you know, it’s we’re not– people aren’t buying it with 5% down and buying a third house with 5% down, hoping to flip it. But they’re buying it to live in the houses. In the 1970s, owning a home was a great hedge against inflation.

So people need to be a little bit careful about moving out of the house and starting to rent because as my father said, he started, there was no such thing as a 401(k). His 401(k) was his house in the ’60s,’ 70s, and ’80s. And so, again, these hard assets are the ones that do well. And then, of course, high dividend paying stocks that pay you to wait while we go through this tough time.

BRIAN SOZZI: Well said, as always. We’ll leave it there. Matt Maley, Miller Tabak chief market strategist, and Michelle Girard, head of US over at NatWest markets. Good to see you both. Have a great weekend.

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