Biden's renomination of Fed Chair Powell 'provided assurances to markets,' analyst says
Cannon Advisors Portfolio Director Damanick Dantes explains how Jerome Powell's Fed chair re-nomination may provide welcomed stability as the economy is still recovering from the pandemic and officials seek to balance inflation.
Video Transcript
- But first, want to kick things off with the market action we're seeing play out again here today, as tech stocks are taking it on the chin as yields continue to rise. Tech the biggest laggard in the S&P 500 today. Of course, 10-year's seen about a seven basis points rise since President Biden made his Fed picks official.
And for more on what it means for the market, happy to bring in Damanick Dantes, Cannon Advisors portfolio director joins us right now. And Damanick, good to be chatting with you today, man. Thanks for coming on. We just saw the Dow dip now into the red, joining the other indices. Some weakness here off of the news we got. What do you think it does maybe for investors? We're seeing weakness in tech as maybe those expectations continue to rise that we could see, I don't know, more rate hikes than expected even though we got two doves now in these nominees.
DAMANICK DANTES: Yeah, thanks for having me. You know, we initially saw yesterday the short-term reaction, a sigh of relief for some certainty of Powell coming back in. But then you saw the market kind of pricing in the Fed's path to more accelerating monetary tightening. And of course, that leads to a slightly higher uptick in rates. And then we're also seeing some of the downdrift in tech shares, which has been leading the market downwards. So you know, the Fed's been very accommodative for a long time, and now I think the market's adjusting to a tightening policy going forward.
- I mean, even with that said, though, you know, assuming that Powell is-- you know, is confirmed for his second term, does that really change anything in terms of the trajectory for the Fed? I mean, part of the argument is that the president chose to renominate Jerome Powell because he could continue this policy that he's implemented.
DAMANICK DANTES: Yeah, I mean, you definitely don't want to interrupt what's going on here. We had a post-pandemic surge, a recovery that's happening now in light of inflation. And I think the concern going forward is whether growth will be accommodative and resilient going forward. So the Fed has a very tricky balancing act to do. And I think the market's now adjusting to that. So it was a safe bet. It provides some assurance to the markets. But overall, I think what's going to happen going forward is you'll start to see more of a readjustment. And that just means that risk assets will be difficult into next year. And we're seeing that being priced in now.
- Yeah, we're seeing that now, although still, when we're kind of closing up the year, 2021, looking back, you got all 11 sectors of the S&P 500 in the green. And those ones, we've talked about this rotation back and forth between cyclicals and growth all year, basically, right? Anytime we're talking about the 10-year, it's because tech stocks are in decline and you've got cyclicals leading the way, exactly what's playing out today. But when you look into maybe where investors should be positioned and some of these risks as we enter the holiday quarter here and weakness today, Best Buy a prime example to point to, and maybe expectations of shopping, I mean, how do you kind of tell investors, what's the advice there to kind of maybe reallocate this next chapter of the? Recovery
DAMANICK DANTES: Yeah, 60-40 will be challenging. So typically, when you see inflation rising, a sort of tightening of policy, correlations tend to rise. And what that means is that it's very difficult to look for areas of outperformance. You've definitely got to be active. And it's basically a trade between either if growth is going to continue to pick up in light of inflation or if growth is slowing down in light of inflation. So on the former side, on the-- if growth is picking up with inflation, then you definitely want to skew towards cyclicals. On the opposite side, if growth tends to taper off and consumers stop spending and react to that higher pricing power, then you definitely want to shift more defensive.
- And when you talk about investing or putting your money behind some of these sectors that have seasonal strength, how are you playing the retail space right now?
DAMANICK DANTES: Yeah, so far, seasonals are pretty good for retail into Q4. So generally, November, December tend to be strong months. And I know you've had some names that have missed earnings, like Urban Outfitters, that have been scaling down, but we tend to look at the technicals. So it's very supportive on the breakouts. And we've been seeing strong names like Macy's really perform really well in the retail sector.
So what that means is that you've really got to be specific about the stocks that you're looking at. But retail relative to the overall market tends to be pretty strong into Q4. Into Q1 and Q2, you tend to phase out of those trades and look for areas of outperformance, given where the market's going to be positioned into January. And typically, what that means is that you tend to scale out of the growth and look for areas where laggards have more room to outperform.
- Some good takeaways there. Cannon Advisors portfolio director Damanick Dantes, good to have you on today. Appreciate the time.