Payne Capital Management President & ‘Payne Points of Wealth’ Podcast Host Ryan Payne joins Yahoo Finance Live to discuss U.S. GDP data, Fed policy, interest rates, recessionary risks, and the outlook for markets.

Video Transcript

AKIKO FUJITA: Let's break down the market action with our first guest for the hour, friend of the show, Ryan Payne, Payne Capital Management president, "Payne Points of Wealth" podcast host as well. Ryan, you know, it has been an ugly week-- or choppy week, I should say-- especially around some of these tech names. What do you think is driving the volatility right now?

RYAN PAYNE: I think first and foremost, it's just the uncertainty with the Fed. You know, I wrote my notes this week that the hawks get more hawkish, and the bears get more bearish. And we just love animals on Wall Street, Akiko. I don't know why that is that way. And I just think there's just so much concern around, do we go into recession in the next 24 months? Because the Fed may just raise interest rates too much. Does that slow the economy down too much?

And I think that's what's really weighing on the market and more so than the fact we have a war in Ukraine. And, you know, these inflationary numbers have just been through the roof. As we know, we're at 40-year highs in inflation. What does that all mean for earnings? What does that all mean for the economy? And I think when you get through the noise-- and no surprise here-- I'm pretty optimistic on the economy and the stock market.

AKIKO FUJITA: I mean, Ryan, today, we got that GDP print from Q1, the first contraction since 2020. How do you think investors should be reading that data? Is this the red flag that a lot of investors have been warning about?

RYAN PAYNE: Well, I think first off, remember, that's looking at the past, right? We're looking at the rearview mirror. That's already happened. And as an investor, you want to look forward. So the question is, do we get another negative print this quarter in GDP? And I'm going to say very unlikely here, right? Because one of the things weighing on the last quarter was just the inflation being so, so high.

But when you get into this quarter, I think the bigger question is, is inflation going to come down? And I'd say most likely, it probably is, right? I mean, if you look at oil prices, they're way lower than they were when we were at $120 a barrel. You know, just over a month ago, you've seen used car sales come down.

And I think when we look at consumer spending, too, Akiko-- this is kind of critical here-- is, we've gone from sitting in our homes, just ordering packages on Amazon, to now we're actually going out of our homes again, right? Travel has gone through the roof. I talked about this a lot lately. I've been doing a lot of research, a lot of travel, actually, for vacation, and literally, I mean, the flights are insanely packed. You can't get a hotel room anywhere.

And I was literally sitting at a bar in the airport in Dallas, and they were closing it at 7 o'clock. And the guy next to me says, why are we closing at 7 o'clock? They don't have enough workers to keep all the places open in the airport, you know, all the services open in the airport. So we've got a huge labor shortage going on. We've got huge demand going on. But it's also being diverted now to going out to living life again as opposed to sitting inside. And that should ease supply chains, hence bring inflation down, which, you know, that's going to be very, very bullish for the consumer and for the markets.

AKIKO FUJITA: Yes, so many Help Wanted signs even just in the city here in New York. Let's talk about earnings. I mean, things have been positive so far. I'm looking at the numbers here from Factset, nearly 80% reporting or at least beating earnings estimates. But that beat hasn't been as significant. What's been your takeaway so far?

RYAN PAYNE: Yeah, that's a good point. Now it's not going to be as significant because remember, we're not still just coming out of the pandemic, right? So your comparables are going to get a little bit tougher. Now when you think about the markets and you think about investing, all the market cares about are things getting better or not. And if things are still continuing to get better, slow growth is better than no growth. And again, we're still seeing big beats, right? Like, 77% of companies have beat earnings. Historically, that's very good.

Profit margins still at about 12%. That's better than the five-year average. So, you know, bottom line is, you've got margins are great. Companies are making money. Companies are flush with cash. And then we know the consumer is flush with cash.

You know, I looked at, like-- if you look at LVHM, the big French conglomerate-- they have all the name brands like Louis Vuitton, Dior-- well, their sales in the US were up, like, 27% last quarter. That's even with that 8% plus inflation, which means consumers are still spending regardless of the fact that prices are going up. Again, I talk about this on my podcast, "Payne Points of Wealth," one of the greatest podcasts in the country. This is very, very good for the economy, very good for the stock market. Can't stress it enough, Akiko.

AKIKO FUJITA: So Ryan, I know you've always been a value guy. You've probably been watching a lot of these tech earnings, names like Netflix, who are getting-- I can see the smile right there. It feels like there's a rerating on the high growth side, but even within the value names, in this environment, you know, how selective do investors need to be? And where are you finding the most opportunities?

RYAN PAYNE: Well, I mean, value 100%. It's a tale of two markets, right? Value stocks are actually slightly, you know, flat to positive for the year. Like, companies like Berkshire Hathaway are actually up for the year. So any company that is very, very sensitive to the economy and what the economy is doing, and we know right now, we're in the midst of the actual real reopening, right? We've had, like, these false starts.

But now the economy, for the most part, is, we're coming down to lockdown, period. The only company that benefits from that-- and typically, it has to be more cyclical value type companies-- is going to do well, right? If you look at the last 12 months, the value stocks are up over 8% right now with inflation. And we know growth, on the other hand, has done horribly here, right? It's almost had a negative return over the last 12 months.

And of course, this year, all those disruptive technologies, you know, I've been on the show with Ross Gerber out in Santa Monica, who was just, like, touting all those big, big tech names just getting crushed right now. And I warned you last year, thank God I came on your show to warn you. And the reality of it is, you're seeing it now, right? Valuation does matter. In a higher interest rate environment, value stocks that benefit the most from economic growth are going to do the best.

And in a high inflationary environment. You need pricing power and companies that can raise their prices. That's where you gotta be looking. And that's what's doing the best right now, not those disruptive growth stocks that trade at, like, insane valuations. Teladoc down an insane amount today. It's just like-- it's, the world's changed. The paradigms changed. You've got to switch your portfolio.

AKIKO FUJITA: One of those spaces I know you've liked is energy. And I wonder how you're watching what's playing out over in China. It doesn't feel like it's on the level of what we saw early on in the pandemic, but we're talking about the largest cities in China in virtual lockdown. How concerned are you about what that's like-- how that's likely to affect demand?

RYAN PAYNE: I think, you know, again, it's going to hurt supply chains to some extent. That'll probably hurt inflation numbers that keep them higher and more elevated for a longer period of time. But again, it's not going to be forever, right? And again, you got to think forward looking. When you think about the markets, you think about investing, you have to think about where things are going to look like 12 months from now, 24 months from now. At some point, those lockdowns are going to go away, right? We've already seen it in our country where the pandemic's become endemic.

And we're at a point now where people are just less sensitive to the fact that the virus is out there. They're going to live their life irrespective of that. And I suspect, you know, that's going to happen around the world as well, maybe at a slower pace. But when we look out 12 months from now, 24 months from now, again, I think those supply chains are going to look a lot better. We're going to get a lot more normalized world economy. And again, that should bring that inflation number down, just to stress that.

AKIKO FUJITA: Yeah, Ryan, I think there's a lot of skeptics out there who think that zero covid policy is going to go away over in China, but we'll be watching. Ryan Payne, as always, good to have you on. Payne Capital Management president joining us today.

RYAN PAYNE: Thanks, Akiko.