Villere & Co. Portfolio Manager Lamar Villere and Eric Diton, The Wealth Alliance President & Managing Director, joins Yahoo Finance Live to discuss the January jobs report, the Fed, economic returns to normalcy, inflation, and market outlook.

Video Transcript

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EMILY MCCORMICK: Welcome back to "Yahoo Finance Live." I'm Emily McCormick, here with Brad Smith. And our market panel joins us now to talk more about today's market action. Lamar Villere is Villere and Co. portfolio manager, and Eric Diton is the Wealth Alliance president and managing director.

But before we turn it over to you both, want to get one final check of the markets before we head into that closing bell, just under a minute away. As we can see, the NASDAQ composite is the leader during today's session, up about 1.6%. The S&P 500 now up about 26 points, or about 0.6%, and the Dow Jones Industrial Average trading right around that flat line here. Now of course, stocks are responding to that better than expected payrolls report out from this morning. And here is the closing bell.

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BRAD SMITH: And that right there is the closing bell here on this Friday, rounding out what has been a crazy week to track on the earnings front. We got a slew of economic data on the employment situation front. And here is exactly where the US markets and the major averages-- and you saw the Dow entering a little bit of a hyper waffle. Couldn't make up its mind going into the close. Ultimately, it looks like it settles lower by about 21 points, flat, just barely to the downside.

And so we'll continue to track that, of course, next week. The S&P 500, though, that closes to the upside by about half a percent. 23 points in the green there. And you also saw the NASDAQ composite close in the green by a little more than 200 points. 219 points, to be exact there. Represents a move higher on the day of about 1.6%.

So let's get back to our panel to round out what was this trading week. And we had everything, Lamar and Eric. We had earnings, we had economic data. And we're only going to get even more of that as we go into next week. And so Lamar, let me kick things off with you and get your take on, first and foremost, the jobs reading that came through this morning, and what that sets up for the decisions that the Fed is going to be set to make at their next FOMC meeting.

LAMAR VILLERE: Sure. So I don't think, you know, not a huge surprise. Jobs continue to come in strong. The economy is booming. There's no other way to look at it right now. Obviously, the Fed's got to deal with the inflation problem. And that's getting more and more attention, and I think starting to affect people a little more acutely. So we expect, you know, no big changes, but they're going to continue to look to taper over the coming months.

EMILY MCCORMICK: Eric, also taking a look at this morning's jobs report, do you think this made the case for the Fed to raise interest rates by 50 basis points at that March meeting?

ERIC DITON: 50 basis points is definitely on the table. I don't think it would be a shock at this point if it happened. But as we know, those kind of numbers, labor numbers are volatile from month to month. So we'll see.

But I think the important thing to remember here is what we're really going through is the transition to normalcy. A Fed funds rate of 0 or a quarter percent makes no sense in this climate. If we get back to a 1% or a 1 and 1/4% or 1 and 1/2%, that's just normalcy. We're ready for that. I wouldn't be concerned about it.

And what I would just say with regard to rates in general, you go back to the year 2000, rates were at 6.6%. You go back to 2008, we were at 4%. Even if the Fed raises rates, we might be at 2% on the 10-year, or 2 and 1/4%. That's not competition to stocks. So we still want more.

BRAD SMITH: Eric, sticking with you for a second here, because when we think about all of the things that factored into inflation, for many companies out there, it could have been anything from supply chains, it could have been some of the rising wages that they are paying for their workers, and what costs, with all of that considered, they're passing on to consumers. And so with some of that becoming a little bit more evident in terms of normalizing, whether that be on the supply chain front or on the wage front, what are your expectations going forward from here in where those companies will still have those relations with end consumers, given the two-thirds consumer-driven economy that we are in?

ERIC DITON: Yeah, I think the key here is you're seeing a higher labor participation rate. And that's something we really need to see. We need to see labor get back to work. And that's happening. That's going to take some pressure off of pricing. So that's a real positive. We're happy to see it.

EMILY MCCORMICK: Lamar, taking a look at the treasury market, we have that benchmark 10-year yield up at its highest level since the pandemic began, up over 1.9%. I'm wondering, what do you think the treasury yield market, the bond market is really signaling to investors at this point?

LAMAR VILLERE: You know, it's-- there's still-- there's still certainly room for the rates to increase. You know, we're still struggling. You know, we still want to buy some bonds for a lot of our clients, but it's still not quite where we would need it to be to be attractive, in terms of paying, you know, decent income.

BRAD SMITH: And Lamar, as we're taking a look at the 10-year note, I mean, year to date, up 18.5%. How much of this move could have been anticipated coming into what we knew was going to be a heavy decision year for the Fed, but then additionally, for where investors would like to place their own interests, whether they pulled some of that out of equities and went into fixed income, and where some of that portfolio kind of churn may have been, as well?

LAMAR VILLERE: I think individual investors are still mainly kind of hovering outside of the bonds, or outside of-- certainly outside the treasuries, which we're mostly seeing theirs on the institutional side. So I think individuals are still holding out, looking for higher rates. So from that perspective, it would be a positive for a lot of people to maybe pull back on some of the equity risk that they really didn't want, but there is no alternative trade that pushes everyone into equities. Maybe it isn't entirely healthy, so maybe a little bit of a pullback there and a move into bonds would be a good thing for a lot of individuals.

EMILY MCCORMICK: Eric, thinking about the events that we have coming up over the next couple of weeks, we have, of course, the continuation of earnings season, a Fed decision in the next few weeks, CPI data next week. Where do you think, tactically, there are opportunities for investors at this point?

ERIC DITON: Well, you've got to go with momentum here with regard to energy. There's tremendous pricing power there. Energy is always good to own in an inflationary environment. If you believe in rising rates, which we do, then you're going to want to own financials. They're going to benefit from the spreads.

I think you want to own MLPs. I think the income is great, tax benefits. Private REITs. We've had a tremendous year moving-- we moved bonds to-- some of our bonds to private REITs. And REITs can respond to inflation. They can raise rates. So we like that exposure. And we like floating rate. We like leverage loans. They benefit from rising rates. So those are areas we like.

BRAD SMITH: What about technology? Where are you evaluating, especially given the volatility that we've seen over the course of this week and some of the snapbacks, if you will, you know, are there still opportunities within tech that you're looking at right now?

ERIC DITON: You have to own tech. It's the growth. It's the future. You don't want to own six stocks, right? You don't want to own FAANGM. Look what happened. Meta exploded. Netflix exploded. Even after today, Amazon's dead money for a year and a half. So too many Americans are just loaded in six stocks.

So you want to be diversified and own some of it, but be diversified. Own a lot of tech. And you don't want to own companies that are going to be profitable in six years, because that may or may not happen. So just stay with tried and true earnings growth. And now Qualcomm is a great example. Reasonable P/E, great growth story.

EMILY MCCORMICK: Lamar, how would you advise investors with some cash on the sidelines to be thinking about how to actually deploy that, and where they should be deploying that? Do you think they should be keeping some more dry powder right now in anticipation of more volatility, or are you seeing some really appealing opportunities emerging?

LAMAR VILLERE: Well, a little of both. We're definitely still holding a little more cash than we normally do, but we have seen some great valuations. You know, as things shake around, particularly, as you know, we're mostly focused in small and mid-cap stocks, where the volatility is even more significant than it is in the overall market. So we're used to seeing-- some of the moves we've seen in these big tech stocks, we're used to seeing that kind of thing, and look at it as opportunity.

A company like Open Lending, which we like, is down 50%, or almost 50% in the last three months. It's temporarily having some headwinds due to-- they basically lend for people buying cars. They're kind of in near prime space. They make almost $1,200 per sale, with no balance sheet risk and no cost per customer add. Even with the headwinds of reduced auto sales, we still expect them to grow 30% this year, with 70% cash flow margin.

So something like that on sale, that's a great opportunity. So we don't really buy indices. We like buying specific stocks where we think we see great value opportunities. And that's an example of one.

EMILY MCCORMICK: All right, we will leave it there for now. Lamar Villere is Villere and Co portfolio manager, and Eric Diton is the Wealth Alliance president and managing director. Have a great weekend to you both.