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Markets: ‘I am very concerned’ rally won’t persist long term, financial advisor says

Sound Planning Group CEO David Stryzewski weighs in on today's market action and explains why he's not bullish on the stocks continuing to bounce back.

Video transcript

RACHELLE AKUFFO: Well, let's break down the market action so far with our guest, David Strahovski, CEO of Sound Planning Group. Thank you for joining us. So a bit of a reversal here. What do you think is sparking this optimism right now in the markets?

DAVID STRYZEWSKI: Well, you know, I love it when the market rallies, especially after we've had weeks like last week. I mean, just like we were talking about here before, Target dropped 25% in a very short time frame. We've consistently seen so many of these stocks falling when they miss their earnings or they have these little challenges to them. So I think that consumer sentiment is not necessarily as strong, but I think investors are looking for bulls.

And based on a valuation standpoint, historically, there are some opportunities right now. When you see big corrections like that with world class names and you know that nothing really changed other than supply side, they weren't able to hit certain numbers and targets as a result of where things are economically. And so, hey, I love it, but is this a dead cat bounce, right? I mean, the biggest upsides tend to happen following some of the biggest downsides.

Again, the dead cat bounce, a cat thrown out a window. I don't know why we're doing that for cats, but they bounce when they hit, too. And so, again, I vote it continues to trend in this direction, but I'm very concerned that we are in a time and a cycle right now that it will not persist long-term, at least in the short run here.

SEANA SMITH: Dave, the big concern is what the Fed is going to do, whether or not the Fed is going to get more hawkish. What is priced into the market at this point? Is a hawkish Fed fully priced in?

DAVID STRYZEWSKI: I don't believe that a hawkish Fed is completely priced in. We're just in a different time right now. And when we talk about the Federal Reserve, we're talking about the interest rates that ultimately banks can borrow at and how much money is out there. And so, we're having some challenges right now in the banks. And of course, the Federal Reserve here is having to raise rates in a way that we have not seen in at least 40 years.

But in most of our lifetimes, at least, while we've had assets and we've kind of felt the differences of what's taken place, when interest rates rise, of course, the value of bonds get hammered. I would say this. Everything is fairly valued if the Federal Reserve doesn't raise the way that they say that they're ultimately going to right now. And because if they could taper off of that, obviously, we have inflation that continues to run. But it gives the consumer the ability to borrow at rates that are more normalized, or at least, what we've understood them to be normal at.

So, yes, inflation is higher than ever. And I don't see that cooling right now, but can I just mention something real quick? I have to note something that has become apparent over the last week or so. And that is we're all used to 3% 30-year mortgages. And therefore, our entire economy, for the last number of years, has been established on this 3% mortgage chassis for 30-year products. And so what we have today is a 6%.

And so, within a very short amount of time, essentially, that number is double what's important for the average consumer to understand is that this has crippled 1/3 of their ability to borrow. And so supply and demand is going to come back into play here as it relates to consumers.

But need I say that a 3% to a 6% interest rate means that the average consumer's income, 1/3 of it to be exact, is able to be afforded into a mortgage. And so at 3%, we have what we've had. At 6%, the value of homes need to [AUDIO OUT] 30% to be exact. What if the Fed raises rates? What if this continues to go on, as we see the housing market affects everything. It touches all sectors. I lost my earpiece.

RACHELLE AKUFFO: Literally--

DAVID STRYZEWSKI: [AUDIO OUT] appliances, et cetera, so. Go ahead.

RACHELLE AKUFFO: You also mentioned, you talk about things that are very visceral for consumers. This is a consumer-led economy. Obviously, your house is considered that place where you actually gain your wealth. But obviously, the Fed is still keeping an eye more so on unemployment and the inflation rate, not so much the equity markets.

But at what point, once we start to see some more and more of these layoffs, as some of these equity markets that perhaps over hired, some of these big tech companies that over hired during the pandemic, how does that then end up trickling down? What does the Fed do there? At what point do they have to keep an eye on then what the equity markets are doing?

DAVID STRYZEWSKI: Well, you just brought up the question that I think is really the debate right now. If the Fed can raise rates in a way that truly address inflation, it completely cripples the corporate market. They're going to have to lay people off, and they're going to have to ultimately rightsize based upon the new costs for debt, new costs in this inflationary market for the fact that they don't have computer chips or semiconductors. And therefore, they're additionally just having some challenges here, selling things.

Go and try to find a car right now. The average consumer, though, is unfortunately kind of just thrown around by whatever takes place. And so, yes, there likely will be job layoffs as a result of the fact that Twitter said that they're no longer-- they've put hiring on hold, and obvious reasons why.

I do believe that there's a lot of tech companies, other organizations, that perhaps need to rightsize. Or there's industries and companies out there that will rightsize and sort of pulling back. And we're probably going to see some more automation come into play here, as technology continues to advance things. And it's obviously just a little bit inexpensive, and it works 24 hours a day. So that's kind of one of the ways that things are trending.

SEANA SMITH: Well, David, so we have a lot of uncertainty, obviously, when it comes to the Fed, what their policy is going to exactly look like. Then we have these geopolitical tensions, the Russian-Ukrainian war. We have our policy right now going forward with China, that has been put-- we had a spotlight on that over the last 72 hours or so. How is the market assessing, how is the market looking at these types of risks?

DAVID STRYZEWSKI: I do believe that the market is the most efficient system in the world at metabolizing information and ultimately creating a value as a result of it. I don't think the market is totally aware of what a China tension would look like. I mean, when Biden says, hey, we're going to resist them, and then his administration says, well, actually, we're going to take that back. We're not changing our stance on China. The biggest risk that we have worldwide or as a nation right now is that we would not have semiconductors.

And there's this organization in Taiwan called Taiwan Semiconductor that if China went and took them over, holy smokes, that's a way bigger deal than anything that Ukraine would particularly provide to the world if we saw the absence of, or the control and smaller distributions of, those types of semiconductors. And we're just not prepared in America right now to be producing those. Intel's made some investments. I believe HP has made some investments recently. They want to do that. We're a decade out-- Nvidia.

The point is, is that if we see those tensions begin to rear up right now, that would be very, very, very bad for our global economy because we've had essentially a piece equity that would no longer be there. We're seeing that erode right now with the Russia-Ukraine situation. But if the China-Taiwan begins to happen, that's a very, very significant deal that has a ripple effect all throughout the market. I would expect that would bode very negatively, especially because of how dependent we are on things from China, everything from antibiotics to our vehicles, those semiconductor chips that we've just been talking, et cetera, et cetera. So the list goes on in a very significant way.

RACHELLE AKUFFO: China question a big one, indeed, and we'll be continuing our coverage on that. A big thank you to our guest, David Stryzewski there, CEO of Sound Planning Group. Thank you so much.

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