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S&P 500: ‘The idea of buying tech on Fed cuts is a false narrative,’ strategist says

Portfolio Wealth Advisors President and CIO Lee Munson joins Yahoo Finance Live to discuss the performance of S&P 500 tech stocks in the stock market, despite the banking crisis and the Fed raising rates.

Video transcript

SEANA SMITH: New research from Torsten Slok, the chief economist at Apollo Global Management, the parent company of Yahoo, showing that the top 20 largest stocks in the US-- in the S&P, excuse me, 500 added nearly $2 trillion in market cap this year, while the remaining 480 stocks have added less than $200 billion. Tech names like Nvidia, Meta topping that list of outsized growth to start the year.

Here to discuss that and more, we want to bring in Lee Munson, joining us here on set in New York from New Mexico. Lee, it's great to see you. So let's talk about the outperformance that we've seen because I don't think many people saw this coming. A lot of the larger tech names leading the charge.

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DAVE BRIGGS: He didn't see it coming, man.

LEE MUNSON: I mean, please.

DAVE BRIGGS: Put him on the spot here.

LEE MUNSON: My God. You know, I'm a value oriented player. I mean, this is like, you know, your worst nightmare coming off of 2022, where I'm killing it in value. I'm killing it in industrials and materials and finance. And now it's like, you know, and now this, right? So here's the thing. I've seen this before. And granted, if everybody bought Nvidia a few months ago, congratulations, you won, right? If you were just long deep in all that stuff that was down 70, makes no money, and can't borrow cheap, you won.

But here's the thing. Back in 2000-- you know, the good old days? You know, back in the middle of that dot com thing? When I was young and my hair wasn't gray, you saw all these internet stocks, just all the speculative hot stuff, this happens every bear market. For instance, Qualcomm, summer 2000, it's down 70%. Then it spends months basing, exactly what happened to like what the semis did back in October, right? And then what happened by the end of summer in 2000? It started-- it doubles, and then it starts to break down again because reality started to set in.

Now, if I was still in my 20s running a hedge fund, I would be pissed off if I had missed the run in semis from October, or just the general FAANG stocks, you know, the Sweet 16's we used to call it last year that had been jacking up the S&P. I mean, 160% of the performance is just from a few names. But here's the thing. I think that that's a trade. I think that the idea of buy tech on Fed cuts is a false narrative. I think we're going to get earnings fake out, and this cycle isn't done. I've been doing this for a long time. And you have to be a little patient.

Now, if you're a trader, whatever. If you don't care about taxes and you want to get in there and do stuff, that's fine. But I would not be buying tech up here. The relative valuation is higher now than it was at the December, November peak in 2021, relative to the S&P, and higher than it was back in 2018, 2019, right?

DAVE BRIGGS: Which is bonkers. So you're sticking with quality.

LEE MUNSON: Well, you know, I mean--

DAVE BRIGGS: Value, value, value.

LEE MUNSON: Value, yeah, quality. And what I want to do now is I want to buy all this stuff cheap. I think that by the end of the year, we'll see what's going to happen. We'll see if tech can really hold all these gains, based on one thing. What's this one thing? The earnings are going to accelerate, right? That we're going to have more growth going ahead. I mean, we've revised year over year earnings down 6.6%, right? Let's just make it 6.66 for fun, OK? It's not enough.

And you get FactSet talking all about, oh, this is-- we've never seen a year over year reversion-- the revisions coming down. It's more than the 5, the 10, the 15, the 20. Yeah, you know what? Dotcom was 23 years ago. So maybe the people there weren't around to see the cray-cray back 23 years ago. But I think this is going to be similar. I just don't think it's going to be quite as bad

DAVE BRIGGS: What about AI? Ann Berry told us she fears there's a potential bubble here.

SEANA SMITH: You're laughing.

DAVE BRIGGS: Wow, I don't often get much laughter when it comes to AI.

LEE MUNSON: You know, I think it's--

DAVE BRIGGS: You're not chasing it.

LEE MUNSON: No, I mean-- no, I mean, it's just like, why don't you talk about 3D printing or something? It's like, you know, it's fine. But I think that the AI thing is going to be run and dominated by places like Microsoft, right? Facebook-- the bigger, getting bigger. It's the same thing in the value world. The Bank of America's of the world and the JP Morgan's, they've got the billions flowing out of Silicon Valley Bank, and it's just going to be a size thing.

So I wouldn't be go chasing around-- I mean, I think a lot of this stuff is just a bunch of fraud and hoopla. But if you can make a buck, it's Wall Street. It's fine. But for my clients, like, I'm already rich. I want to stay rich. And so when I think of investing in some hot little AI thing, it's like, uh, you know, I don't know.

SEANA SMITH: Well, Lee, why do you think so many investors jumped on the AI bandwagon, given the fact that there are so many risks out there, there are so many people like you saying that this is just going to be a fad, at least in terms of the investment opportunity right now?

LEE MUNSON: Because we just had a major catastrophe in speculative crap. And so when you get something like this that is just a meme-ification, right? It's not buying Nvidia on a massive bounce. It's still down 40% from the highs of December '21, by the way, but still, it's something new and shiny that people love. And this happens in every bear market. You get the speculative stuff that crashes, and then it starts bouncing. And then you'll get this other little subsector, some little, like, last gasp, right? It's kind of like Bitcoin surging up again. It's like, oh, here's Dogecoin is on, like, the Twitter-- you know, it's like--

DAVE BRIGGS: Ooh.

LEE MUNSON: You know what I mean? Don't get me started.

SEANA SMITH: [INAUDIBLE]

LEE MUNSON: Right? How is AI any different than that, right?

DAVE BRIGGS: Well, compared to Dogecoin?

LEE MUNSON: I mean a million ways, it's different. A million ways it's different.

DAVE BRIGGS: Dear god, thank you for saving yourself there. I was-- all right.

LEE MUNSON: I'm talking about the [INAUDIBLE].

SEANA SMITH: Are we going to kick him out of the studio?

DAVE BRIGGS: You would have had to have leave and never come back.

LEE MUNSON: Out of here.

DAVE BRIGGS: You literally would have lost all credibility--

LEE MUNSON: Friend of the show no more.

DAVE BRIGGS: --for the rest of your life. I do have to ask you quickly about the Jamie Dimon letter, another thing we love. The banking crisis is not over yet. But you dialed in on the lending conditions and what that means. What stood out to you in this letter that was consequential?

LEE MUNSON: I was very interested how he was talking about what lending should not-- we need to ask ourselves. He's posing the question. And when I read, is that a rhetorical question? No. Should all lending be inside of the banking system? Market making, things of that nature. I think it's a good question because what his point is, is that, obviously, it should because when people are in need, then shadow bank and the non-bank, they're not going to come in here and save it. There's no-- and just there's no difference and there's no central bank for cryptocurrency.

So but what he is saying is that a lot of basic credit, basic lending, is no longer profitable for banks to do this. And I think it's phenomenal that some guy like this is talking about this. He's saying mortgages-- should mortgages-- it's a struggle to make a buck at JPMorgan or Bank of America or like a Wells Fargo. I mean, they're just cut, cut, cut, right? They just want to get that mortgage stuff down.

And he said-- the crazy thing was he said, we've got to start doing other things to make money. And the thing that spoke to me, when he said selling big data, right? Selling information about our clients for filthy lucre. And that is going to allow them to do mortgages because they're so expensive. He said mortgages are so expensive, and we can't make any money servicing. And we can't do this and can't do that. So you can draw your own conclusions, but the man is saying, we're going to be in other related businesses on understanding everything about you and selling that to increase our margins that we can't make on Basel III, Basel IV, the endgame.

DAVE BRIGGS: That's terrific news.

SEANA SMITH: Yeah, that's a little worrisome when you step back and think about it. Lee, since we have you here, there's been certainly no shortage of surprises in the markets, really over the last couple of years, but even just the last several weeks, when we talk about the banking crisis. We talk about what happened with OPEC this week. Anything on your radar or anything that you think could potentially really send a shockwave through the markets as we look ahead, not only to this month, but to the rest of this quarter?

LEE MUNSON: Well, here's what I think that are the biggest risks that I'm concerned about. The reality is going to set in after we get no Fed meeting this month, right, that the Fed's going to keep raising rates a little bit, maybe a couple more times. I think reality is going to set in that the earnings revisions aren't enough. But the real thing that I think is going to be a problem is if we see a reversal of inflation coming down. And it starts to spike up a little bit, like we see in some of these Scandinavian countries, like we saw in Spain so many months ago.

We've got this oil problem. I mean, the Saudis and OPEC, they're nobody's fool, right? They want to make the money. And they're going to push this thing, right? They don't want to see demand destruction in terms of, like, demand for how many dollars they're pulling in. So I think that the biggest risk is not having inflation come down too much. The biggest risk is not, do I have too much value stocks when I should just be buying up the semis at huge valuations?

I think the big risk is if we get into the summer months and we have a little spike up that might be commodity oriented. And that's not what people are thinking right now, right? Everybody's thinking, commodities are dead. Everybody's thinking, buy tech on Fed cuts. And if that reverses just a little, people just [SNIFFS]. Just get a whiff of it. Oh, it's going to be summer fun.

SEANA SMITH: I hope you're wrong, I've got to say. I hope you're wrong with that.

LEE MUNSON: I hope so, too. I'm overweighting here to make money this year.

SEANA SMITH: Lee, it's always great to-- you got to come back and visit us more often on set.

LEE MUNSON: This is my first time back since COVID. Can you believe it?

SEANA SMITH: No, I know-- years. You have to visit again soon.

LEE MUNSON: I'll be back. I'll be back this summer.

SEANA SMITH: There we go.