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Portfolio manager on debt ceiling, consumers, tech stocks

GLOBALT Investments Senior Portfolio Manager Thomas Martin details market and tech stock outlooks amid the Fed's rate hike plans and ongoing debt ceiling talks.

Video transcript

AKIKO FUJITA: Let's bring in another voice into the conversation here as we broaden out the discussion into the markets. Thomas Martin, senior portfolio manager at GLOBALT Investments, good to talk to you today. Feels like we're still talking about the key headwinds here, the debt ceiling talks, potential pause in Fed policy, and then, of course, concerns about where inflation still is. How are you positioning yourself right now, and how defensive does that portfolio look?

THOMAS MARTIN: Yeah, thanks for having me on your program. And the way we're positioned at GLOBALT is what we would say cautiously. If you look at where the market has been trading over the last several weeks since the end of March, we've been in a very tight trading range. I think that's not news to anyone. And we're just all-- the market seems to be waiting, waiting, waiting, waiting for something. And some of that is the debt ceiling, and some of that is the Fed. Some of it has been the earnings season that we've been through. But although it's been sort of muted volatility at this point, once that logjam breaks and we start getting new information on the macro front, we may be in for a bit more volatility.

SEANA SMITH: Thomas, when you talk about bit more volatility, what does that more specifically look like then?

THOMAS MARTIN: Well, what you have is waiting for the debt ceiling to be done and see what that looks like. It's probably not going to look much like a surprise to anybody, other than the fact that we actually have some sort of an agreement. But then the hard work will have to begin as to raising the money to pay for the government, so to begin to sell treasuries. And that's going to have an effect on the liquidity of the market and will make movements in other sectors a bit more pronounced.

Especially you're going to have the Federal Reserve is going to have to be careful in what they do with rates to make sure that they are still sending out the message of dealing with inflation in a very hawkish way, but also being able to have the markets have enough lubrication to be able to do what they want. So the second half of the year could see a movement out of this range.

AKIKO FUJITA: Let's talk about what we've heard out of some of these earnings reports. Retailers back in focus again today. We were talking about the improved picture on inventory compared, but also looking at the consumer turning a little more cautious. What are some names that you're liking? Do you go to a highly specialized name, more like an Abercrombie, or do you kind of stick to the diversified names like these big box retailers?

THOMAS MARTIN: Yeah, we've been sticking with actually a little bit of both, but we've had Dick's Sporting Goods for one. They had a decent report, and they continue to really evolve their business and to be attractive to consumers. We have Nike in the apparel area. And they've been doing well also. As far as some of these other broader names, we have been cautious on those, whether it's Target or Walmart or Kohl's or whatnot as we try and see them deal with their inventories. And the reports today were good. It looks as though these things are starting to come in and starting to settle out.

SEANA SMITH: Thomas, another area, another sector that you're closely watching is what's playing out in housing. We got the new housing starts yesterday, better than expected. We certainly have seen homebuilder sentiment improve. Is that a trend that you think is going to stick?

THOMAS MARTIN: Well, the big issue in the homebuilders is that there just isn't a lot of inventory out there. And so that's not particularly good for buyers because it's holding pricing up, but it is good for the homebuilders who are really the source of new inventory. So if you have existing homeowners who are reluctant to make a move because they may have to get a refinancing at a higher mortgage rate, they're going to be putting that off. But as you add new supply, that's where you have people being able to make a move.

So the homebuilders are well positioned, and that trend is going to continue as long as rates stay high until customers get used to the higher rate environment and what they'll be able to buy with that with the new level of affordability, especially if prices don't come down much.

AKIKO FUJITA: What about some of the growth names, Thomas? We were talking about the run-up in the tech stocks that we have seen. Is that a place that you'd put your money behind right now? Or is there a little caution, just given the pullback we're seeing on the macro side of things?

THOMAS MARTIN: Well, there has to be some caution because in those names, the FAANG names in particular, Microsoft and Apple and Nvidia, et cetera, those are names that mutual funds and many investors have been underweight. And part of the reason they're underweight those names is that they just are large proportions of the S&P 500. Certainly, Microsoft and Apple have outsized positions in those indices. And if you want to own something else, then that has to come out of somewhere.

So those names have gotten very bid up. And the hype with AI and with all of the things that they can do is very attractive to investors, but at some point, they have to take a breather. And so it's not particularly concerning to me that those names start to slow down a little bit. They have to wait. But the underlying fundamental trends are very good. So you want to own them, but you want to be careful that be ready for at least somewhat of a correction in the interim term.

AKIKO FUJITA: Thomas Martin, senior portfolio manager at GLOBALT Investments, good to talk to you today.