Stock market exuberance 'a junk rally,' strategist says

Jim Smigiel, SEI Chief Investment Officer, joins Yahoo Finance Live to discuss how markets closed on Thursday, February 2.

Video transcript

SEANA SMITH: All right, certainly will be. Well, the S&P closing up just over 1% today. Ahead of this afternoon's earnings reports for a broader look at the market, let's bring in Jim Smigiel, SEI chief investment officer. Jim, we are in the thick of earnings season right now. Some of these big tech giants reporting as we speak. What do you make of where we stand today?

JIM SMIGIEL: Good to be with you, Seana. Today, it is quite the day. If I would have read the-- nothing but the transcript from the Fed meeting yesterday, I would not have guessed we would be seeing some of the numbers that we're seeing today. The market just does not want to believe that the Fed is going to continue to be hawkish and remain hawkish. And we have multiple price cuts baked into the cake here by the end of the year.

And we're seeing that play out. I mean, all the numbers that we saw earlier on the screen, Meta up 20%, good old AMC up with the 6 handle as well. I mean, this is really quite the rally. Can I call it a junk rally? I probably would call it a junk rally at this point. Too much disconnect, quite frankly, between what's happening with monetary policy and what the market's interpretation of that is right now. We're a bit befuddled.

DAVE BRIGGS: Is it a rally that's built to last?

JIM SMIGIEL: We don't think so. We're going to fade this. This is not something that we see a whole lot of fundamentals behind it. You mentioned the earnings that are today. The earnings have been kind of downgraded. We're going to be focused on guidance for sure. That's going to be the important part.

But it really-- it all comes down to this one fundamental question this year, which is a pivot or a pause. We're going to take the Fed chairman at his word. We think that they're putting a lot of work in to get Fed funds after that 5 plus percent terminal rate. We think they're going to stay there. We think they're going to stay there for a while. And the markets are just too priced for perfection. A nice, soft landing-- we just don't see that happening in 2023.