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Strategist advises not to be ‘seduced’ into tech stock rallies amid A.I. trends

Payne Capital Management President and ‘Payne Points of Wealth’ Podcast Host Ryan Payne joins Yahoo Finance Live to discuss the attitude of investors after the latest jobs report.

Video transcript

SEANA SMITH: Well, stocks are falling this afternoon in the final hour of trading. All three of the major averages trading to the downside as investors shift their focus from that Fed policy that Jim was just talking about to earnings. So far, this earnings season, reports have been mixed, with over 70% of the S&P posting results. So what does this mean for equities going forward? We want to bring in Ryan Payne, Payne Capital Management president and host of the "Payne Points of Wealth" podcast. Ryan, it's great to have you back here--

RYAN PAYNE: Great to be here, Seana.

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SEANA SMITH: --in the studio. So here we are.

RYAN PAYNE: Magical.

SEANA SMITH: 70% of the S&P companies have reported earnings so far. Your big takeaway? Because from a 10,000-foot view, earnings have been pretty mixed so far.

RYAN PAYNE: Yeah, I mean, as long as they're beating, right? And that's beating expectations. I mean, earnings aren't great. I'll put that caveat out there. But the way markets trade, it's between expectations and reality. And, man, expectations, which have been so dire the last 12 months.

And you look at a lot of these comments from strategists look dead wrong now. They've been a little too negative. And what you're seeing is, you're seeing the data come in much better than expected. And if you look at profits, they're actually better than what was anticipated, hence the market's had a phenomenal run since, like, last fall.

DAVE BRIGGS: Now we did lower the bar quite a bit. And we're leaping over a lower bar, essentially. But recessionary predictions, we've heard very little of them. Few and far between, whereas you go back a quarter, it was all we were hearing. And in fact, we started out with all the big bank CEOs predicting a mild recession. We haven't heard much of that from CEOs who are pointing to the consumer. What do you see?

RYAN PAYNE: It is remarkable, right? We had that jobs number, which was insane, on Friday. Like, that is not a recessionary jobs report. And what blows my mind is, to your point, every strategist, every CEO is the most anticipated recession of all time. Of course, we were positive the whole way through. We really didn't think that was going to be the case. And now you're seeing everyone shift their tune all of a sudden, saying soft landing, like, all of a sudden, out of the blue.

And I think it just speaks to the fact that, look, you've got a strong consumer. And the reason they're strong is we still have some pandemic stimulus left, something like a trillion dollars, but more importantly, you know, wages are going up, and the job market is strong. That's going to keep people spending this year, and that's what drives the US economy. It's not that complicated.

SEANA SMITH: Ryan, how much does it matter whether or not we do fall into a recession, just given the fact that so much of that fear, you would think, has already been priced in at this point?

RYAN PAYNE: That's a great point because I always say anticipation is mitigation. Everyone was thinking about recession. Everybody's talking about it. So what were those CEOs doing? They were going back in their businesses, and they're looking for where they could cut, where they could actually rewrite the ship, even before any sort of, like, recession happens.

And that's why the numbers are already coming in better because the hurdle has been lowered. They're already proving their balance sheet ahead of time. That's already being anticipated. So then, hence, like, it's already priced into the market. I would argue that was priced in last year. That's why you're getting all this good news now.

DAVE BRIGGS: True. So you say tech is in the midst of a dead cat bounce. My favorite actual phrase when it comes to the stock market, other than maybe catch a falling knife-- those are my two favorite-- why so? Describe what you're seeing in big tech.

RYAN PAYNE: Two good ones, Dave. But no, I think bottom line is, look, I mean, tech has come down a lot. You're seeing a big bounce this year in the NASDAQ. It's up, like, 16%, but it's still down over 20% from the highs. And I think what you're seeing is very similar to what we saw in the tech bubble burst. You had a huge sell from the NASDAQ. You had all those big tech companies get hammered, and they'd had these big bounces. And then they would go down again.

And look, if you look at the big five this past quarter, they had 1% revenue growth. Valuations are still high. So I think that is going to be problematic for them moving forward. They just-- they may just do nothing for the next couple of years, just because you kind of have to get those valuations down.

DAVE BRIGGS: A couple years.

RYAN PAYNE: Microsoft did nothing for 13 years after the tech bubble burst. People forget that. So tech can be dead for a long time. Don't be seduced into these rallies.

DAVE BRIGGS: Isn't AI and ChatGPT the 1x factor there?

RYAN PAYNE: How are they going to make money with that? No one's talking about that. I know it's cool technology, but I don't hear anything about, like, real profits with that stuff. That's way down the line. Yeah, I wouldn't be focused on it.

SEANA SMITH: So you don't like tech right now. What do you like in this environment?

RYAN PAYNE: I think I'm enamored with almost everything else. I mean, energy still looks good this year. I mean, financials look great. I mean, lending is going up. So they're making a lot of money on those net interest margins. I mean, you're still getting nothing at the bank, as they're out lending money at a much higher rate. So banks should do really well this year. And I think the global markets-- I mean, the biggest catalyst this year-- forget the Fed. Everyone loves to talk about the Fed.

And I talked about this on my "Payne Points Wealth" podcast, the best in the country, is China. The reopening of China is huge. Europe benefits from that disproportionately to the US, but even the US is going to benefit from that. Everyone benefits from China reopening. They have about, like, $2 trillion worth of stimulus sitting in their accounts to spend. That has a huge impact on the global economy. You have to have a global portfolio.

DAVE BRIGGS: You're not suggesting the Fed don't matter, are you? Because I'm a Fed lover here. And Jen Schonberger just gave us the latest Fed speak. And the market is falling back in line with what the Fed's been saying now for this entire tightening cycle. What's your prediction? Do you think we're headed for two more 25s and a hold until 24?

RYAN PAYNE: Yeah, I think worst case scenario, two 25s, but the bond market's telling you everything, right? The bond market--

DAVE BRIGGS: Which is what?

RYAN PAYNE: --peaked months ago at 4.2% on the 10-year Treasury. It's down to 3.6%. Bond market, the bond guys are smarter than the Fed officials. So I think bottom line is inflation is coming down. The Fed here-- bench is going to pivot. Powell has already said, like, 11 times in a speech the other day disinflation. He's acknowledging it now. It's over. Those Fed officials can stop talking.

SEANA SMITH: All right.

DAVE BRIGGS: That's it. They can stop talking.

RYAN PAYNE: It's done. Done. Peace.

DAVE BRIGGS: Mr. Powell, you heard it from Ryan Payne, "Payne Points of Wealth" podcast. Good to see you, my friend. Thank you.

RYAN PAYNE: Thanks, Dave.