Homrich Berg CIO Stephanie Lang joins Yahoo Finance Live to discuss the risks for investors amid the Russia-Ukraine conflict, key strategies for growth earnings, volatility, and the outlook for the Fed amid inflation concerns.
Video Transcript
- Fed's response to red hot inflation, rising tensions between Russia in the US are two not so small factors on the plates of traders right now. Let's welcome in Homrich Berg CIO Stephanie Lang to get a sense on how to play all this. Stephanie, good morning to you. Is the reality is that investors should probably just go more defensive? There are a lot of risks out there, of course, Ukraine and Russia.
You also have-- we're also looking at a potential rate hike of some sort in a couple of weeks. How do you play it?
STEPHANIE LANG: Well, that's exactly right. We've come off an incredibly strong couple of years with a massive fiscal and monetary stimulus. Now we have a lot of that off the table. So you don't have those tailwinds. You're moving into a weaker economic backdrop. You have the Fed that is supposed to raise rates six times this year with quantitative tightening on the back end.
So what are investors to do? I think they need to play into this volatility, meaning how do you position to win in this environment? You need to be with those names that will have some protection in that downdraft. So as you mentioned, those defensive names are a good place to be, one being the dividend growth stocks. So those are companies that can grow their earnings over time, be defensive in those down markets.
And in contrast to those tech names, there are shorter durations. So you can really have that return on a year to year basis, not waiting for those earnings in the long term. So I think to your point, it's very volatile. It's going to be all about inflation and what the Fed does. But if you want to position correctly, you've got to take that defensive stance at this point.
- Stephanie, to take a step back for a minute before we dig into more of how to strategize, I'm curious what level of confidence you have in the Fed here engineering a soft landing, particularly when we get somebody like James Bullard, who in an interview with CNBC this morning, talked about the interest rate increases being sort of front loaded in the year that they go big and go hard to begin with, and then maybe soften as the year goes on.
STEPHANIE LANG: Well, you know, Bullard is one of the most hawkish Fed members. And I think that if you look at what's been going on-- so the Fed hasn't really done anything at this point. It's all been telegraphed. They are still buying bonds. There is still quantitative easing going on.
And you've already seen a huge run-up in rates. I mean, if you look at just the two-year Treasury, you've gone from roughly 0.11 in the last year to 0.9 a couple of months ago to 1 and 1/2. That is a massive move.
You've also seen globally rates go up quite a bit. $14 trillion in negative debt in the last six weeks, that's gone down to $4 trillion. So without even the first rate hike, you see massive moves. And that really is already playing into the tightening that's going on.
So I think we don't want to get ahead of ourselves. I know a lot, including Bullard, are calling for a 50 basis point rate hike, for faster rate hikes. And I think we have to wait for this to play out. We don't want to surprise not only the market, but a lot of these things are self-fulfilling.
So if investors and consumers get concerned that this is going to be self-fulfilling, and we could go into a recession quicker. So I think it's very fragile ground right now. But I think the Fed needs to play out with what they had planned. And it might be a little quicker than the Fed dot plot, but I think that's adequate to slow demand when we're already going into an environment where really it's a naturally slowing environment from what we've seen in the last couple of years.
- As someone managing money, though, do you have confidence that the Federal Reserve gets this thing right?
STEPHANIE LANG: Well, it's tricky. And I think if you look at what history says, a lot of times the Fed has created a policy mistake, which leads us into a recession. But I know that Powell and the rest of the Fed is acutely aware of that. So that's why they're going to be very measured in their rate hikes, and they're also-- we've called it the Powell put in the past.
And while they're not supposed to be reactionary to the stock market environment, the fact of the matter is they have been. And if they see that the market is really reacting to their action, and the Fed-- sorry, the market is forward looking, they are going to react to that. So I feel that it's going to be tricky, but I think they're acutely aware of history and how that movements too fast can cause a recession.
So I think that they're going to be very orchestrated and measured, even though you have some hawkish players like Bullard calling for more.
- You mentioned, Stephanie, that you really like dividend payers. How do you find some of these companies? If investors at home right now are really scared out of their wits and what might happen to the markets next, how do they screen for names like this?
STEPHANIE LANG: So first of all the dividend payers are going to have strong earnings growth. So you're going to see them consistently growing their earnings over time. Then you can also screen for who has consistently raised their dividends year after year. And these are going to be quality names, as I mentioned.
There are certain ETFs that play into those themes. So you can tack it that way, or you can go for the individual names. But as I mentioned, what I like about these names is that they tend to be stalwart in their sectors. They tend to be steady growers and especially in a slower growing not only economic environment, but earnings environment, that these companies tend to go well.
So if you lean into these quality names as the market is volatile, and we expect to see really slower growth in the stock market, you really need to protect on the downside. And if you look at certain periods, and you pick out these names, whether individual names or ETFs, they tend to-- when these big risks off periods, you're going to see them lose less. An environment where we expect to see a lot of that, that's going to be a winning game in our opinion.
- Good tips. Homrich Berg CIO Stephanie Lang. Always good to see you. Have a great rest of the week.