Investors are now selective on election risk, tech: Nuveen CIO

Markets (^DJI, ^IXIC, ^GSPC) have seemed to price in higher for longer interest rates after the Federal Reserve made its latest monetary policy decision to keep rates unchanged. As inflation sticks around, however, the Fed's long-term rate picture remains unclear.

Yahoo Finance's Brian Sozzi and Akiko Fujita are joined by Nuveen Investments CIO Saira Malik at the Annual Milken Global Institute Conference to discuss the Federal Reserve, inflation, the overall state of the market, and more.

"I wasn't surprised to see payrolls miss this month. But they're still reasonably strong. Markets rallied last week on the Fed's comment because they were actually relieved that rate hikes were taken off the table," Malik comments on the market reaction to April's jobs report and Fed's rate hold last week. "I am not convinced that we're not going to see another rate hike. If inflation re-accelerates and the economy remains strong, I think you could be bringing a hike back on the table. It's not our base case, but I think it's still an issue out there."

Catch more of Yahoo Finance's coverage at the 2024 Milken Institute Global Conference.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video transcript

So what's the next move in markets with fed rate hikes or cuts in focus?Let's dive in New Cio Sarah Mali.Sarah, good to see a per for change.Yes, great.Finally off the off the Zoom video.Yeah.Right.I I was telling the Kiko, I love what you wrote recently about may potentially being weeds for Marcus.Explain that to us because I'm like, well, I got to ask Sarah about that.We already saw the rain showers in April.So the question is, will we be coming up next?Markets are really fixated on what's the next move by the fed?When will we get rate cuts and what's going to be the magnitude of them?And really there's two things for bulls and the bears for the bulls payrolls missed for last month.And also manufacturing that has been weak with Q one GDP missing estimates.But the bear is still point to inflation which is well above the feds target and consumer spending.And until that inflation number hits the 2% that target and stays there sustainably, the f not going to be cutting rates.Is it fair to say you cautious on stocks here.I think it be near 5200.I am cautious.I see it more trading range.I don't see any imminent issue to take the market down.But my concern is that without these rate cuts coming in the near future, what does that mean for the economy in terms of its ability to hold up?And we are seeing those cracks already somewhat in the employment market with manufacturing on that point that we heard from m that president the car here at the conference on the ground of raising a number of issues.Number one, you know how much of where inflation is right was in the control of the Fed.But also whether in fact we're landing softly at 3%.He said that keeps me up at night.You been in the camp that you don't think inflation is going to reach that 2% target this year.Why I think you with the Fed has been battling is inflation and they're trying to raise interest in sort of a t inflation.But what we've seen is, you know, more couple of years of great hike and inflation is still if anything starting to aerate the beginning of this year.So what is, and there's another thing that out of the Feds but does drive markets and that's earnings, earnings have been very strong and they've been led by technology companies.We have the large digital shift to artificial intelligence that's been driving earnings higher and that could continue to.And that's really out of the fed's control too.So it is a challenge for them right now trying to slow the economy enough so that they can clamp down on inflation.One of things that, that we heard from that last week, the cash seem to reiterate here at the Milken Conference is the labor market may be sort of that impetus that drives a potential rate cut.In other words, even if inflation remains at 3% or above, if they start to see more deterioration in the labor market, that would be a reason.How are you thinking about those two right now?Well, first of all, April employment consensus was a high hurdle.It was one of the highest consensus numbers we've seen since 2022.So it was going to be a hard one to beat like we've seen in prior months.So I wasn't surprised to see payrolls, but they're still reasonably strong markets rallied last week on the Fed's comment because they were actually relieved that rate hikes were taken off the table.I'm not convinced that we're not going to see another rate hike if infl inflation re accelerates and the economy remains strong.I think you could be bringing a hike back on the table.It's not our base case, but I think it's still an issue out there.Let me just check some of these off job market slowed down a little bit economic slowdown is happening based on GDP election season, inflation is still high.Our investors still being very complacent.Economy is slowing moderately.So not in a recession, election years do tend to bring higher volatility but markets tend to go up in election year.So that's, you know, kind of a neutral, even somewhat on our side.Those are important and let's go back to earnings which are the real key driver of markets have been strong.80% of companies in the first quarter of this year have beaten earning consensus.That's a positive for the market.It's led by technology.So I agree, we need to be a little more selective but that earnings as long as they continue, I think markets can stay resilient even though they are a little bit expensive.As you look ahead to the second half of the year.The election on the calendar obviously, where is the political risk factor into your overall?When I say short term volatility, long term, less volatility, because we'll go back to the economy and earnings once the election happens.But leading up to it, more volatility in the market and we do have new things to consider this year even though the candidates are known, which could be sort of a positive for the markets because they like transparency and clarity.Think about artificial intelligence, potential misinformation, international issue issues.We're dealing with all of these geopolitical issues.Those are going to be important to the voters and that could also impact market movements and election volatility.Mark Lasry, the founder of Avenue Capital told me because everybody is so over, I guess over allocated or over invested in the magnificent seven names NVIDIA Apple Amazon, you name it.We might be now looking at a year of underperformance because everybody is invested in these names.Do you agree with that?I think it's the year of being selective and you saw that last week with Meta which actually put up a good quarter with 27 percent revenue growth.The whisper numbers were for 30% revenue growth stock goes down because it's over, over.Now you look at Apple or if you look at the fundamentals of the quarter, it's more about the next iphone cycle seasonality trade, but stock was on your own.So Apple goes up.So I think that crowding in the stock is important for, for the stock.But then we have these more resilient ones like Amazon Microsoft with its multi year head start and artificial intelligence.He should continue to be like the little engines or the big engines that you mentioned.It's time to protect.Look for defensive assets is an Apple or an Amazon a defensive asset.Apple is pretty defensive because it's under owned.Amazon, I think just as from investing in their logistics during the pandemic.When we see when we say defense of assets, we're also talking about areas like infrastructure, multi year positive trade for us because not only are we near shing on showing our businesses the shift to renewable energy.Both of those require more investment in the US and the components of infrastructure like utilities and waste management tend to be economically sensitive.You mentioned the huge swings we saw on the back of some of the back seven names.It's interesting to me that there seems to be on the one hand, some concern about the scale of investments that are needed to ramp up their A I offerings.And yet you look across, you know, me had a big number of investments that seem to really affect their stock investors concern.But that wasn't the case with a name like Microsoft or even in A I mean, I would say that, you know, the long term head start companies like Microsoft and NVIDIA have are important to go back to the late nineties.We were shifting to more use of the internet.There were so many companies out there and we all remember ipads, companies you could buy which really weren't resilient businesses.Companies like Microsoft and NVIDIA, I think are long term places.They have gotten such a head start in terms of investing in A I think those are going to be the long term winners fa little bit of up and down because of their valuations and where people are positioning in the stocks.You talk to a lot of investors let's focus on the average investor.What's the number one mistake?You still see that making cash on the sidelines.I said have shown that when you market time, you lose money relative to if you just stayed invested, this started, you know, last year, everyone expected a recession to come that you holding their cash and 5% returns that wrong with 5% returns.But when the market is that multiples of that and even fixed income markets of yield that are higher than that today, you you're losing money.So I really recommend they invested like into the market average that I think is the biggest mistake investors make.And then of course, they eventually get FOMO fear of missing out when they come piling back into the market when the market is already out.I feel like that's kind of right where we are right now, right?So basically you just told me I'm making a mistake.I thought I was doing pretty good.My 5% CD maybe, you know, it's funny, right?I sort of checked myself when you said that is why I say 5% is good in 2014.We leave it there cio sm see in person.Appreciate, great.Thanks for having me.