Baltimore bridge: Supply chain is a 'complex animal,' but 'bigger picture' looks okay

As investors grapple with rate cut uncertainty, they are eager to assess how it will impact the current market dynamics. NewEdge Wealth Senior Portfolio Manager Ben Emons joins Yahoo Finance Live to discuss market outlooks.

Emons notes that GDP data has shown strengths "across the board." He highlights the importance of government spending, stating that as long as it remains steady and "doesn't change," it gives him confidence in the economy — suggesting that the market rally has the potential to "broaden."

Regarding the Baltimore Key Bridge tragedy, Emons believes its effect on the supply chain will be "offset" by other ports of entry. He acknowledges that the supply chain has always been a "complex animal," saying investors cannot truly predict "the exact chain of effects that will take place from here" or how it will affect markets until the situation fully unfolds. However, he notes that the market is currently "watching and waiting."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

Editor's note: This article was written by Angel Smith

Video transcript

SEANA SMITH: Well, Fed Governor Chris Waller striking a hawkish tone earlier this week saying, quote, "cutting the policy rate too soon and risking a sustained rebound in inflation is something that he wants to avoid". Well, this comes ahead of data from the Fed's preferred inflation gauge that's out tomorrow. Here to break it down, what we could expect from the market going forward. We want to bring in Ben Emons.

He's NewEdge Wealth senior portfolio manager. Ben, it's great to see you. So talk to us just about your view as we look ahead to the second quarter. Clearly, it has been another quarter of outperformance here for the market. The strongest quarter that we have seen in years. How does that set up the S&P, the Dow, many of the broader averages here for the remainder of the year?

BEN EMONS: Yeah, I think, Seana, that if you look at the GDP data this morning, and you drill in it, you see across the board all the strength. And I always take the first look-- where I look at is at government spending. And that's so not only elevated but steady that that to me gives me the confidence like, well, as long as that doesn't change, that the government isn't slowing down any type of spending that we're seeing coming into the economy, yet a rally has scope to broaden.

And that's what I think the momentum indicators are showing, that if you have 80% of the index over 200-day moving average, and you got this sort of momentum in the market and other sectors now lifting higher like financials or energy trying to catch up with semiconductors. I think it all indicates that this is a year where the economy's not really going to be thrown off its course, unless there's an exogenous shock. Other than that, it's actually steady as she goes.

So I would think we're setting up ourselves at least for the first half of the first quarter with that same spirit. So probably you're going to see some more rally into these sectors that have lagged the semis. Think also of sectors that are influenced by particular names, for example, an automotive that has been really a Tesla-driven story that you could see some pick up there because broadening rally means more production, more demand, also including for sectors like automotives.

BRAD SMITH: I mean, Ben, you talk about exogenous shocks. We just had a boat hit a bridge. A vessel carrying so much in terms of the product that was expected to be imported and exported coming into the Port of Baltimore as well that now gets redirected at the same time that there's going to be perhaps a labor negotiation later on this year with regard to port workers. I mean, that seems like an exogenous shock is out there, but how much and to what extent could that have a larger ripple effect?

BEN EMONS: Yeah, Brad, I think what was notable from Waller is that he barely diffused that shock from this terrible event, that he felt like the Baltimore board having 2% to 3% of impact on traffic and coming in and out of the US in terms of goods was just natural. And therefore, a lot of rerouting to other ports should basically offset any type of negative effect on the supply chain.

But the supply chain has always been a very esoteric, complex animal, if you call it that way, meaning like you don't really exactly know the exact chain of events that could take place from here. So clearly, this is something that you could put in the category of exogenous. That's unexpected. The market sort of took it in and sort of watching and waiting and only seeing some particular stock sell off on this. So I think we have to see what the ripple effect really will be from here. We have examples of this, as you remember.

All the clogging of ships in front of the Port of Long Beach or what we've had with just general supply chain disruption globally during COVID or in the Suez Canal. Some of it will come in a negative way through the data. So I would expect some of the regional manufacturing data to start showing some of the effect from this event, but I don't think that the bigger picture gets thrown off course from this particular event as Waller himself said so. But

SEANA SMITH: Ben, when you take a look at the recent market action, and I want to point because you had some commentary out earlier this week about some of the buying action that we've seen within meme names really highlighting this risk on appetite that seems to be back within the market. What does that signal to you, just in terms of if we're approaching froth levels, or what investors need to keep in mind at this point in the cycle?

BEN EMONS: I think we need to keep in mind liquidity in particular because we do have an expansionary liquidity environment that is driven by-- in the system in itself, we've actually have more reserve growth than you would otherwise have expected, despite quantitative tightening. And you had so much money on the sideline that's coming back in and finding itself into particular assets or even what we called meme stocks.

Essentially, major volumes happening, and that's something to keep in mind even that could generate some level of froth. And as we know, moment that becomes more and more evident there's going to be caution on the part of others to saying, OK, the market gets overstretched. And I'm starting to turn my portfolio a little bit more defensive.

I think that is a dynamic to watch. I think if we're getting further into the second quarter, clearly the Fed wants to phase out of quantitative tightening. So it will not necessarily be suddenly liquidity drainage. On the other hand, we have these dynamics on the fiscal side too. As I said, if spending continues the way it does, the liquidity may not necessarily disappear.

So it comes really from inside the market, and I think this is where the psychology may play up that people view the market at some point being a little too frothy expressed in meme stocks or crypto or other sort of speculative assets, and people pull a bit back. I think the first start of the second quarter will probably not see that type of psychology coming to fruition just yet. I think seems to be very momentum jubilant atmosphere in this market right now.

BRAD SMITH: Hmm. Spicy, Ben. All right, Ben Emons who is the NewEdge Wealth senior portfolio manager. Thanks so much for taking the time. Great to see you.

BEN EMONS: Thank you. Thank you for having us.