The market reaction to Omicron ‘was much broader’ than it needed to be: Strategist

Crossmark Global Investments Chief Market Strategist Victoria Fernandez joins Yahoo Finance Live to share perspectives on the market reaction to the supply chain and Omicron variant, the Fed's course of action, and stocks to invest in.

Video transcript

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BRIAN SOZZI: In pre-pandemic times, we would be talking about the potential for a year end Santa Claus rally, but with the pandemic still raging on globally, and markets on high alert, traders are bracing for the next leg lower in stocks. But will Santa surprise the investing masses in the final few weeks of the year?

Victoria Fernandez is the Chief Market Strategist at Crossmark Global Investments. Victoria, always nice to see you. Give us three reasons why the selloff is overdone.

VICTORIA FERNANDEZ: Well, I think when you look at what we've seen over the last few days, we knew that the omicron variant was going to show up on our shores at some point or other. And so I think the reaction from the headline that we saw our first case here was much broader than what we really needed to do. The fundamentals are still good.

So you look at the ISM manufacturing. Orders were strong. We're looking at possibly, you know, before the headline came out, peak issues with supply chains. We're seeing prices start to stabilize. We're seeing supplier delivery times start to stabilize.

So fundamentals are good. It was something that we expected. And then what we're hearing so far is that, yes, this is maybe a more transmissible variant, but it's not as severe in the symptoms that we're seeing. So I think those are some reasons that perhaps we shouldn't have seen such a pullback.

But you know what? You use it as a consolidation in the market. Maybe pull out your shopping list. I know you said you don't like the buy the dip scenario right here. But I think if there's certain names you've been wanting to add to your portfolio, you can use this to your advantage.

BRIAN CHEUNG: Victoria, Brian Cheung here. First of all, thank you so much for getting the turtleneck memo. My co-anchors didn't get the same email from me. But I wanted to ask about the-- whether or not there was also an overreaction to the Federal Reserve because we saw that big selloff on Tuesday when the Fed chairman told the Senate Banking Committee that they could really speed up the taper as soon as the next meeting in two weeks. But some people might be reading that into a direct signal on interest rate hikes, which the Fed has said in the past is a totally separate game.

VICTORIA FERNANDEZ: Yeah. And I think that would be a mistake. I mean, if we listen to what Powell actually said, I don't think it's that different than the message that we've been receiving previously. You look back two, three weeks, and what were we talking about? We were saying, OK, the Fed is putting their tapering in place, but they left it open to increase the tapering.

And people were already talking about-- we were talking about it in our investment policy committee. I bet they're going to increase tapering in December or January. So the fact that we're getting a little more certainty on that, maybe the markets are holding on to it. But it shouldn't be a completely new concept.

And look, Powell, yes, he took away the word transitory. I mean, aren't we all happy that that word is leaving our vocabulary? But he's still saying, I think inflation is going to come back down to the two, two and a half, three percent level at the end of next year. And increasing the tapering speed, I think, gives them some flexibility to allow that to happen, and possibly not raise rates until later next year like they originally planned, even though probabil-- future probabilities are telling us it's going to be probably June or July.

JULIE HYMAN: Hey Victoria, it's Julie. You-- if we're talking about this backdrop, and as you mentioned, maybe you take advantage of some of these pullbacks to add to stocks that you like in particular. A couple of your picks stood out to me. The pharmacy chains, Walgreens and CVS, are on your buy list. What is it about those? And is an omicron scenario actually, potentially, positive for those?

VICTORIA FERNANDEZ: I think it could be positive because we know what happens, right, when these headlines come out, when you have more restrictions put in place, which we heard this morning. There's, you know, the mask mandates are going to be updated. You're going to see more people having to do, probably, testing in order to fly.

So what does that mean? They're going to be traveling to the CVSes, the Walgreens. They're going to have to be purchasing some of these things. Do we see increased purchases in over-the-counter medicines just for people to take some preventative actions?

So I think all of that helps, but even before the omicron headline, we liked these names. We think they have good business models. We like the clinics that are in there. They have strong balance sheets. So we just think they're good core companies, and we like more of these cyclical names right now to help balance out all of the growth names that have been in the portfolio during the pandemic.

We obviously don't want to chase the markets. I think the last three or four days is a perfect example of why that's a dangerous scenario for someone. But start building out a balanced portfolio and you can weather through the volatility that we're seeing.

BRIAN SOZZI: Do you step in here, Victoria, and buy Apple. The stock is under pressure here right now on concerns about demand for its new iPhone. Are you a buyer?

VICTORIA FERNANDEZ: Yeah we actually like Apple, and we're actually adding to our position in Apple. And I mean, I know this report came out, and they're saying demand is down for the iPhone. And perhaps it is down a little bit right now. Is that supply chain issues that are causing that? We don't really know.

But look at the fundamentals of this company. You know, you guys were talking earlier that it's actually become kind of a safe haven stock for people. And the fundamentals are strong. Yes we're down three percent this morning, but we've been up 3 percent over the last five trading days.

So I think that's OK. And anecdotally, I mean, I was at the mall this last weekend. You couldn't have put one more person in the Apple Store in the mall. It was packed. So I think the consumer strength that is there-- maybe the iPhone itself is not doing as well right now, but I think across the board their product demand is strong, and the company will continue to do well.

BRIAN CHEUNG: Victoria, at the same time, though, Black Friday sales on a year over year basis were actually down. So what does that tell you about what we should expect in the coming earnings season? Because, again, the last season didn't cover what we saw as a holiday spending season. Would you expect that to actually weigh down on expectations that may have been upgraded since the last round?

VICTORIA FERNANDEZ: I'm not so sure it will. And I think some of the reason that we saw online sales down year over year is because last year people were not going out to the stores to the extent that they are this year. So the online sales I can kind of understand.

And I think that perhaps the reason that we saw foot traffic down a little bit is people were shopping earlier. How many times did we hear, and I said the same thing, get your Christmas shopping done early? I was done by Black Friday with my Christmas shopping.

So I think, perhaps, some of that was pulled forward in those really strong retail sales we saw in the last six weeks, and we didn't see it as much now. But we had strong momentum in the beginning of the fourth quarter. And I think the strength of the consumer is going to hold that up through the end of this year, even if the couple shopping days that we traditionally see were not quite as strong.

BRIAN SOZZI: I hope Brian Cheung hooks me up with a size medium turtleneck sweater here. Holidays are right around the bend.

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VICTORIA FERNANDEZ: I have one more gift to buy. I'll go buy the turtleneck for people. There we go.

BRIAN SOZZI: All right. Well you got my address too. Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments. Always good to see you. We'll talk to you soon.