Market strategist explains why she ‘started adding risk back’ into portfolios

Nancy Tengler, CEO and CIO at Laffer Tengler Investments, joins Yahoo Finance Live to discuss earnings season, supply chain issues, market volatility, the U.S. dollar, and more.

Video transcript

[MUSIC PLAYING]

RACHELLE AKUFFO: Markets have been choppy today with less than 45 minutes to go until the bell. So we're going to take a look at this market action with Laffer Tengler CEO Nancy Tengler, who's joining us now with her insights on the latest earnings season developments, and of course, the financial news of the day. Good to see you. So obviously, we're in the thick of earnings season here. So, so far, how would you characterize the earnings season?

NANCY TENGLER: Well, Rachelle, thanks for having me. I think that it's been surprisingly better than anticipated, and myself included in that list of long list of investors who thought that the companies would disappoint. I think the banks came out of the gate pretty strong. Citizens Financial CEO said that delinquencies had not increased at all. It was quite remarkable. We've seen the banks increase their loan loss reserves, but they're still generating pretty strong revenues, not just in banking, but across all lines of businesses.

And then we've started to see some of the industrial names come in. Steel Dynamics reported today. It was a great report. The dividends are being raised. And we've got managements that are, of course, worried about rising inflation and input costs, but also now that we're seeing some relief on the dollar relative to the euro, after the ECB raised rates today, I think that's good news for the multinationals and commodities.

SEANA SMITH: Nancy, what about that jobs data that we got out this morning? Jobless claims hitting a new high for the year. Chris Rupkey, in a note out this morning, saying that more layoffs signal a recession. Do you agree?

NANCY TENGLER: So, you know, I think a lot of this is a technical debate. Two quarters of negative GDP growth, except the first quarter negative growth, was driven by much higher imports due to the logjams at the ports. So seasonally super high imports that are subtraction from GDP, and then you had very strong demand in the first quarter. So I think you've got 11.2 million JOLTS, job openings. And that's down from 11 and 1/2, to be sure. And yes, jobless claims are rising. We were-- I think the low hit was in the 180s, and now we're at 251.

But there are plenty of jobs still. And what we're hearing from companies that the market has really been reacting to when the technology companies say, well, we're going to slow our hiring, they're not saying, we're going to do mass layoffs, which is what we saw in the 1970s when we had similar levels of inflation and slower growth. So I think we know the economy is slowing. We've known it was going too slow for over a year.

And so whether or not we hit a technical recession or not, the yield curve is inverted on the 2's and 10's, but not the three-month's 10's yet. So I think we have to just step back and say, is it going to be a 2008, 2009 recession? We think not. We think if we get one, it's going to be slow-- I'm sorry-- shallow and quick. And so we're really-- we started adding risk back into our portfolios in June. And if you look at the NASDAQ in July, it's up over 9%, almost double the S&P.

DAVE BRIGGS: Yeah, and we were talking about that with Shawn off the top of the show that you're seeing these mega-cap tech stocks really lead the rally all week long. Why is that?

NANCY TENGLER: Well, I think, one, they got very cheap, David. And then second of all, they are the reliable earners this cycle. You know, I'm not talking-- like, I know you have up on the screen Meta and Alphabet. I'm not talking about the communications services names. I'm talking about the cloud providers, many of the chip names. These are companies that have been delivering-- and cybersecurity, sorry.

These are companies that have been delivering very reliable and robust earnings. They've been raising their dividends, those of them that pay dividends. And they have a secular narrative behind them that's quite compelling. I mean, the total addressable market for cloud and cyber is in the trillions. So-- and we're only maybe halfway there. So these are names you want to own for the long-term. And I've said I think this is a once in a generational opportunity to buy many of these names on sale. And that's, in fact, what we've been doing.

RACHELLE AKUFFO: And Nancy, what sort of lens should we be viewing the S&P in right now, when we compare it to sort of other perfect economic storms that we've seen in the past?

NANCY TENGLER: I'm sorry, I missed the first part. You cut out for a second.

RACHELLE AKUFFO: Oh, in terms of S&P performance and the context that we should be viewing it in, how would you compare that to some of these other perfect storms we've seen in the economy before?

NANCY TENGLER: Yeah, so that's the million dollar question, Rachelle. I think you want to be long stocks for the next three to five years. And you want to be disciplined about how you put that money to work. So it's very difficult. I was talking to a new client today. And he said, oh, I'm so emotional. And so we, therefore, have a discipline. We set a plan ahead of time, and we say, am I going to be happy if I own this stock three to five years from now? And then we begin a deliberate way of gaining access to shares.

But I think you can assume that the market is going to return to more normal levels of returns. So maybe not 28% every year for three years, but more like 11 and 12, an occasional high teens return and some low and mid-single digit returns, driven by earnings growth, driven by the underlying fundamentals of the economy, which we still think is very strong and will weaken, but not to the kind of recessions we saw in 2008, the late '70s.

DAVE BRIGGS: OK, Laffer Tengler Investments CEO, got to leave it there. Nancy Tengler, great to have you on. Appreciate it.