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Meme stocks, tech in for 'messy' repricing amid market sell-off: Strategist

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Tuttle Capital Management CEO and CIO Matthew Tuttle joins Yahoo Finance Live to discuss the latest market sell-off ahead of the Fed's meeting, interest rates, Cathie Wood's ARK ETF, the SARK ETF, and de-risking portfolios.

Video transcript

ADAM SHAPIRO: All right, let's check the markets as we get closer to the closing bell, 45 minutes. And you can see a bit of an attempt to recover from the session lows. I mean, the Dow at one point was off 1,000 plus points. You've got it down now 374 points.

The S&P 500 is recovering a bit. It is now down a little bit more than 1%. Again, it was off more than 3%. Then the NASDAQ, the NASDAQ has pulled back quite a bit from its session lows, although it is still down almost 1%.

Let's talk about this, but also some other things that are underway in these markets with Matthew Tuttle. He is Tuttle Capital Management CEO and CIO. And I know we want to talk about, too, how some stars of yesteryear and might be tomorrow's stars, like Cathie Wood, how they're doing. Ark, by the way, is up slightly today on a crazy day.

But I want to get back to what we were just talking about with all of this discussion about investors today apparently taking the Fed realistically, because I went back in the notes from Brian Cheung and from everyone here at Yahoo Finance, and it was September of last year when Jay Powell said, look, taper will be done by middle of next year. And there was the discussion of potential lift off, and certainly by November. Powell was sending the message to everybody. He said it, end of March. So I just want to ask you, has there been a tremendous overreaction today by those who've been selling?

MATTHEW TUTTLE: So I don't think there has been, and here's why-- so the market environment that we've been living in for the past couple of years that allowed for meme stocks and unprofitable technology stocks to be trading at massive multiples was fueled by the Fed-- quantitative easing, 0% interest rates. There is no alternative, forcing money into these assets. And just the fact that they're going to be pulling the punchbowl away, that they're going to be raising interest rates means we've got to reprice all this stuff.

And whenever Wall Street goes to reprice things, it's not an efficient mechanism. It's messy. And that's what we've been seeing the past couple of months in unprofitable technology, and this year pretty much spreading to everything.

EMILY MCCORMICK: Matthew, this is Emily here. At the index level, though-- of course, we have been seeing some pretty notable selling across the S&P 500, the NASDAQ composite, of course, still in correction, in a correction. Where do you think this repricing process and the volatility and the selling that comes with this actually finds a bottom?

MATTHEW TUTTLE: So I would expect there to be a lot of volatility, a lot of back and forth until probably the end of the quarter. The cool thing about markets is they try to be forward looking. So the Fed doesn't have to finish raising interest rates for the market to find a bottom and go back up. So our best guess at this point, unless the Fed comes out of left field with something, is the market takes the quarter to figure stuff out and then can kind of move on from there.

ADAM SHAPIRO: I want to get back to when I was talking about the stars, and I mentioned the Ark Innovation ETF. It's down, if I've got this correct-- I'm checking on my computer right now-- the last 52 weeks, it's off by about 45%. This falls in line to what you've been saying about repricing some of these high tech flyers.

But is there something else? Because a lot of us look at ETFs as a way to protect ourselves from being all in on, say, one big tech fund. And there seems to be a misconnect, at least for Ark, over the last 52 weeks.

MATTHEW TUTTLE: There definitely is a misconnect. A lot of people have looked at Ark as kind of the end all, be all. At the end of the day, it really is, for lack of a better way to describe it, a sector fund. And that sector is unprofitable technology.

And just like any sector-- utilities, REITs, you name it-- they're going to have good periods, they're going to have bad periods. Unprofitable technology is going to do the same. But because the stuff is so high multiple, it's magnified more than any other sector. And that's a lot of what you've been seeing lately.

EMILY MCCORMICK: So, Matthew, if you are one of those investors who is perhaps invested in Ark Innovation Fund or invested in individual high growth or even just megacap technology stocks-- I mean, just look at what happened to Netflix after its earnings report last week-- what do you suggest that these investors actually do? Should they be thinking about rotating into other sectors? Or should they be holding through some of this volatility?

MATTHEW TUTTLE: So they should have been thinking about rotating quite a bit ago, unfortunately. If they're using this type of stuff the right way, meaning it's a small part of your portfolio, maybe you just ride it out. But if this is a large part of your portfolio or you're the guy who got in February 15 last year at the highs, you've got to look at derisking your portfolio here going into Fed raising interest rates. We got to figure it gets worse before it gets better.

ADAM SHAPIRO: Given that fact, I mean, the SARK ETF, the Total Capital Short Innovation ETF, you have to have a stomach for this kind of volatility, even with an ETF. So what do you want to say to people who might want to short whether it's Ark, who are looking at opportunities here to do that, whether it's through your vehicle or others?

MATTHEW TUTTLE: So I would look at SARK in a bunch of different ways. I'd look at it as a tool. So you could use it to make bets on the current macroeconomic environment, Fed raising interest rates. You could use it to hedge portfolios. To us, this is a way better hedge than inverse NASDAQ or inverse S&P funds, because in those types of ETFs, what are you shorting? You're shorting FAANG stocks-- Apple, Microsoft, and Google.

Whereas if you use SARK, what are you shorting? You're shorting Teladoc, DocuSign, companies like that. I would rather be doing that if I want to express a negative view on the markets or I'm looking to hedge part of my portfolio.

ADAM SHAPIRO: Good advice for a lot of people who are looking for sound advice right now. We appreciate your joining us today, Matthew Tuttle, Tuttle Capital Management CEO and CIO.

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