Russia is ‘a real risk to the market’ after missile hits Poland: Analyst

Defiance ETFs CEO and CIO Sylvia Jablonski joins Yahoo Finance Live to assess the impact on markets from a Russian missile hitting Poland, seasonal market rallies amid the Fed's rate hikes, and opportunities in growth and semiconductor stocks.

Video transcript

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- Sylvia, it's great to have you. Let's first start off-- start off with the dip that we saw largely because of the developments out of Poland. What's your assessment just in terms of how you're viewing this geopolitical risk and how investors should be taking this into account?

SYLVIA JABLONSKI: Yeah. Hi. Great to be with you today. Well, I think, you know, one of the biggest sort of headwinds and risks that we've had in the market all year has really been the Ukraine-Russia War. And, you know, we get some peace and sort of some quiet and stability in the markets for a couple of days. Then something like this pops up, right?

So it's been sort of this. It's been the China-Taiwan story. I think that, you know, anything that comes out of left field geopolitically that could look towards creating, you know, a major situation between a NATO country and Russia is a real risk to the market.

You know, the news hasn't come out yet, what I've been sort of reading and hearing. And what you guys just sort of mentioned is that there's no sort of direct proof that this was on purpose, I guess. I mean, not that it's, you know, acceptable either way, of course. But I think that the market is pending that news and the outcome of that.

- Of course, prior in the day, we had plenty of news to digest, Sylvia, including Walmart earnings, Home Depot earnings, interesting look at the consumer PPI, which came in better than expected. What was your biggest takeaway from the day prior to this that tells you where we're headed next?

SYLVIA JABLONSKI: Yeah. So, you know, I think what's working and what's looking pretty good is this idea of a year-end rally. If you sort of asked me about this earlier in the week last week, it felt a little bit more unstable just because, you know, we hadn't seen an inflation read actually come down. And now we have both CPI and PPI telling us that prices are coming down. They're coming down in housing. They're coming down in electronics, clothing, you know, some aspects of food, airline tickets, things like that.

Real wages are actually not going up as high as inflation. You know, producer prices, things like that, are coming down. So this is really good. It tells us that what the Fed is doing is actually working. The looming long-term risk is really recession. So I think short term into the end of the year, we have seasonality. We're sort of past midterm elections. You know, we have these inflation rates coming down. We have what feels like certainty about that next hike being 50 BPs. And then it's sort of wait and see.

I think for a longer term investment horizon, 2023, there is just some uncertainty because we need to see whether or not we actually get that soft landing and then what it takes to get out of that soft landing, because the Fed, remember, will want to see a 2% rate or at least several reads of inflation shrinking. So there's uncertainty there. But seasonally, I think you get a little rally here.

- And to that point you just made, Raphael Bostic, Atlanta Fed, said this morning, quote, "Tighter money has not yet constrained business activity enough to seriously dent inflation," clearly sending a warning that we are far from done. Are the markets overreacting to just a little glimpse of good news?

SYLVIA JABLONSKI: I think that, you know, it was probably a somewhat appropriate response because we've been oversold for quite some time. You know, there's a rally that should have been happening for a couple of days now. So unfortunately, it feels like we got most of it in a day and maybe two if you count today. These are some of the biggest moves. That last Friday was one of the biggest moves in three decades. So that's, you know, an outsized move. And you kind of feel like you're on shaky ground when you get that in a day.

But, you know, in terms of what happens next, again, it's-- I think we tick up if we don't get any major headwinds, no bad geopolitical news, the Fed sort of stays on track, and the message is still firm. But we know that the Fed is getting towards the end of his rate hike cycle. So we're going to stay at those levels for some time. But I think the market has some sense of calm about, you know, what will happen in terms of actual rate hikes for the next 12 months.

But you make a great point about what that means for, you know, 2023. If business investment goes down, if consumer spending goes down, consumers have COVID money. And then on top of that, they have wage-- wage inflation and amazing job opportunities for the last year. So all of that is going to be off the table for next year. So it will be important to see, you know, how the data holds up.

- And at this point, markets do seem to be pricing in some sort of recession. Not exactly sure how severe it's going to be. But at what point, how many data points will need to come out before you decide, look, it's time to come out of the defensive play and look for some more growth opportunities?

SYLVIA JABLONSKI: So I've actually already been, you know, working my way into the growth opportunities because I look at the stocks that have been the most beat up. And I know it's not the popular view in terms of, you know, the tech generals have led us up 400% the last decade. They're very unlikely to do that for the next. Sure.

But I still think that these names that are down, you know, 30% to 50% off of all-time highs and are part of every major technology in the future, whether it's 5G, whether it's artificial intelligence, quantum computing, all of these things have to happen in order for us to sort of grow and expand as an economy to fill those jobs that we couldn't fill because of COVID that remain open and are an issue now to fix supply chain issues.

So I think that these things have been on sale. And whether or not we're in a recession, the market has certainly taken the steam out of them. And I don't suspect that it sort of gets worse in those sectors. So you know, I actually have been already buying in ahead of whether or not we have a soft recession. The market is taking a beating this year. So it could be mostly done.

- And, Sylvia, to that point, one side that has been under tremendous amount of pressure this year has been the semiconductors. And we're seeing a rally today. And we've really seen that over the last couple of days. I mean, the stocks is up, what, 23% in the last eight trading days. Berkshire, Warren Buffett getting a little bit more bullish, taking a stake in Taiwan Semiconductor. I'm curious just how you're looking at that sector, given the geopolitical risk that's associated with so many of the semiconductors.

SYLVIA JABLONSKI: So I think that's been one of the biggest issues, right? On one hand, you have weaker demand, particularly in PCs. You've had COVID shutdowns and things like that that have impacted the sector and then the regulatory factors that have come out in terms of chip sales.

But we did hear some good news out of AMD. And we did hear some good news out of Nvidia in terms of, you know, having different types of chips that they can now sell to AsiaPac region. And I think that, again, like, we have to sort of suffer a little bit through that 2023 decreased business spend. But corporations need chips to advance, right? It goes back to-- we need them for AI. We need them for electric vehicles. We need them for cybersecurity. We need them for cloud. And all of these names-- you know gaming-- all of these things are going to pick back up in a matter of time.

So these names, I actually think, are bargain brands. And when you look specifically at names like AMD and Nvidia, regardless of the stock performance over the last year, which is agreed, you know, atrocious, they have plenty of cash on hand. These companies aren't going anywhere. So when things sort of turn around and spending picks up in these areas, I think that they're priced to benefit and that they will actually recover faster than most.

- I'm a sucker for a sale. So that's some good news. All right. Defiance ETF CEO and CIO Sylvia Jablonski, appreciate it. Thanks so much.