Stocks: 'There is a great hunger' in markets to find a bottom, strategist says

Ted Oakley, Oxbow Advisors Managing Partner, and Moneta CIO Aoifinn Devitt sit down with Yahoo Finance Live to weigh marketing tipping points during the Fed's interest rate hike cycle, inflation, and the housing market.

Video transcript

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- And that was your closing bell sponsored by Tastyworks. Let's take a look at the numbers all finishing in the green. The Dow up just about 200 points, a 0.64%. The S&P still worst first half since 1970, but we'll take the win today up 36 points. The NASDAQ, 180-point gain leading the way 1.6% up.

- For more on today's markets, let's bring in Ted Oakley, Oxbow advisors managing partner and Aoifinn Devitt, Minetta chief investment officer. Ethan, let me start with you. Looking at gains today, initially, we saw the market a little bit spooked by the hawkish tone that we got from Fed Chair Jay Powell in front of Congress earlier today. What do you make of where we are today in Fed policy and how the markets could potentially react?

AOIFINN DEVITT: I don't see a big change in terms of Fed policy, but what I do see is there's a great hunger right now in the part of markets and commentators to really plumb for a bottom, to find what is it that will cause markets to level out from here. Is it going to be demand destruction on the oil side? Is it going to be that tipping point in yields that was just noted earlier?

So it's that kind of desperate-- we've also seen a shift from some stocks for the growth index into the value index. That's a very notable tipping point as well. So what I see is this plumbing for a bottom discovery price action. That's all we're seeing. I don't see any great change in Fed policy. If anything, the uncertainty is more clear now than ever.

- Ted, what do you think is that tipping point the markets are waiting for?

TED OAKLEY: Well, I think what they've been looking for is something that they could-- looking at the Fed, thinking, well, they're going to really fight this thing hard and so it'll be over quickly and we'll get this inflation under control, we'll be on the way. I don't really think that's the case. I think the Fed is going to be harder and really, really more constructive. They're going to stay with it here for a while.

And this week, obviously, was a bounce from last week. It was such a tough week last week it's not surprising what we're getting right now. But to me, that's what's happening. And I find too many small investors trying to catch a bottom here, which usually doesn't really have an out of bottom.

- Ted, can you be specific there what you think the Fed will do? Are we talking two 75-point hikes in the next two meetings? Are we talking 75 and 50? What do you think?

TED OAKLEY: Well, I'm just going by the rhetoric. I think I think one of the things that goes on in their minds is like, hey, we're not going to be the ship that sinks here after 40 years of deflation and 40 years of lower interest rates. We're not going to be the group that goes the other way and drops the ball here. I think that's what they're trying to get across right now.

And they've really dropped everything on the employment side. They're really concentrating on inflation. So if that's the case, that means this idea that people have that hey, this is all going to be over here in a month or two won't work. And that it would still go on throughout the next quarter or two and we'll be under pressure.

- And Aoifinn, I want to ask you about the strength of the consumer. Obviously, when we saw a lot of that inflation data related to the consumer, that did put that extra impetus on the Fed. What are you watching in that space? How strong is the consumer right now?

AOIFINN DEVITT: The consumer still has a lot of pent up demand based on post-pandemic largesse that hasn't quite been spent. We've seen that been spent now on services such as in the tourism sector. We also have seen that go into the stock market. And quite frankly, I think it is that money on the sidelines that is causing some of the snap back that we're seeing very quickly because there has been a fear of missing out.

If anything, that fear of missing out is more acute now. That inflation is very much alive and in our faces and purchasing power is being eroded every day. The consumer is definitely aware of the price pinch on the oil side. We've already seen some demand destruction at the pump there and people taking fewer trips as an example.

And we've also getting it from the companies too from the likes of Target and Walmart and what they're saying about their inventories, and how they're not perhaps seeing the same demand for patio furniture that they thought. The consumer is becoming more discriminating. We are seeing them ratchet down in terms of maybe different brands that they're looking at.

But I also think the consumer is tired of being told what to do. And that they've had two years of that during COVID, and now that they've got some money on the sidelines, they want to spend it. And I'm not sure that the Fed will achieve that demand destruction that they're hoping for because I'm not sure the consumer wants to be tamed right now.

- So taking all this into account, the fact that you think that the Fed is not as likely here to have this soft landing that Fed Chair Jay Powell had been saying that he hopes we could achieve the softest landing, to put it in his own words. How should then people be positioned as a result to protect themselves?

TED OAKLEY: Well, I think you have to position with some liquidity. And I think that people are probably not realizing the value of some liquidity now, and they're more in a hope mode as much as anything. But if you're going to get through that sort of thing, you're going to have to have something that's what I basically call bulletproof money or safe money. And I think they need to concentrate on having some of that around and to get through everything now.

- Aoifinn, your notes say you're very focused on the housing market as a barometer for market health. Most of the numbers have been, largely speaking, negative. Existing sales lowest point in two years. So what is the housing market telling you about overall market health?

AOIFINN DEVITT: It's definitely indicating some caution. What it is also telling us, though, is that inflation is alive and well, and we need to be mindful of that. And in their portfolios also, it's key because we see also that the housing component of CPI was quite significant in our latest inflation print. So we now need to be mindful that this is starting to erode more and more of the consumer's purse.

So we are looking at that because that essentially has been the consumer's biggest store of value, has usually been in its residential property. So I completely agree with Ted in terms of the cash on the sidelines. That's key. But we also in our portfolios are really focused on building in inflation resilience. So real estate is a key part of that, not necessarily only residential real estate. Industrial real estate, office, retail, very selective, very choosy.

But there are definitely pockets of value there. Real estate is also an essential source of income, index-linked income. And index-linked is absolutely key today. To have that index linkage to inflation, which we see not only in real estate but also real assets and inflation. And real assets and infrastructure and other areas that will have an index linkage, that's what's key to preserving purchasing power.

- But we have had some analysts say that they believe that inflation has peaked. So Ted, in terms of some inflation-resilient picks for you right now, what looks attractive?

TED OAKLEY: Well, for us in that area, we still-- even though we don't quite as much as we did three months ago, we obviously like energy. But I think it will be under some pressure short-term as well. But if you look at the next five years just from a pure supply standpoint, you need to own some energy. We own energy, we own gold, own some of the miners.

We do own some real estate, but our real estate really is concentrated primarily in medical. We think that the commercial is going to have some pretty tough time in here. And so all of those things will help you during an inflationary period. We actually think real estate will probably-- residential will probably be the Achilles heel of this market where it's all over because it was so far extended. It's going to be hard for us to see how that can keep on going for the next year or two.

- Indeed. Well a big thank you to Ted Oakley and Aoifinn Devitt there for joining us. Thank you so much.