Stocks are still ‘a great buy,’ Momentum Advisors CIO says

Momentum Advisors Chief Investment Officer Allan Boomer joins Yahoo Finance Live to discuss the Fed's policy moves in 2022 and why stocks are still favored over bonds.

Video transcript

ADAM SHAPIRO: We want to talk about not only what's going on in these markets, but something that's sure to impact markets tomorrow. That's when Jay Powell testifies during his confirmation hearings to return or stay on as chair at the Federal Reserve. Let's bring in Allan Boomer. He's Momentum Advisors Chief investment officer. It's good to have you here, Alan. Happy new year. What's the headline you want to hear from Jay Powell tomorrow?

ALLAN BOOMER: First of all, thanks for having me. It's always a good time to be on Yahoo Finance. I think the biggest thing is just consistency. Often, the Fed will get there and talk, and we're really looking for these nuances. Is there a change in what he said versus last time? The one big benefit of where we are right now in regards to markets and the Fed is that the Fed's been very transparent. They talk not just about three rate hikes next year, they've also laid out exactly when those rate hikes are expected.

And so while a lot of folks are concerned that rates are going higher, these are things that are being done to push the economy slower, to put a brake on the economy, in reality, the market really enjoys knowing what's going to happen. It doesn't really matter what happens. It's knowing what what's going to happen. So I'm just looking for consistency.

Is there a change to his tune? Is he still talking about three rate hikes, and is the time frame about the same? Also with quantitative easing, are we going to change anything with regards to quantitative easing?

- Allan, this is Emily here. In that same vein, I'm wondering, if we look at the market reaction to the Fed speak recently, do you think this has been a bit of an overreaction? Because we did just have the NASDAQ composite posting its worst weekly performance since February, 2021. We had another slide earlier today, and we're still in the red but off session lows. So what do you make of this market action?

ALLAN BOOMER: Great question. I think sometimes, the market goes a little nuts in the short run. And these are opportunities for buyers to swoop in and make some really nice gains, especially when I look at tech, big tech, and I think about the things that I'm most worried about today. I'm worried about an environment where inflation is super high. I'm worried about an environment where a lot of employers cannot find the workers.

And just on those two fears alone-- clearly, the omicron virus contributing to the labor shortage-- just on those few fears alone, big tech really stands out as a great buy. A lot of the big technology firms don't have a lot of labor. They don't have a lot of low-skilled labor. And I look at a company like Microsoft. They make, on average, about $1 million in revenue for every one employee they have. So when I see days like today when the tech sector is not doing as well, or even like the last week where it's not doing as well, I say that's a buying opportunity for sure.

ADAM SHAPIRO: I need to speak to my nephew. He's going to go to work for Microsoft. And he should push for a higher salary given the metric you just shared. When you talk about companies that will benefit from inflation, help us as investors understand how to pick those companies, whether it be the companies or sectors where we should look for them.

ALLAN BOOMER: Yeah, I think the big thing is to think about who's got pricing power. And when I say pricing power, I mean the ability to raise prices and not lose customers. And if you think about it, there are some industries that are just better suited towards that. Real estate is one. Real estate-- if you're a tenant in a business, and your landlord raises the rent, you might complain a little bit. But if you're not willing to move your business, then that means that that landlord's got some pricing power.

Or conversely, you look at a company in the technology space. If they're mainly in the B2B space and their customers are big multinational corporations, and if they raise their prices like what Microsoft and a few other big tech firms did recently, did the customers even blink? And that's the sort of company that you want to be invested in. I think equities are a great inflation hedge generally. And you want to be in those stocks that tend to exhibit some pricing power.

- Given the relative returns that we've seen between stocks and bonds over the past 52 weeks or so, do you think we're still in a market environment and will continue to be in a market environment where there is no alternative to stocks, and that that will help underpin equities in the near term?

ALLAN BOOMER: Yeah, I think that's a great point. I mean, I look at the idea that bonds are starting to raise their hands and say, look at me a little bit. And the 10-year is approaching 2% again. The Fed will raise rates in the future, which will mean that bonds will become a bit more attractive down the road later in the year. But when you really think about inflation, even with their 10-year at almost 2%, you're still losing to own bonds, especially the highest quality bonds, especially in the shortest durations.

And so stocks there, again, are the tallest short person in the room. Stocks-- we expect stocks to grow their earnings by at least 8% to 10% this year. We expect stocks to grow by at least 10% this year in terms of stock prices. We've got to realize that the market actually got cheaper last year. Earnings grew at a faster pace than the stock market actually returned. And so I think stocks are a great buy. Sure, there's not a lot of great-looking alternatives, but I still think stocks are a great guy.

ADAM SHAPIRO: Allen Boomer is Momentum Advisors Chief investment officer. Thank you for the advice. And we are hearing you loud and clear.