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Tech stocks are ‘a piece of a defensive play’ amid industry, economic conditions: Strategist

BMO Family Office CIO Carol Schleif joins Yahoo Finance to discuss the market outlook for tech stocks amid looming headwinds tied to industry trends and Fed rate hikes.

Video transcript

- So what do you make of the rally that we've seen and really the fact that tech has been leading enough to think that momentum is going to continue?

CAROL SCHLEIF: Well, it's been interesting looking at markets overall in the last year, but especially in this last month, last couple of weeks. Tech, when you peel it apart, yes, a lot of the overall averages have come up because of a very few tech names. But I think it's ironic in that tech may be a defensive play in some people's minds.

It's both a growth-oriented play as rates have come down, but it's also a piece of a defensive play given how beaten up the stocks were last year when you're looking at who has cash on the balance sheet, was less of a need to use the financing avenues that may or may not be available to the broader industry, and who has reasonable prospects for participation going forward in terms of looking at as we rebuild this economy and put things back in order. And the economy overall is pretty strong.

So given that beaten up nature cash on the balance sheet, there's been a lot of call or a lot of rotation back into those. But it's important to remember that the economy overarching has a pretty solid base underneath it.

- So Carol, then, what's the next catalyst here to keep that momentum then intact?

CAROL SCHLEIF: I think the interesting thing is, is we need to see the momentum broaden out. It needs to not just stay in tech. And I think getting people to focus on the fact that we do have a lot of spending teed up in this economy that's aimed at very critical infrastructure, it's aimed at building out green technology, green grid, electronic vehicles. There's a lot of stuff that was teed up in three very distinct funding packages over the last year and a half that puts over a trillion-- close to a trillion and a half dollars-- of funding and credits and things back into the environment. Tech will play a piece of that.

But there's a lot of other industries that will participate in that as well, not the least of which is some of the industrial goods companies, some of the mining manufacturers, and things like that. And you're seeing that. You saw it come through in the quarterly results last quarter. We should start seeing some of that or hearing some of that as we get earnings released beginning next week.

- Carol, lots of focus here, obviously, on Fed policy. That's been the case now for quite some time. How much has a potential Fed pause or even a pivot by the end of the year. How much of that has already been priced in given the gains that we've seen?

CAROL SCHLEIF: Well, I do think a fair amount of that's been priced in. And the most interesting thing in a long investment career has been seeing how hard the markets have been fighting the Fed commentary, because chairman Powell and the crew have been very blatant about wanting to fight inflation. You have a little bit of optimism in today's numbers based on the PCE and some of the data that we've seen come in that shows-- that seems to support the inflation having peaked narrative.

But we do not believe that you'll see cuts this year. And the markets are clearly pricing in cuts by later in the year. And we do think that the Fed holds in here and watches as inflation comes down. Because around the globe, inflation still stays higher than people want to see it.

- Carol, what happens if that doesn't happen, if the Fed continues to raise. Could we potentially see a sell-off? And how bad could it get?

CAROL SCHLEIF: You could see a sell-off. And I think that's why our prognosis is, is that you'll see a rangebound market. It's been nice popping off the lows that we saw reached in January or February this year. But we feel like there's little to propel it distinctly skyward or distinctly the other direction either, and that we're likely to stay rangebound.

You could get some disappointment if inflation stabilizes in here, or ticks up, or jobs market was to fall- off dramatically, or tightening that's de-facto likely to happen in some of the financing ability of a lot of these small and mid-sized companies as banks continue to struggle with making sure that they can profitably get loans out there.

- Certainly lots of questions as we enter the final three-quarters of the year. Carol Schleif, great to have you. Thanks so much.