Where to invest as tech selloff intensifies

Homrich Berg CIO Stephanie Lang joins Yahoo Finance Live to discuss the latest market action as the tech selloff continues.

Video transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Stephanie Lang, Homrich Berg CEO and Principal. And, Stephanie, you've been listening to us sort of break down the moves that we've seen, especially with the tech sell-off intensifying today. What do you see as the big driver behind that?

STEPHANIE LANG: Well, I think there's a couple of things going on. Number one, we're coming off a very kind of low growth environment. If you look pre-pandemic, the market was really gravitating toward these growth names. But here we are, the economy's picking up, and so there's a lot of other places you can get growth outside of just the traditional tech names. And that's why you're seeing this rotation of value.

Second, you can see interest rates. As soon as you see a pop-up, you see growth names pull off. I think you're going to continue to see interest rates move up as the economy reopens and there's inflation expectations. And then third, valuations just got stretched.

So you look at Ark Invest-- you just mentioned that-- it's a third off its highs back in February. There was a lot of names out there that you just couldn't see the valuations justified. So I think you have to look at this in aggregate. Now, if you go later in the year, I do think there could be a rotation back to growth when you see the comparables getting more tough and growth might be harder to find.

ZACK GUZMAN: Yeah. I mean, when we talk about catalysts that are triggers that may have sparked this, it's not as if, you know, some of this rotation we've been talking about hasn't been occurring for the last few months. I mean, in terms of jitters hitting now, what do you make of maybe the Fed's role in that?

We've heard from Fed Chair Powell talking about potential froth earlier when asked by our own Brian Cheung. And now today, we hear from Loretta Mester talking about inflation concerns. I mean, is that maybe, potentially, what has investors skittish now?

STEPHANIE LANG: I think that's definitely playing into it. As I mentioned, when you have interest rates moving up, the compounding of the growth just isn't rewarded enough. So you have inflation expectations going higher, commodities reaching all-time highs, lumber up 50% this past month.

So the Fed has said they're going to stay put, but at some point, the markets might just force them to act. And that's what everyone's watching at this point is that, will the Fed take away the punch bowl? And what will happen to stocks in the meantime?

You mentioned that, you know, looking back that this has been happening for a while. And it has-- this rotation has been occurring. And I was just looking-- the total stock market is now outperforming both Facebook and Amazon in the last year. So there really is that rotation occurring. This has been going on for a while. And we think it will continue as the economy continues to reopen.

AKIKO FUJITA: So, Stephanie, what does this mean from an investment standpoint? Is this kind of the time to be a bit more aggressive, granted being a little more selective, or you think that investors should approach this market with a little more caution?

STEPHANIE LANG: Well, I do think we've had a great run. So we are ripe for a pullback. But I would say even if we see that 5%, 10% pullback that we see every year, it's really a buying opportunity, because the macro backdrop is extremely strong. You have the Fed that's extremely accommodative-- not going to let its foot off the gas anytime soon. The fiscal stimulus is massive-- 20% is already out there.

If these new Biden policies get passed, we're up to 50% stimulus. You have earnings which have just blown away this quarter. They're at close to 50% up in Q1. That's up from 24% at the end of the first quarter. So you have this great macro backdrop. I think that's going to continue.

So even if you see a sell-off of 5% 10% that we see every year, it's a good buying opportunity. And if you have cash on the sidelines, that's a great time to put it to work.

ZACK GUZMAN: What about those leaders that have taken us here today? I was talking a bit ago about energy-- one of those names that I think a lot of people may have overlooked at the beginning of the year, but clearly the leader now. Materials and financials-- I mean, would you lean into those sectors that have so far outperformed as we kind of approach the back half of the year?

STEPHANIE LANG: You know, I think there's a lot to be said for a lot of the names that you've seen in the rotation. A lot of the sectors that you mentioned-- industrials, energy-- those are two sectors that were very unloved for a very long time. However, in the near-term, there's been a very strong rotation.

And both financials and energy have reasonable valuations when the rest of the market has really gotten away from itself. So with energy, you got to be ready for a very volatile ride. Last month, it was the worst-performing sector. Longer term, it seems that it should benefit from higher energy prices that should go higher with the economy reopening.

Financials, we really like, because really, you have that reasonable valuation, but there's a lot of good tailwinds going for it. You have the steepening yield curve that we think will continue with higher inflation expectations. Again, it has a reasonable multiple-- 14 times versus the market at 22 times.

And it should benefit from the stronger economy. You have the wealth management sectors, you have mortgages, you have investment banking. All those fee-based sectors should do really well as the economy reopens. So yes, those have taken off, but I think that should continue as the economic momentum continues. And you can lean into those sectors where valuations haven't taken off yet.