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Consumers positioned ‘strongly’ amid inflation, geopolitical risks: Strategist

Despite the ongoing Russia-Ukraine War causing turbulence in global financial markets, Federal Reserve officials are signaling that March rate hikes are still on the table. The Fed seems set on pumping the brakes in order to combat inflation not seen in decades.

According to Lance Cannon, portfolio manager at Hood River Capital Management, however, American consumers remain well-positioned in light of inflation, geopolitical risks, and rising interest rates.

“And we do believe that the consumer is still positioned really strongly here,” Cannon told Yahoo Finance Live. “I mean, if you look at a lot of the data that's come out, while inflation has been high — we can't deny that, that's pretty evident — we feel that there's a great opportunity still available. And the consumer continues to be strong and shows that through their spending habits.”

Cannon joined Yahoo Finance Live to discuss the outlook for equities markets amid the current geopolitical landscape, record inflation levels, and Fed policy. Hood River Capital Management LLC is a Florida-based investment management firm providing investment advisory, financial planning, and consulting services to trusts, estates, charitable organizations, public funds, and corporations.

Cannon pointed to the Russell 2000 (^RUT) as presenting a buying opportunity due to small cap stocks trading at a relative discount compared to those in the S&P 500 (^GSPC). He believes that certain small cap stocks stand to benefit from the healthy state of U.S. consumers.

“But we view that the U.S. still has a lot of opportunity in itself and think that's a really great place to be on a go-forward basis as well,” he said. “I think there's a lot of things that line up for domestic small cap to really work. And we're really bullish on the opportunities that lie in front of us.”

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Strong consumer metrics

Cannon’s thesis echoes that of DataTrek Research’s Nicholas Colas, who cited the healthy state of the U.S. consumer as being a bullish indicator for large cap stocks. Colas believes that the key metrics that currently make American consumers positioned well will remain strong throughout the rest of 2022.

For instance, January unemployment stood at 4.0%, only slightly up from December’s 3.9% but still better than the lowest levels of the 1970s (4.6%), 1980s (5.0%), and early 2000s (4.4%). In addition, wage growth continues to be strong — average hourly earnings for all employees on private nonfarm payrolls increased by $0.23 to $31.63 in January. The Bureau of Labor Statistics’ Employment Situation report for February is expected to be released on March 4.

The personal savings rate also stands below pre-pandemic levels at 6.4% for January — under the December 2019 level of 7.3% — suggesting that consumers are not being shy about spending, even in the face of surging prices.

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV

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