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Earnings season ‘told us corporate America is in good shape,’ strategist says

Defiance ETFs CEO Sylvia Jablonski joins Yahoo Finance Live to discuss market swings, inflation, volatility, investor sentiment, and the outlook for market uncertainty.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: A little more than 10 minutes after the opening bell here. And we have stocks going sideways. This after the big rally that we've had from the lows in June. And now up about 16% over the past two months on the S&P 500, even though today we're down, oh, about 4 points. So not much movement here. So a lot of trying to suss out in the market of where the next move will be.

Sylvia Jablonski is with us now, CEO and CIO of Defiance ETFs. Hey, Sylvia, good to see you. We had a little bit of hope coming into the market yesterday with the release of the Fed minutes. Although, as our Brian Cheung said, didn't tell us anything new necessarily. But where are you looking for in terms of your cues for where the next leg is going to be, up or down?

SYLVIA JABLONSKI: Hi, Julie. Good morning. Great to see you.

Well, I think I agree with that, the sentiment and analysis of Brian there. On one hand, you can kind of really dig in and get a little bit of dovish sentiment there in terms of perhaps rate hikes could be a little bit lesser than the 75 bips level. That seems to be what the market is pricing in now. But on the other hand, there's certainly a lot of talk about we're not where we need to be. Jobs remain awfully strong. And inflation remains too high. And there's still room to withstand.

So I'm in the wait and see camp. I do think that what happened with the market over the last four weeks was sort of a really good thing. And I think it was a little bit more than a short-term bear market rally. I don't think that that necessarily means we're straight up until the end of the year. I actually sort of think the opposite.

I think that we're in August. Traders are sort of off the bench now. There's a little liquidity in the markets. And there isn't really a whole lot of meaningful news. You have Jackson Hole, a couple of things coming up, but nothing that should sway the markets, barring some extraordinary event, either up or down, in a meaningful way in the coming days.

So I expect rangebound volatility. , I expect these little pullbacks or little bounces. But I'm not going to really read into the markets until September. We have to see what happens with the next inflation read. We have to see sort of what the Fed does. And I think that will sort of set the tone for the rest of the year.

BRIAN SOZZI: Sylvia, do corporate fundamentals warrant where the market is trading?

SYLVIA JABLONSKI: I think they do. I think the issue, though, is that we need some impetus for the market to go higher. So earnings were sort of great last quarter. Certainly a slowdown year over year. But a lot of the leading names and corporations within the S&P 500 had great earnings reports. And they have very solid outlooks.

So there were certainly some outliers where we'll see, like a Target for example, that had some sensitivities in inventory and things like that. But overall, I think earnings season told us that corporate America is in good shape. There's still a lot of cash on the balance sheet. There are enough players out there that are part of the future of secular technological growth that can sort of withstand the hikes and have been able to absorb this based on their operating margins.

In terms of going forward, to answer your question though, that has to continue. And in order for that to continue, I do think that rates will play a huge role. So I think that if we don't sort of pause or kind of get on the lower end of rate hikes, that will eventually impact the bottom line. So I think that's sort of the outlier. But so far, corporations have shown us that there is the ability to grow, perhaps not at the levels we're used to over the last couple of years. But that's OK. We'll take mid-single-digit growth at this point for a stronger year end.

JULIE HYMAN: And Sylvia, when we talk about where exactly to go, boy, you seem pretty enthusiastic about technology, judging from your notes to us.

SYLVIA JABLONSKI: I am enthusiastic about technology. And I should define it because I think that it's such a broadly used word now. And it can sort of refer to the super-uber growth names. And that's not really what I'm referring to.

I'm talking about Apple, Amazon, Google, Microsoft, the market generals, if you will. I think that these companies came out and proved that they're in solid shape. They have strong balance sheets. And you saw the news from Apple the other day about the outlook for iPhone 14. And they're participating in everything, whether it's cloud, data center, Enterprise, artificial intelligence, data, 5G. All of these major themes are sort of participated upon by these companies.

So I just think that they have a lot of room to grow. And yes, multiples are higher, but they are a lot cheaper than they were in the past. And I just think that longer-term investors, buying and holding for a few years, you're not going to go wrong there.

BRIAN SOZZI: Sylvia, we were showing on the screen AMD and Nvidia, I mean, two companies that have come out recently and warned. Is the play there that the problems or the slowdown they're seeing in their businesses is just a factor they're going to have to deal with this year, and next year it's back to normal?

SYLVIA JABLONSKI: That's my view on it. And I have actually been dollar cost averaging into both of those stocks and a few more in the semiconductor space, actually. And I don't-- those are sort of close my eyes trades. I don't expect that those trades are going to play out before the end of the year. I do think that they're going to play out, though, within the next five years. And I plan to hold them for that long.

And again, the reason why is I really buy into this idea that we're innovating. We're changing the way we sort of live, work, communicate, and play. And in order to do that, we need 5G to work out. We need to have interconnected cities. We need connect rural and urban America. We need speed in order to process data, to run clouds, to run data centers, things like that.

And you can't do any of that without chips. So the better diversified companies-- I mean, Nvidia had sort of a terrible outlook, but there's 20 billion of cash sitting on their balance sheet. I just think that there's a lot of room for growth for these companies. And it's going to be a short-term hiccup.

JULIE HYMAN: It's so interesting because obviously, even though we have seen the market rally, there is still a lot of negative sentiment seemingly out there. Even though the Bank of America fund manager survey earlier in the week said things weren't-- we're no longer apocalyptically bearish, there was still that bearish sentiment out there. Do you think that is then preventing investors from doing these kinds of close your eyes trades, things that might not do well in the short term but could perform well in the longer term?

SYLVIA JABLONSKI: Yeah, it's a great point. And I think you hit the nail on the head. There's enough uncertainty out there. And I think when you have uncertainty in the markets, you have investors that sit on the sidelines. But what you saw over the last couple of weeks when that rally in both the S&P 500 and the NASDAQ from June lows picked up, I think, was a lot of FOMO too.

So there are enough of investors out there that are watching this and saying, oh, wait, maybe this isn't a fluke. It is possible that we won't retest those lows. And this could be the time to get in.

I expect that we'll have a couple of pullbacks. And investors will have plenty of opportunities in the next couple of months, particularly given how September and October typically look, to get into the market. But at some point, if you look at it-- and we saw the same story, right? If you're sitting in cash-- and to clarify that, cash that you do not need to use for your day-to-day life, I mean, inflation negates the value of that. So you are better off getting into the market. And I think that there are enough of investors out there willing to dip their toes in.

University of Michigan, the survey that came out, sentiment is starting to pick up. It's looking a little bit better. I really think the wild cards are, right now, geopolitics and the Fed.

JULIE HYMAN: Those are perennial wildcards, it seems like. But yes, more than usual, for sure, especially with the Fed. Sylvia, thanks for being here. It's always good to see you. Sylvia Jablonski, CEO and CIO of Defiance ETFs.