'The economy is going to be doing something very different than the market,' AdvisorShares CEO says

AdvisorShares CEO Noah Hamman joins Yahoo Finance Live to discuss the economic outlook and how the markets will react to Treasury Secretary Yellen and Fed Chair Powell's remarks to the Senate Banking Committee.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Noah Hamman, Advisor Shares CEO. And, Noah, you just heard Jared there talking about the dueling narratives we're seeing playing out on the markets today. One, of course, the fears around the omicron variant but also the other being the Fed potentially accelerating its timeline for tapering its asset purchases. How do you see these two risks playing out, and how are you processing the moves today?

NOAH HAMMAN: Sure. You know, you're going to be in that situation, I think, where the economy is going to be doing something very different from the market, right? The economy, as we saw with jobless claims last week, you know, really nice, significant improvement. Better numbers since we've seen since 1969. We've got numbers coming out this week relative to jobs growth, and I think the expectation is somewhere around 575,000, you know, new jobs should be added in the month. Still 4 million jobs below where we were in February of 2020.

But with positive economic data coming out, you're going to see, I think, a little bit of what exactly you guys just talked about and what played out in front of us with Jerome Powell and Janet Yellen, which is they, you know, absolutely should probably be decreasing that bond buying, right? The liquidity has been driving the market. And when they do that and even maybe get to the point where they're decreasing their balance sheet, that's probably not going to be positive for the market, right?

Hitting all-time highs in the middle of a global pandemic was clearly driven by Fed liquidity, which is great, and I know that probably helped a lot of people, though maybe it didn't help all the right people that it should have helped. So if that is going to change and they're being very transparent and signaling what they want to do, it might affect, you know, the stock market and it might affect how people are going to be allocating their investments.

ZACK GUZMAN: And so, I mean, I guess when you pair those things, right, as Akiko was alluding to, a lot of questions around what the omicron variant could do here around maybe what the Fed wants to do. And given the fact that they weren't really expecting, I guess, this hawkish development, as the market proved out, right, when we heard that from Jay Powell-- specifically also kind of shedding the transitory label around inflation, giving that up, saying he expects some of the inflationary pressures to continue into midyear next year. I mean, how do you pair those two things in terms of where the jitters are coming from? Is it more tied to this potential variant or also maybe more tied to what Jay Powell is doing and signaling what's ahead?

NOAH HAMMAN: I think for the market, it's far more tied to what Jay Powell is saying, right? With the variant, we saw the volatility on Friday. We recovered nicely on Monday. We saw some volatility today in part from the Moderna CEO comments. Which, again, I think he's just reacting to data as he sees it. A few hours earlier in the day, he was a little bit more positive on this new variant.

But I think you're going to see a muted market reaction going forward to new headlines, right? More new headlines are coming, probably a new variant at some point. But I think the market's going to start to react less to that, and it's going to react far more to what Jerome Powell is saying and what he's going to actually be doing.

AKIKO FUJITA: And, Noah, on that front, you know, there have been some discussions here about whether, in fact, the supply chain crunch that have led to some of the price increases we've seen, that's starting to ease. We had the president yesterday invite the CEOs over at the White House. We heard from the likes of Walmart CEO Doug McMillon saying he's starting to see some of the port congestion ease too. That came up in questioning today. I want you to listen to what the Fed chair had to say and then get your response on the other end.

JEROME POWELL: We're not thinking and I'm not thinking that the effects on the economy will be remotely comparable to what happened last March with the shutdowns or that there will be additional shutdowns. We've tried to adapt. We're focused on maximum employment and price stability, and we've tried to adapt our policy as we've moved along. We'll continue to do that.

And, you know, part of the world is-- I agree with you. We're going to see this disease being around probably for a long time. I think the economic effects over time will diminish. We have to be humble about our ability to predict this or to really understand, but we're not at all thinking that we haven't made progress on the economy.

AKIKO FUJITA: So, Noah, that was actually in response to a question from Senator Tillis who asked, you know, whether, in fact-- or when in fact things would return to, as he described it, normal Fed policy. But he was talking specifically about the impact he's anticipating from the omicron variant. Of course he said, look, we've got to wait for the science, but how significant a risk is this? I mean, you mentioned the bounce back yesterday, but here we are today talking about those headlines from Moderna.

NOAH HAMMAN: Right. I mean, there's a lot more news that I think is going to come out, but I think more and more we're going to react to it less and less, right, the more new and different headlines come out.

And so I think the difference will be-- right, when you talk about supply-chain challenges, that's fixable. You know, these are big, gigantic cargo ships, and so think about spinning them around and how long something like that really takes, right? It's going to be a slow process but heading in the right direction.

I think even to a certain extent the inflation challenges and concerns that he has going forward are probably fixable as well. It just takes more time.

But the viral stuff and all the things that are coming from it and the impacts that I think it has on the economy and people, I don't know that that's changing anytime soon, right? I think we've known from the beginning that more variants could be coming. So far, I guess depending on who you ask, we've got a reasonable enough treatment that I'll use the word manageable. And if you're negatively affected by it, you don't feel like it's manageable. I totally understand that.

But I think overall, it feels like what we're seeing is manageable. But yeah, absolutely we could be surprised by a headline next week or three weeks or six months from now. But I do think what it means is the economy doesn't go back to normal. It maybe goes back to a new normal, right?

We talked about-- six months ago we were talking about things like the work-from-home trade and Zoom and Peloton and maybe even the changing dynamics of eating out, you know, at a restaurant or even staying in a hotel where it's more takeout and it's more just, you know, smaller size instead of packing everyone into a big room.

I think things are going to change in terms of the economy and what's going to drive it and maybe what's going to lag a little bit living in this new world where maybe, you know, we're getting boosters, you know, once a year. But I think there's still plenty of opportunities and plenty of growth ahead as more people are getting back to work, and I think the economy is improving.

ZACK GUZMAN: Yeah, so what's the takeaway there in terms of how investors should be allocated here specifically as we head into year end? Because earlier on we saw some of those, I guess, names that had been hit hardest in COVID bounce back the fastest in the recovery. I'm thinking about the cruise lines and airlines as well as some of the other, you know, get out there-- restaurants also kind of looped into that category. How do you see that shaping up, though, given some of the renewed jitters here this week?

NOAH HAMMAN: It's a good question. I think it'll be challenging. I think that, you know, people are still going to return back to somewhat normal. It might not be international travel but probably a lot more domestic travel.

I think in the restaurant business, those that were adapting-- I think of Chipotles of the world. I know Sweetgreen just went public here a few weeks ago, and at least my experience with them and their ability to handle mobile ordering and the ease of consuming you know food in a restaurant like that-- I think those are the ones that are going to create opportunities.

And where do investors go? It could be challenging. If Jerome Powell is signaling that they are pulling back liquidity from the market, you know, my personal belief is it's going down, right? The market's going to decline. And, you know, does that mean you go short? I don't know if you have to be that aggressive. Does it mean you think about hedged equity strategies? You know, we have an ETF with a ticker symbol SENT, S-E-N-T. It's long stocks but uses options to hedge in case, you know, there is something, not just a bad headline three months from now. But if the Fed is truly going to start to change their direction, you want some of that downside coverage.

But in the meantime, while they are still providing liquidity to the market, we are looking at small-cap and micro-cap space. Small caps have been flat for the year while the S&P 500 has been up plus or minus 20%-- a little more minus after today.

So, you know, again for us relative to being in the ETF business, we have a micro-cap/small-cap ETF with the ticker symbol DWMC. It's a stock picking. It's active management. It's using technical analysis and relative strength. You think about adding something like that to your portfolio that I think in the meantime, while the economy is still growing and the Fed is still buying those bonds, something like that if you're more aggressive.

I know you've looked at the cannabis space, which is a lot of small- and micro-cap stocks. You've got to be willing to stomach the volatility in that space but could present some good opportunities ahead.

ZACK GUZMAN: Noah Hamman, Advisor Shares CEO, joining us there with the latest take off of what we heard from Jay Powell. Appreciate you taking the time to chat with us.