Fed Chair Powell to deliver ‘subdued statement’ Wednesday amid Russia-Ukraine war: Strategist

Fiduciary Trust International EVP & Head of Regional Markets Gene Todd joins Yahoo Finance Live to discuss how Russia's attack on Ukraine could impact the Fed and what investors should watch out for.

Video Transcript

BRAD SMITH: Let's dive further in depth on today's market activity. Joining us now, we've got Gene Todd, who's the Fiduciary Trust International executive vice president and head of regional markets. Gene, good to have you here with us today. We've already heard kind of across the pond ECB council members making public statements today in opposition of stepping away from pandemic stimulus amid the international conflict. Do you believe that this will have any influence on the FOMC and their decision?

GENE TODD: Yeah, well, I-- first of all, thanks for having me here, Brad. It's good to be-- be with you today. Yeah, I think we're going to hear from Powell and a little remarks from the Fed tomorrow. And you know, everybody's been talking about, how many rate increases are we going to get? Is it going to be eight? Is it going to be seven?

We're going to get rate increases. We need rate increases. But I don't think it's going to be anywhere near eight. I think-- I think people have to just slow down a little bit, see where this Ukraine-Russia situation goes, watch the data. Inflation is sky-high, obviously. People are very nervous. You see what's going on in the markets. You've got a flight to safety. So I think you're going to hear kind of a little bit of a subdued statement from the FM-- from Powell and-- and the Fed.

BRAD SMITH: And part of your strategy right now has been around global diversification. I'm wondering, into what markets would you be looking for opportunity in a heightened sanction environment like we've seen?

GENE TODD: Well, I think, first of all, investors should calm down a little bit. I know it doesn't feel good. This is very unsettling, a little bit of uncharted water as it relates to what's going on in the Ukraine right now. But we've seen these sorts of geopolitical shocks before. And in every situation, it's very unsettling, but the markets recover. So we're advising clients not to make any drastic moves to their overall allocation right now.

I'll tell you, we actually have been overweight in cash. And we've been overweight in cash because our view was, going into 2022, we were going to have a pivot, a pivot from 2021, where you had high returns and low volatility, to an environment where you have lower returns and much higher volatility. Now, we didn't see a correction coming, but corrections are normal. Geopolitical issues and disturbances are normal. And I think we're going to ride through this, so no sudden changes in the asset allocation right now.

If you've got some cash, there are some bargains out there. Financials would be one, real estate, hard assets because we do see inflation being high for a while, consumer discretionary. There's a lot of cash out there by individual consumers. M2 is up 40% in two years. And so there's a lot of cash that investors have, and we think consumer discretionary is poised to do well over the months to come.

EMILY MCCORMICK: And Gene, when we take a look at the Treasury market, we are seeing the benchmark 10-year yield down about 12 basis points to just over 1.7%. What do you think the bond market and the Treasury market in particular is telling us right now about where things may be heading?

GENE TODD: So the economy is slowing. And what's interesting is, if you saw the print from the Atlanta GDP now, Fed-- it just came out about an hour ago-- they're forecasting Q1 GDP to be flat. So there is no doubt that, at least in the short term, GDP is coming down. Earnings are going to come down. We just got off of a very strong Q4 earnings number, and we are going to see a slowdown.

Now, most of that is Omicron, and we think things will pick back up. But I think that is what the Treasury markets are telling us. That is what the flattening of the yield curve is telling us, is that the economy is slowing down.

EMILY MCCORMICK: And of course, when we take a look at the equity market performance today over the past several months, really, stocks had already been in a downward trend even before the Russian invasion, and the weakness was there. What do you think that suggests about how the market's moves from here will really depend on the outcome of the geopolitical side versus some of these fundamental drivers?

GENE TODD: I think it always comes down to fundamentals in the long run. In the short run, of course, these geopolitical issues are going to cause this extreme volatility. But this shall, too, pass, and the focus is going to be on inflation. The focus is going to be on growth. It's going to be once again on the economy.

And based on what the data is-- and our hope is that the economy does start to pick up in Q2-- our hope is that inflation starts to come down as these supply-chain issues work themselves out, probably later in the summer, maybe heading into the fall. And we actually think the equity markets can be up from here at the end of the year.

RACHELLE AKUFFO: And speaking of inflation, obviously, one of those factors that's really leading to this 40-year high and inflation rates, you have things like the expensive COVID relief packages, as you mentioned, supply-chain bottlenecks, and then labor shortages, et cetera, which can bring the inflation rate down independent of what the Fed does. So are you surprised that we're still hearing murmurs about a possible recession, and how do you see the Ukraine-Russia conflict perhaps weighing in on how aggressive the Fed might be?

GENE TODD: Yeah, I think let's go back to what happened in the fourth quarter of 2018, when we had a Chairman Powell-- Remember, he was-- he was nominated and confirmed as Fed chair in early 2018. And in the fourth quarter, we saw four rate hikes. And it shocked the market, and the markets were crushed. Stock markets were hammered. And-- and so I think he's going to be very reserved. He's going to be very data-dependent, and he doesn't want to make the same mistake that was made in Q4 of 2018.

So it doesn't feel good. We're going to want some clarity, but this is a Fed that has proven to be very data-dependent. They're not prone to make rash decisions. And so it's-- it's our hope that the data does start to improve. These supply-chain bottlenecks that we've been talking about will work themselves out, and inflation will slowly come down. But we're all going to have to be a little bit patient.

RACHELLE AKUFFO: And in terms of patience, then, you've said that the buy-the-dips mantra is compromised but that that doesn't mean TINA, There Is No Alternative, is dead. So given what you've seen historically happen with these corrections and the recoveries, then, what opportunities do you see for long-term investors?

GENE TODD: Yeah, because in 2021, it was, bet on everything, and everything was up. And so that just doesn't play out this-- this year, but it doesn't mean that there's not values out in the market. It doesn't mean that there's not opportunities. And so yes, there's still TINA. There is no alternative.

So I think we're just going to have to be a lot more focused on where the opportunities lie. And also, we have to be very focused on what's going on in the environment. So if we've got a situation and an economy where we're going to-- it's going to be a little bit inflationary but growth slows down and then picks back up, there's opportunities, as I mentioned, in consumer discretionary. There's opportunities in financial. There's opportunities in real assets. And so investors just need to be very focused, to be very disciplined, and there's opportunities out there as we get through this current geopolitical issue.

RACHELLE AKUFFO: We do thank you for all your insights today. Gene Todd there, Fiduciary Trust International EVP and head of regional markets. Thank you for your time this afternoon.