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Fed minutes: ‘We absolutely have to factor in a 50-basis point hike’ in May, strategist says

Wheelhouse CIO Ann Berry joins Yahoo Finance Live to discuss the markets reacting to released Fed meeting minutes, interest rate hikes, inflation, investing in retail and healthcare, energy, and foreign markets.

Video Transcript

RACHELLE AKUFFO: So let's break down what's been happening in the markets overall with our markets guest Ann Berry, Wheelhouse chief investment officer. Now, Ann, this is something we were expecting more hawkishness from the Fed. So why do you think markets are reacting this way right now?

ANN BERRY: I think oftentimes markets don't necessarily find the courage to take action until the catalyst finally arrives much as they expected. I think what the minutes did indicate was a real level of conviction around what the Fed's concrete actions are going to be. So the minutes revealed that but for the Russia-Ukraine war, there would have been a 50-basis point cut last month.

So the concrete fact of that-- the concrete fact of the $95 billion of unwinding, things are becoming real now. And I think you're seeing the market absorb that and start to really act where, perhaps, there was a little bit of hope that things would happen a little bit more slowly.

DAVE BRIGGS: And the NASDAQ again getting hammered. Can we factor in a 50-basis point hike at the next meeting? And do you expect tech stocks to continue to get pummeled?

ANN BERRY: I think we do absolutely have to factor in a 50-basis point hike next time around and moving into May. And in terms of the tech sector, sadly, I do think the pummeling is going to continue. One thing that is worth noting is we do have earnings season coming up again.

And we're going to start to see it become harder and harder for all sectors, not just tech, to lap what were very strong performances year-over-year, as 2021 was such a positive time for revenue growth and for margin expansion for all sectors. But again, with rates coming up, tech I expect to see to continue to get hammered. And I think we're reaching a point now where there are in fact, perhaps, some bargains to start to be had with some stock-picking and some sector-picking in coming months.

BRAD SMITH: So on those dips, would you be buying further in? Or are you kind of alleviating some of the portfolio pressure at this point?

ANN BERRY: I'm starting to buy in. And part of that is because, along with a lot of other folks, holding a lot of cash at the moment-- and the problem with holding cash in this inflationary environment, it's actually a negative when it comes to portfolio management. So I'm finding it very hard to find value at the moment.

But I am looking at spots to start to move back in. Cybersecurity is an area I have been watching for a long time. I'm in cyber personally. When you look at some of the cybersecurity ETFs trading on the NASDAQ, despite the fact that there are such positive tailwinds for that sector, they're continuing to come down in price and valuation. Those are examples of the kinds of places I'm trying to look to put money to work, given it's so difficult to figure out where to try and get returns in this kind of environment right now.

RACHELLE AKUFFO: In terms of the formula that you're using in terms of what makes something a more attractive opportunity versus something you might either perhaps want to rotate out of or just hold onto your cash, what's the strategy there?

ANN BERRY: Well, there's a classic portfolio management strategy, which is for these sort of late cycle moments, which is what this is increasingly looking like, starting to move away from the higher growth sectors and into consumer staples. So moving into areas such as food-- Kellogg, for example, or Campbell's Soup, or others that are in that consumer staples, steady, recession resilient sectors, particularly in an inflationary environment.

Other places that I've been putting money for some time, places like Walmart, where I do think that there's an underlying tech play in that business, moving into fintech, moving into data analytics, moving into subscription businesses, but where retail selling, big box format, selling online-- the necessities that every household are going to need, those are the kinds of plays I'm looking for strategically at this moment as we move into both a continued inflationary environment but also potentially a recessionary one.

DAVE BRIGGS: In this raising rates environment, what about opportunities in health care?

ANN BERRY: Health care continues to be interesting. Though, where I tend to focus in this sector is where there's stability. And this comes back to a lot of these sectors remain volatile. When there is a rising rate environment, some of the more glamorous biotech names get a little bit more difficult to invest behind.

But places such as J&J or Pfizer-- big, stable pharma businesses, strong dividend yields, so some income guarantees, that's the kind of safe haven I'm looking at in this sort of market.

BRAD SMITH: Certainly. And then additionally here, just one thing that we have to always keep our eye on, of course, going into a midterm election year-- it's not just what's these coming earnings reports are looking like, the forecasts, there's also going to be potential policy shifts later on down the line or just a logjam Washington, DC.

Looking further out to the significance of what this year might be, with all of these crosswinds in play internationally and then additionally as well with the Fed, how does that shape up? How do you kind of position your portfolio knowing even further down the line, that could cause a little bit more logjam in Washington, DC and nothing necessarily to come forward on the innovative front, perhaps, of the markets?

ANN BERRY: Yeah, absolutely. I think whether it's looking at what's going to happen, for example, when it comes to energy policy-- so we know that green energy has been a huge priority for the administration. But with the midterms, if it becomes much harder to pass legislation to support, for example, EV adoption, those are the kinds of sectors that may struggle as we see, perhaps, a shift in where you've got majority positions in DC as we move towards the end of this year.

So energy is one. Infrastructure is another. Other areas-- we saw Tilray came out with their earnings report. We know that there are these big votes that been happening in the House. So areas in the cannabis space is another place to look where policy can have a massive impact on making or breaking certain stocks in that sector.

RACHELLE AKUFFO: And building on that exposure, for multinational companies that do have exposure in Europe, as we look at what's happening with the Russia-Ukraine crisis and also, of course, exposure in China as well, another big trade partner there that's trying to really clamp down on these COVID outbreaks-- how are you looking at some of these foreign markets in terms of opportunities there?

ANN BERRY: It's something which pains me as an international person-- English by background, half-Asian by heritage. I've been personally very excited by the level of globalization that we've seen historically. But at the moment, I struggle with the idea of investing in the European market and in the Asian market.

To touch on your point, the COVID outbreaks in Asia are very real. They have really caused biggest impediments to supply chain recovery. It's not seeming to get any better yet. I'm just back from London, which is struggling with huge outbreaks of the latest variant.

So I think not only the COVID uncertainty, the supply chain disruptions that will continue as a result of it, and also, specifically, when it comes to the EU market, the fact that that market is so utterly dependent still on oil and gas from Russia means that there is going to continue to be real strain on those economies in the EU through the rest of this year. We've seen that Germany at the lead has committed to trying to wean itself from Russian natural resources, the rest of the Union has followed.

But that's going to come at enormous expense in terms of government spending, in terms of the taxpayer, in terms of inflation to the European consumer. So that is a market, until there is more data on what GDP growth is looking like, on developments finding alternative sources of energy-- that's a market and staying away from at the moment.

DAVE BRIGGS: All right, Ann Berry, chief investment officer at Wheelhouse, appreciate your time today. Good stuff. Thank you.

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