The Federal Reserve’s actions ‘have been one of the main ingredients of recovery’: Parrish Capital

On Wednesday, the Federal Reserve announced that it would be holding rates steady as states push through the initial phases of re-opening. Teddy Parrish of Parrish Capital joins The Final Round to discuss his thoughts on the Federal Reserve and the U.S. economy.

Video Transcript

SEANA SMITH: I want to bring in our first guest here, Teddy Parrish of Parrish Capital. And Teddy, let's first get your take on what we're seeing-- what we've been talking about. Now, the market response to the Fed's announcement today. I guess from your perspective, do you think the market still believes that the Fed is in whatever it takes mode?

TEDDY PARRISH: Yes, it is. I think the Fed's really focused on the depth of the recession. And that's its primary focus. And while we've seen a few green shoots of activity, it is still critical that the Fed keeps its foot on the gas and maintains it's by any means necessary actions. They are doing so by keeping rates near 0 through 2022 and also expanding the balance sheet by buying corporate and mortgage bonds. So that's critical.

And I also think it's critical that we have more fiscal policy. And hopefully it's forthcoming. And we expect further provisions for corporations and consumers to aid in the recovery to get us back to a self-sustaining expansion if necessary. I don't think we've seen the worst of the contraction in terms of the damage that can come for corporations and consumers alike.

SEANA SMITH: Well, Teddy, taking a look at the levels that we're at today-- NASDAQ above 10,000. At the same time, we had the Fed throwing a little bit of cold water on what we've been seeing, also, cautioning the fact that the virus still poses considerable risk. So do you think the market at all is getting a little of ahead of itself at this point?

TEDDY PARRISH: Yeah, I mean, you know, so we welcome the performance and the rebound, of course. But we are long-term bullish on a US and global economy and stock markets. And we have participated in the comeback. But, you know, this robust recovery in the stock market's pretty much priced in recovery for the economy in, say, 2021.

I mean, if you look at earnings projections, they're unreliable for the next couple quarters. So it's a big wall of worry that we have to climb. You know, six months is a long time before we have full recovery. I mean, we're like puppies. It's going to be like dog years. You know, that's a long way to go before we're clear of this virus.

RICK NEWMAN: Hey, Teddy, if you're an investor-- fear, you know, who's looking around and saying to yourself, well, I really missed out, are there any sectors that are lagging sectors that will catch up with where the broader market is or, at least, let's say where some of the tech names are?

TEDDY PARRISH: Yes. So as I look at the market, there are, of course, pockets of frothiness in growth in momentum stocks like you talked about earlier-- Amazon and Tesla and some of the other momentum players-- who, as a whole, we think that the indices themselves are fully priced. But there are pockets of compelling opportunities and early cyclicals and value stocks.

For instance, you talked about financials. I happen to think that there are great opportunities there. Most of those companies have maintained their dividends. I know interest rates are low. So net interest margins may shrink. But their balance sheets are pretty solid, especially the ones that we own.

I think consumer staples-- you know, they've been a very big beneficiary of the increased demand due to the virus. And they have some pretty good pricing power which we don't hear that a lot. And we expect that trend to continue. So we have some stocks in consumer staples that we still like-- Heinz, Celestial. Even Kraft Heinz, which has been a dog the past few years, I think it's actually perked up a bit. And we also like Walgreens.

And the energy sector, although it was a nightmare earlier this year, I think it's turned the corner with prices coming back up. And there's compelling values there. We own the big major integrators there. And BP, Occidental Petroleum, Royal Dutch, and even Schlumberger.

AKIKO FUJITA: Teddy, we had a guest on yesterday who talked about the moral hazard, as she saw it, that the Fed has put itself in now that it's dipped its hands into ETFs. And the thinking there was that the market would continue to rely on the Fed to jump in when we hit the lows and that the Fed would need to send a stronger message to say this is a one-time thing. We certainly haven't seen the kind of distortion we've seen with other central banks, like the Bank of Japan. But I'm curious how you view that risk and how the market is viewing the Fed's hands in that right now.

TEDDY PARRISH: Well, I think the Fed's actions in central banks around the world that their actions have been a main-- one of main ingredients in the recovery. There's a lot of liquidity out there. And I think everyone is taking the right tone. This is a pandemic, a crisis that's unlike any other. So, I mean, you got to through all of the tools at it. And we'll have to pay the piper at some point. But at this time, I mean, it's by any means necessary to get the global economy back to where it needs to be.

ANDY SERWER: Teddy, I got to tell you-- you've got a lot of nerve.

TEDDY PARRISH: Mm-hmm

ANDY SERWER: You are a brave man or be suggesting you should be underweighting tech. OK, now, I'm a tech bull. I see you when you say you underweighting tech. Come on, seriously? The trade of our lifetime. And you are not so sure about that, right?

TEDDY PARRISH: Well, I'm underweight tech now. I wasn't a few months ago. So we took the time to actually rebalance portfolios I actually manage money for individuals who are retired. So we have this thing we call a liquidity window philosophy where we set aside three to five years worth of cash for spending needs so that money is not at risk. And they don't have to sell in adverse environments.

So that's one of the areas I took a little from because they were right at all-time highs. And, you know, so I pinched a little from there. So we're slightly underweight. But if you add in the consumer communications services sector back to tech, then we're slightly underweight, because I consider Google and BIDU tech stocks. But they're actually in the communication services sector.

ANDY SERWER: Got it. Thank you.

SEANA SMITH: All right, Teddy Parrish of Parrish Capital. Always great to get your perspective. Thanks so much for taking the time today.