Gold, Tesla, and the tech space are some of the trending stocks, but will the stock growth last? Frances Newton Stacy, Optimal Capital Director of Strategy, joins Yahoo Finance Live to discuss what stocks to invest in and what stocks to avoid.
- Investors on edge today as a strong ADP report suggesting more rate hikes could be on the table. We're back with Frances Newton Stacy, from Optimal Capital, to go through some of the stocks that she believes are the best bets right now. Stacy, let's start off with the gold.
We're not too far from those record highs, where we were just about a month ago. Why do you think it's still a very good hedge at this point?
FRANCES NEWTON STACY: OK, it's selling off, for sure, because we've had this rise in tech, but I do think that as the credit risks increase, as we go further with rate hikes and we get further away from our first rate hike and the lagging effects of the rate hikes come in, I still think that affects real rates, and real rates affects the price of gold. You start to have a correlation between the dollar and-- a positive correlation between the dollar and gold.
And I do think, again, there is credit risk in the market, so I would be buying the dip in gold because the other things that have taken off this year are-- don't want to chase those trades.
- Yeah, and we have seen gold often move as a safe-haven trade as well. Let's talk about the other one that you're looking at right now, the iShares MSCI Japan ETF. Japan, a story that has been well-covered here in terms of why we have seen so many foreign investors pile into the market, specifically around corporate governance reform. What do you see that's attractive there?
Is it about valuations? Is it about opportunities? In relation to what else is out there right now.
FRANCES NEWTON STACY: Yeah, they're just at a different place in the business cycle, so when you look at the global tightening and you look at the weakness in Europe and you look at the weakness in China and you look at the-- we're still resilient, but some potentially upcoming weakness in the US. Japan just looks more attractive from the monetary policy standpoint and their rate of inflation.
They don't have that issue that the Fed has, which is trying to get inflation off of the five handle for the yearly numbers. So that's the difference, basically.
- Frances, when you take into account how many traders have been piling into this trade, I think a lot of people are asking just what exactly is going to be that catalyst. I know you mentioned the moves there from the central bank. But outside of that, what's going to keep that momentum moving in the right direction in that market?
FRANCES NEWTON STACY: Well, it's just the macropolicy. So what's interesting is that we just have to wait and see. But the thing about it is when growth and inflation are declining or when you have stagflation, where inflation is going up and growth is declining, it tends to be the global macro, the top down, that kind of dominates the system.
And, you know, when you have growth and inflation going up or just growth going up and inflation going down, it tends to be the bottom-up stock-picking. And so we're in this environment where the global macro and the rates and the central banks are still, I think, driving the bus, and so then that's the difference. And, you know, that would be what I would watch.
- I mean, you know, with that said, isn't it also a very different market in that inflation hasn't gone up to the levels that we have seen in places like the US or Europe, largely because of the demographic shifts, too? And how much of that do you have to consider when you think about whether this is a short-term play or a long-term play?
FRANCES NEWTON STACY: Well, for me, I'm just-- China looked great, because China earlier was easing. And they were the sort of outlier in the fact that they were easing. And then, of course, the Chinese picture changed pretty dramatically.
So I think in this environment, globally, I think, for me, I want to be more tactical and not say, well, definitely there's a demographic change, and that does support a longer-term outlook. But I'm just watching those central banks. I'm just watching the monetary and fiscal policy and the liquidity levels because I think that's what's really in play.
And I think that Japan becomes an alternative to the rest of the world that's tightening, and that-- that's creating demand in Japan that is coming from existenstial and external factors, so I don't know how sustainable that will be.
- Frances, let's talk about some of the picks that you don't like, some of the names that you're saying to avoid. Technology, obviously, a massive winner in the first half of the year. I guess we're approaching some overbought levels?
FRANCES NEWTON STACY: Again, just being tactical. Yes, this stuff is-- you know, it's risen so far, so fast. So when we look at technical analysis and we talk about reversion to the mean, some of the angles and the trajectories that tech has gone up on, Tesla has gone up on, it's just not sustainable. You're going to have a pullback, even if it's in a larger bull market.
And while I fully believe in AI and I fully believe in technology and the strength of these balance sheets, I do think that we're going to have some credit problems, potentially in the second half of the year, so I would be a little bit more tactical and defensive.
- Even with that said, there's been a number of analysts' notes that have gone out, specifically on Tesla downgrading the stock, but also reiterating the long-term play in terms of where they stand in EVs, particularly. Is that where you stand on that stock? Is it just about-- just the incredible run-up that we have seen and this entry point just not being sustainable?
FRANCES NEWTON STACY: Yeah, and I'm more of a technical analyst, but, yes, I agree with that because I believe in the future of AI. I believe in the future of EVs as I do AI. The thing is, is that we're hitting some double-top and triple-top resistance in the tech space, and it's the angle that it's gone up on that. I do think that it never hurts to take some money off the table.
Because what happens is you have these massive moves, and then people tend to hang on, and they sort of round trip. And particularly in this environment, I do-- volatility has been very muted, but I do expect that the VIX is going to go up into, you know, a higher range as things start to occur later in the year. And that's going to affect tech and affect Tesla.
So I think taking a little bit of money off the table here never hurt anyone.
- We'll leave it on that note. Frances Newton Stacy, director of strategy at Optimal Capital. Good to talk to you today.