Inflation: Consumers keeping up ‘by tapping out’ credit cards, strategist says

Portia Capital Management owner Michelle Connell joins Yahoo Finance Live to discuss potentially recessionary risk next year, the outlook for the stock market, and consumer spending trends.

Video Transcript

[AUDIO LOGO]

BRAD SMITH: Joining us now, we've got Michelle Connell, who is the Portia Capital Management owner. Michelle, great to have you here with us. And an early happy new year to you. A year that many investors want to put behind them in 2022, and now looking squarely at 2023, where should we be finding some sources of, perhaps, optimism for 2023?

MICHELLE CONNELL: Well, first off, thanks for having me on, Brad. And happy new year to you and all investors.

I still, despite the tape looking a little bit more optimistic today, looking out at least through the first half and definitely the first quarter, I'm still a little bit cautious here. I think we're going to be looking at more softness from the consumer. And that means that we're probably going to be looking at softness when companies come out and report first and second quarter. And you're going to see revenues probably down and margins taking a little bit of a hit here. So I think that we still have some tough waters in front of us, the beginning of the year at least.

BRIAN SOZZI: Michelle, on the cautious part, where do you think the landmines are going to be this earnings season? What sector is really going to surprise investors negatively?

MICHELLE CONNELL: I think it will be the areas where consumers have the largest impact. That will be maybe even consumer staples, consumer discretionary. I think as you're seeing more people trying to keep up with inflation by tapping out their credit cards-- we saw that at the end of the third quarter, a $40 billion increase, that's huge.

And people are starting, actually, to tap-- taking hardship withdrawals from their 401Ks. And you look at all that combined and also with how heavy portfolios have been hit, I think people are going to get through the Christmas and holiday season and say, open up-- start looking at their investments and going, OK, what now?

So I think people are going to take their time wading back in and taking risks. So consumer discretionary and consumer staples, I think you're going to see softness there. I still like energy. And I still like-- I think bonds are a good area to start looking at. There's no harm in getting 7% in some good, strong bond funds while you're waiting to take on more risk.

BRAD SMITH: When your customers reach out to you and clients want to have a conversation about where they should stay invested right now, what have you been advising them?

MICHELLE CONNELL: I've been fortunate because it's an education process with your clients. You always are reaching out to them and telling them what's going on and where you are seeing some potential opportunities as well as risk. And clients want to know that they are protected from more downside at this point and that they're going to be able to make their retirement goals especially.

And so they want to make sure that what they've saved up to this point, there's not going to be any more damage, so talking them through the strategies and also trying to steer them away from being more short-term focused, which all of us are as human beings, to more long-term focus and the end game, what they want to accomplish.

BRAD SMITH: When we think about the number of people who are set to retire in 2023, how does that really impart-- impact rather, the equity markets as well if they're starting to pull some of that off the table in order just to make sure that, additionally at least on the onset of retirement, that there is enough cushion for themselves?

MICHELLE CONNELL: You're having more individuals that are near retirement who are wanting to go to more safety in their portfolios. Individuals either want to go towards more bonds or more real estate or even cash. So you can't blame them at this point.

And you even have individuals-- I've had people come back to me and say, do I have enough? Am I going to have to go back to work? These are individuals that are either retired or close to retirement.

And so these are things that individual investors are really concerned about going forward. How are they going to meet these goals, especially if these goals are necessary in the interim-- in the near future?

BRIAN SOZZI: Michelle Connell, Portia Capital Management owner, good to see you. Have a happy new year.