Volatility is whipsawing investors in 2022, as a secular change in economic realities is rattling both retail and Institutional traders. Callie Cox, US Investment Analyst at eToro USA, joins Yahoo Finance's Jared Blikre to break down the current macro trends -- persistently high inflation, hawkish central banks, and an uncertain earnings outlook -- and how investors can use this knowledge to play defense and even find opportunities in the markets. Blikre demonstrates how to leverage the power of Yahoo Finance Plus for market technicals, fundamentals and portfolio management.
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JARED BLIKRE: Hello, everyone. I want to welcome you to yet another Yahoo Finance Plus Webinar and today we're going to be joined shortly by Callie Cox. She is the eToro USA Investment Analyst and guess what? We're going to be talking about this market, which has caused so many investors a lot of frustration and trouble this year.
The title is Investing in The New High Inflation Slowing Growth Paradigm, and that was what we're mired in right now. High inflation, growth stocks have basically round tripped to the preprint, pre-pandemic levels, and we're going to talk about that shortly. But I want to begin with a poll just to kind of get an idea of where everybody is on the investment spectrum with regard to years of experience trading.
So I want to know, when did you start trading? Was it less than 1 year ago, 1-2 years, so that would basically cover the pandemic, 5-10 years, 10 plus years? And I see the 10 plus years really shooting up. So this webinar in particular is restricted to Yahoo Finance Plus members.
Some people are on the free trial. If you happen to get in here by some other means, welcome. We like you anyway. We hope you sign up for our 14 day free trial. We're going to go through some of the features later on.
But yeah, I'm just looking at the poll results right now. Less than 1 year at only 9%, 1-2 years 17%, 5-10 year 17%, 10 plus years 58%. That means a number of you have seen business cycles that might be similar, somewhat similar to this.
Although, I've got to tell you, I haven't seen anything like this in my lifetime. So without further ado, I want to bring in Callie Cox. And Callie, just a quick overview of what you're seeing in the markets right now. Because as I said, this has been a troubling year for many, many investors, experienced and newbies alike.
CALLIE COX: Yeah, definitely so first of all, hi, everybody. I'm Callie Cox on the US Investment Analyst at eToro, which is a brokerage, a global brokerage that offers a bunch of different assets, but in the US we focus on stocks and crypto. And I say that to say I am gauging the pulse of retail investors all the time.
That's my main job and really trying to understand what the struggles are for individual investors in this market. And gosh, this is a market that, I mean, pros are retail investors alike are struggling in. I struggle to really frame what's going on, what can happen next, and that's my job.
So what I want to talk about today too, and I know Jared is thinking about this quite a bit, is just how to survive and possibly thrive in this environment. Because with stocks near the lows, crypto near the lows, we are kind of in a survival mode right now. You really just want to stay engaged and stay invested so you can eventually make your goals.
But I don't think many of us are feeling like we can step out and take a lot of risk right now. And that's OK. It's not an easy market to be trading in at the moment. But there are ways you can thrive too. And I'm really viewing markets in the economy in that lens, that I can certainly go into further detail there.
JARED BLIKRE: Well we're going to go into a lot more detail. We're going to chart some stuff. But you sent some great notes and I was just putting on the screen here, I'm going to share it again in two seconds. And here we go.
This is Markets rise and fall. So markets go up and they go down. Over time stocks tend to go up, but we've seen a lot of bear markets and we're going to use the standard TV definition of 20%.
I know it's easy to quibble, but that allows us to do some historical searches here. And I know, Callie, that you like to sit in front of your Excel spreadsheet and the markets and get some data together. And what are you finding?
CALLIE COX: Yeah, definitely. So Jared mentioned this. I also love digging through historical data and I will say, it's really hard to use historical analogs these days, because this is such an unprecedented environment. The word unprecedented, you've heard it a lot. It's definitely true.
But I just want to point out to everybody as we start, that markets go up and down. This is the natural rhythm of investing. All of you, or not all of you, but a majority of you have been investing for a while. You've seen multiple business cycles like Jared mentioned. But I just want to ground everybody back there.
We've seen the S&P fall 10% or more 32 times since 1950. That's once about every two years. And the way it goes is we usually see this pattern of markets rally, everything feels good, the economy strengthens, we're in a normal business cycle and then we take a step back. This is normal. I'll add too, that the feelings are very normal and the risk factors and the catalysts aren't normal, but to frame everything up it rarely feels normal.
I was mentioning to a colleague you know back when the Brexit vote was happening in June 2016, I personally thought the world would end. England essentially seceding from the EU. I remember laying in bed and saying, this is it. I want off this ride.
But the world didn't end and it's easy to step back and say that when you look at the data. But the way that you approach this market, even though things feel scary, really depends on what you're investing for. And if you have that long term horizon, things will likely be OK if you give it enough time and this could be an area of opportunity for you.
JARED BLIKRE: Well, I want to do another poll, because I want to get a handle on some of the things that our audience is looking for. If you guys could pull up pull number six. My investment trading time horizon is? Is it forever like Warren Buffett? Is it years?
Is it months? Is it days? Is it intraday, are you a day trader? And we're seeing the responses pouring in here.
And we're going to leave this pull up for a little bit, but it looks like years is the biggest responder here and a couple of forevers and not too many day traders. So we're going to focus on the longer term here, Callie. And I'm going to pull up another one of your charts here. This has to do with year to date asset performance and gets to the fact that you need to be diversified, yes, but a lot of things aren't working this year.
So if you look, let's say the 60-40 portfolio, where you have 60% stocks, 40% bonds. Guess what? Stocks are down as you see here, 16%, 17%. Bonds are down about 10%.
And by the way, this is the worst start to the bond market in, I think, 40 or 50 years. In a lot of data sets, it's just back to the very beginning. So it's not working this year. But how are you recommending investors protect themselves in this environment, Callie?
CALLIE COX: Yeah, so hedges are getting a lot of flack, a lot of deserved flack at the moment. I mean, look at this chart. Stocks and bonds in general, bonds are considered or thought of as the classic portfolio hedge. When stocks go up, bonds go down.
Well, we haven't really seen that happen over the past decade, and in this particular sell off, it feels especially painful, because it seems like nothing is working. I mean, if you look at this chart, Jared went through it, but crypto is down 36%. Of course not a hedge, but it's an asset class that many of you are invested in.
Stocks down 17%, bonds down 10% this year. I mesn, stocks and bonds, you rarely see them down double digits together. So that's really adding to the anxiety here. You know, I will throw in though, it feels like this market is increasingly gravitating toward tangible assets.
And what I mean by that is, in an area and kind of an anxious era right now, where we're not sure what the future holds, we're seeing the market you really rushing commodities, really rushing dollars, really rushing to cash, if you will. So there are hedges, there are areas that are "working", quote, unquote.
But I'll also add too, that for hedges to work, it doesn't mean that they necessarily move in the opposite direction. You look at this chart and if I defer a little risk spectrum on here, I'd say it starts with crypto and ends with gold, right? And as you can see, the hedges are kind of working.
The gold's down the least. Bonds are down, but they're not down as much as stocks. And we are in a crazy environment, but you have to remember that it all kind of boils down to, you want to be diversified. Even if things are acting a little wild here, we don't know what the future holds. So prudent investors really spread their money across a bunch of different assets, even if it feels painful at the moment.
JARED BLIKRE: Yeah, and just a couple of comments on there. There are some other asset classes too. I'm going to share this one more time. We got real estate.
I don't know if you guys are selling real estate over there at eToro. I'm guessing not, but that is an asset class that can protect against inflation in an environment like this. Also volatility.
Volatility is kind of an unknown or unexplored asset class and it's not intuitive. You probably need it to be professionally traded, but there are ways to attack the market that way. So all in all, I would say everybody needs to have a handle on their risk tolerance and also on their time frame.
And that kind of gets back to, are you a longer term investor? Are you a shorter term investor? And unfortunately, in these markets, a lot of the newer traders intended to be short term investors last year, they were punting trades, and it didn't work out too well. And unfortunately, I think a lot of investors, newer investors have been burned and some of them are probably not going to come back to investing for a while.
But anybody who still here, what do you say to them? Let's say you're holding Zoom for instance. I'll get a chart up in a second as you're talking.
Or I know you don't talk individual stocks, so I'm not asking you about these names, but what do you say to people who are holding names right now that are so underwater? Do you advise them to take the loss, tax harvesting? What do you say to them?
CALLIE COX: Yeah, oh gosh. Well, first of all, I'm really sorry. It's a tough environment to be trading in. And I want to add a note again to the hedges, Jared, because as you mentioned real estate it made me think of something. A lot of the hedges that are working this year too, yes, they're tangible, but they're also hedges that are tough to hold long term. You mentioned volatility.
Volatility, you have to deal with the complexity both ways, like big explosions and big explosions down. And while naturally volatility moves, when we're thinking the VIX volatility moves in the opposite direction of the stock market. If you're on the wrong side, it can really blast you.
And if you get into certain products that track volatility, it's harder to hold them short term because you deal with real costs and stuff like that. So and commodities kind of fall in the same bucket in my mind for retail investors. So I mean, I just say all that to say, it really is a difficult trading environment and--
JARED BLIKRE: What I would say in volatility, and the reason I say it's not for most retail investors, is because you really have to understand it. What happens when the VIX spikes here. So let's take a look at this chart.
In 2020, we saw this huge pandemic explosion in the VIX, but the thing is the VIX is a mean reverting asset. It doesn't tend to trend very long. We saw it going up here, but it doesn't do that very often.
It tends to spike on the initial drop and then kind of hover there. And a lot of people will see that drop and they'll buy a VIX product, usually an ETF because it's easy access, but the VIX has already made its move. So it's important to do these things ahead of time. One of my favorite market blogs, "The Market Era" is famous for saying, "You need to buy protection when you can, not when you need it." So buy it when you can afford it. In other words, when it's cheap.
Not the best message for somebody who's already in trouble, but when you're making new bets, you've got to look out for these things. All right now let's take a couple questions here. What sector would fare the best in high inflation or in a recession? This is coming from Richard. And I'll just let you take the first word on this, Callie.
CALLIE COX: Yeah, that's a great question. And I promise I didn't dodge your question, Jared, about [INAUDIBLE]. We can go back to that. But that's a really good question. We've been thinking a lot about that over in the research group at eToro.
Being high inflation, it really goes back to the tangibility of things. High inflation, you see that in commodity prices. Therefore, we've seen that kind of roll through in materials earnings, industrials earnings. Real estate, another classic inflation hedge, but we're not just talking about house prices here.
If you look at the rates within the stock market, if you look at the real estate sector, you can typically see some follow through in profits or [INAUDIBLE] revenues there as well. Financials are another one that come to mind.
The financials have gotten walloped this year. So it's a weird environment right now with the rate structure, but if you expect rates to go higher, longer term rates go higher and shorter term rates to stay lower, that's the net interest margin for banks right there. That's one of their main sources of money.
So as the curve stands out a little bit, and if the consumer stays strong, we could see financials performances tend to perk up a bit. Although, that's really hard. We've been saying that for a while and it hasn't really panned out. So I hedge all of this with-- the market sometimes has a mind of its own and it takes a while for it to return to a rational fundamental view.
JARED BLIKRE: And I think what's part of it too is that we're simply, the title of this webinar is Investing in The New High Inflation Slowing-Growth Paradigm. This is a new market. This is not the market that we had since the global financial crisis since 2009 when we had low interest rates, low inflation. This is we have high inflation.
And I don't think it's going to stay at 6%, 7% because the Fed is going to make sure that but, I'd be surprised if it goes back down 2% anytime soon. So we are in a new environment. And when we are in these environments, certain assets do well and others don't. So let me just show you the year to date chart that we have of these sectors. These are the S&P 500 sectors.
What stands out is energy. So XLE, that's the energy sector, that's up 46.5%. We know that has went very well this year. Utilities, kind of a hedge there that's barely in the green, but you take a look at consumer discretionary, that's XLY here. Excuse my drawing with the mouse.
Consumer Communication Services and Tech, those are the mega caps, and those generals are down big. You take a look at the NASDAQ here. The purpose of this isn't to tell everybody how bad it is, but I want to show a chart of Apple here, because this is probably my biggest bellwether. We've seen Walmart get shellacked yesterday, Target's getting shellacked today.
Another big stock, probably the biggest, is Apple. Now, Apple is down 20% year to date, but you take a look at this chart, it doesn't look like Walmart. I'll go to there in a second, but we haven't seen the capitulation yet, and that's kind of the moment I'm looking for to really get bullish in the market. Sentiment is very negative.
I think we can get a flashy bounce here. And when we get these flashy bounces, it tends to be in low quality names. So things that have gotten beaten down, those could go up the most. But I don't really think we're at quite the bottom yet.
And I'm looking, I'm thinking about the Fed and I want to get your comments about the Fed. Because for me, it's all about interest rates and the Fed is very aggressive, not only with the 50 basis point hikes per meeting, at least two or three more, but also with the quantitative tightening. Their selling assets into a very illiquid market.
Economy is still strong, but there's not a lot of liquidity in the market and I think that's why we're seeing these huge moves. Fastest bear market in history in 2020, fastest bull market in history 2020-2021, and it could happen again. So I'm waiting for when the Fed eventually pivots as kind of the bellwether. It doesn't mean they're going to stop everything, but just show a little bit less hawkishness.
And I think they could get some reprieve from inflation. We got two reports per month, CPI and PCE, those come out. If we see a little bit of break in those, I think they might ease up on the quantitative tightening or maybe the 50 basis points. I know I've talked a lot here and I want to get your thoughts on the Fed, Callie.
CALLIE COX: Hey, there's so much to say about the Fed right now. They are going through a double barreled tightening. But we did this in the last cycle, but it didn't look anything like this. We're offloading a ton of assets from the balance sheet and the Fed is dealing with an interest rate situation that really, again, is a double bind.
But they're tightening into high inflation. Historically, that hasn't worked super well. Usually you want the Fed to be a little more proactive and growth is slowing. That's the name of this webinar.
Growth is slowing and the Fed is you really trying to get inflation down. And maybe we can growth a little bit more, but not to the point where we fall into a recession. The big thing that I'll say about the Fed is that it's very obvious that markets in the economy have already digested a lot of tightening.
So sure, the Fed has only hiked about three times or twice, but one was a double hike. But the markets have priced in 10-11 rate hikes of 25 pips or more this year. You can see that in housing, housing starts cooling down. You can see that in retail earnings today.
Target came out and said that their inventory levels were built up too high because we're seeing the slowdown in consumer demand. I mean, that indirectly is connected to what the Fed is doing here. We could see that weigh on the job market, which the Fed has been very clear that's where they want to see some of the heat come out of the economy.
So it's a really tough environment to manage. I'll add too that a lot of this inflation is supply chain driven and that's not something the Fed can touch. And they know that. It's not something that Fed policy can magically kind of fix away.
So there are a lot of moving parts in this environment. And if you want some good news in a sea of bad news, this Fed regime is very gradual, very flexible, even if it doesn't seem like this at the moment. And that does increase the chance of a Fed pivot or some Fed sensitivity.
If we proceed for a few months and the Fed sees growth slow down a little too much or the job market get hit a little too hard. But it's a tough situation. I wouldn't want to be Jay Powell right now.
JARED BLIKRE: No, I don't think I'd want to be him either. I will say this, I think he's a departure from a lot of the previous Fed chairs that we've had, because he's a business person first and not an academic. I think he understands the people a little bit more. I mean, I think it was telling that his first words out of the last presser were a letter, a statement to the American people. Clearly, that's on their mind.
I think they're more receptive to the fact that they're really influential in society. Before, 20 years ago, nobody really knew that much about the Fed and that was the way they like to keep it. I want to do another poll here. We're going to do poll number five. Let me get the text here, so I can tell you what it is. I think the greatest risk to stocks right now is, a hawkish Fed, a recession, inflation, Russia-Ukraine, COVID lockdowns?
And we're seeing inflation pick up here, not only in real time, but also in the responses. It looks like almost about 50% recessions there. And these are all intertwined. All of these are related in some way.
Even the COVID and the lockdowns, you have millions, tens of millions of people in China still locked down. And China's kind of in its own unique situation. But just getting back to some of the other questions here. I have one from [? Monrhodes, ?] I think. Is the energy sector a buy right now?
And another one, biotech seems as battered. Is this a cycle to invest in this? So I'm going to ask you about both of those in a second. I want to take biotech first. I do love biotech, but there's tech in the biotech.
Biotech tends to be high growth and guess what's not working right now? I think if you're going to be in biotech, you probably have to be a bit selective and this kind of gets to the broader statement that this is a stock picker's market. Lots of stuff is not working, in fact, most stuff is not working. When the market eventually goes up, and it will, what's going to work? So do I still like energy?
I still like energy. I see it having a lot more to go. And let me just share my screen once again. I got a Fred chart that has crude oil and the federal funds effective rate, that's a benchmark mark rate that we've been talking about here.
This goes back all the way to 1975. Let me pull it up to about 1990. In fact, I'm going to go to the last recession, or the last major one, global financial crisis before the pandemic. And here is the Fed funds rate up here.
That's in red. That was all the way at about, what, 5%? And it stayed there for some time. Bernanke kept it there. And guess what crude oil is doing?
That's the blue. Took a little bit of a dip, but then it rose to $150 per barrel. I remember trying to trade it at one time, it was absolutely crazy, but energy was doing well, even into the recession. The recession is that gray area in here. And historically, crude oil has been a defensive sector.
It might not seem obvious, because it's also cyclical, but when the Fed is raising rates at this point in business cycle, it is to combat inflation. And if there's existing inflation, it's going to be affecting commodity prices. So I'm actually pretty bullish on commodities probably throughout the end of the year, even if the Fed pivots. And that's just based on historical analysis. Any thoughts you have, Callie, on either biotech or energy, or take the floor?
CALLIE COX: I'll talk about both. So we'll start off with energy since that was what you were just talking about, Jared. So man, energy is a bit of a wild card right now. I mean, if we take a step back, looking at it from a research perspective, energy is a cyclical sector, right? And it's been beaten down for a while here.
So if we expect demand for oil to stay high, oil prices to stay high, then you've got to think that energy companies would benefit from that. And you also look at bigger energy companies, especially US based energy companies. They're trading at low PEs right now because they've just been beaten down for so long.
So they could be at attractive entry prices. If you want to take a fire in that sector or maybe allocate a little bit more money to that sector if you want more of that economic exposure. But it's also a very political sector at the moment. It's tied up in all these Russia-Ukraine headlines and Europe is still deciding what they're going to do about you know gas inventories and oil inventories as well.
So I think that makes it a little tough. It makes me a little hesitant. I have different goals than you do, but I think that if I had to point to a con, that would be it for that sector. Now biotech, man, so biotech and tech right now, I think it's harder to find--
I'll put it this way. So tech and biotech, I think we can all agree that there's a promising future for tech and innovation, right? There's a lot of stuff going on. If you believe in S curves, I mean, we could see exponential growth and innovation within these sectors. But when you're investing in them, you have to think about when the market is going to realize those stories and if the market will ever realize their stories.
And one thing that I've been stressing to clients is the fact that if you go back to the tech bubble, there were a lot of promising companies there, but they just simply traded at too high valuations. And so companies that we even know today, like Cisco comes to mind. I mean Cisco, I think we can all agree, look at the fundamentals. It's it's been a decently good business over the years, but it never got back to its tech bubble highs because it was just so massively overvalued.
So I would never discourage against investing in a story stock, because I don't know your goals and needs. I don't know your why for investing. And I think biotech, for me, falls into that story stock bucket, where there's a lot of investing on future potential.
But I would just caution against maybe wanting to see that rebound so quickly. Because in a high rate environment where those Futurecast flows are being discounted so much, it may take a while for the market to realize what you believe in. And I would also encourage diversifying as well.
Because as a theme, it's hard to bet against biotech, especially in the long term. But not all companies are going to survive. And I think now that the tide has come out, we're going to see which companies had a good strategy, which companies had good management behind the scenes.
JARED BLIKRE: Yeah, well that raises an excellent point that I like to kind of hit home is that we are in a rising interest rate environment. I don't think either of us expects the Fed to get to 3% anytime soon, but that's the goal. And if that were to actually happen, think of all the small companies that wouldn't be able to attract capital.
That's when you see bankruptcies. And part of that is a necessary part of the capital markets here. We need failure, we need companies to fail because we can't prop them up forever. And I think that's why this is a new era.
We had ultra low interest rates. Companies were just able to add debt, add debt, add debt, and now there is a new paradigm, and that's really the lesson here. What worked for the last 12, 13 years probably not going to work going forward.
So you've got to be a little bit more discriminating, put in a little bit more homework. And let's see, I might have another. Let me see here.
CALLIE COX: Yeah, and I'll throw in it too. So the good news and the bad news. I'll bring you some good news about failure, because that's, I mean it's an awful realization that, that's how the world works. But if you want to of play off that theme, which it sounds a little morbid, of course.
We don't want businesses to die, but if we are heading into this rising rate environment where it's harder to attract capital, that really benefits the bigger players in each sector, especially in tech. One thing we've been talking about at eToro is this kind of growth stock winter and what that could mean for the landscape of tech going forward. It's really hard to bet against big tech at the moment.
Big tech looks a lot different than those smaller speculative growth companies that we saw thrive in the latter half of 2020 and 2021. Big tech has a lot of cash on their balance sheets. It has a lot of acquisitive power. And if we see the smaller tech firms die off in this growth stock winter, that's less competition for big tech. They almost [INAUDIBLE] like defensive stocks.
JARED BLIKRE: Yeah, well, and that raises, this leads to my next question. We use these terms, defensive, cyclical, value growth, but there are nuances here and here's a great question. Why are banks underperforming?
Kind of hit on the banks before. Aren't the banks value and aren't they supposed to fare better when interest rates rise? It's a complicated question. As you noted before, for banks, it's really about net interest margins. So it's the spread between what they can borrow at and what they can lend at.
What they can borrow at, they're borrowing from the Fed. So guess what the Fed is doing? The Fed is raising rates.
Now, the long end, what they can lend at is also rising, but not as fast. So if you take a look at the yield curve, it's kind of converging here. That's what we talk about the flattening yield curve. And because of that, that's why the banks, I believe, have underperformed. And let me know if you have anything to add to that, Callie.
CALLIE COX: Yeah, of course. Well first of all, I wish I could start every answer I give with, it's complicated, but I know y'all would get so tired of that, so I won't do it. But that's the reality.
There are just so many short term headwinds right now and then long term promise that we're all kind of grappling with at the moment. And financials, I feel like, falls into that bucket. Financials have been trading in a quite confusing way.
I mentioned this a little bit earlier, but if you just step back, look at the yield curve, look at long term rates rising, you'd expect for an investor to look at the sector and say, "hey, net interest margins, they're going up. This is where I'm going to throw my stake in the ground." But it's not that easy. And I think that a lot of financials right now, of course, the yield curve is a little bit flatter at the moment.
That's probably weighing on the sentiment in that sector a bit, but a lot of investors are also looking at financials and seeing it as an economic play, which it is. And especially seeing it as a consumer play. And as recession fears rise, especially with, again, retail earnings today showing that we're seeing a bit of a slowdown in consumer demand, I think that's kind of tempering expectations for financials here.
I mean, we look at this space. We see some opportunities there. We see some low P/E stocks. We we don't feel so bad about financials over the next year over the next two years, but it's a tough environment at the moment.
And as we saw in earnings as well, the big banks got hammered. There's a lot of asymmetric risk there too. There's a lot of really high expectations. So in the short term, we could see that asymmetric risk lead into some pretty bad days.
JARED BLIKRE: Yeah, well, and let's talk about that, because well first of all, I just want to say, I forgot to mention this in the beginning. We're not trying to give any investment ideas out here or any investment advice, especially nothing personal. So take everything with a grain of salt here. And then I'm going to tackle another quick question, a technical one myself.
Hey Jared, is a program you are using to show the year to date performance available in Yahoo Finance's for us to use? It looks amazing and easy. This is what we use. Let me share my screen.
This is what we use for our live programs and I do love it. I would like to make a feature request here and we'll have to see what happens with that. But this is just for presentation purposes only. And yes, I do love the YFi Interactive.
Here's a sector on a year to date basis. All right, so having tackled that, another question regarding the FAANGs and saying, so F-A-N-N--G. N equals Nvidia, not Netflix. So the FAANGS are getting crushed, still holding, hanging on if you have a five plus year time horizon.
Also, would you recommend index investing, either the queues or the S&P index in this environment, whether it's in a 401k or a regular brokerage account? It depends on, I would, say taking the last part first. The queues or the S&P 500, it could be SPY, lots of ETFs out there. I think in general, over the next decade, passive investment is not going to do as well in this new paradigm as it did in the previous one, but passive investment is probably for most people.
Now, not necessarily in this Yahoo Finance Plus Webinar, because this attracts traders, right? Longer term traders, but at the same time, you've got to be careful with the passives and I do think stock pickers, the good stock pickers are really going to knock it out of the park and most people are going to struggle.
It's going to come in fits and starts. So to the FAANG point, I like Nvidia long term. I still like Apple long term. These stocks aren't going to go away.
I just don't think they're going to produce the same outsize returns they did before. let Me get to the interactive one more time, because I'm going to show the drawdowns that we're looking at. Here are the Semis, OK? This is year to date performance.
This is good enough. Nvidia's down 42%. That's very painful. When you see a chart, and let me put a two year up so we can see exactly how much has been given back, these are broken stocks.
This takes time to repair. They're not going to shoot straight back up. So if you like the stock long term over five years, sure, hold it. But I wouldn't expect it to get back up to, Nvidia, I mean that's a high flying stock, it could.
But some of these others, they could take years. They might never. We were just talking about Cisco before, we showed that chart. It hasn't yet eclipsed its 1999 high.
It was a high flyer back in the dot com boom and then it kind of came one of these staller companies. Nobody talks about Cisco really and gets excited. It's a fine company. They do well, but it's more of one of those legacy tech stocks.
And I think that's what Apple is going to become. I think some of these high flying tech stocks that managed to make it and some of them won't make it will kind of become boring. So that's my long winded answer there.
And let's see if we can answer another. I think we've mentioned Warren Buffett before and Berkshire Hathaway. Here's one. Is Berkshire Hathaway the best inflation hedge? This come from Peter.
I like Berkshire Hathaway for a number of reasons. Now, first of all, it's they have exposure to financials, which we were just talking about, but they're not a bank. Geico Insurance company. Insurance companies have fared a bit, many of them have fared a bit better.
And so Geico has that working for them. They have that huge amount of cash that they take in every month. It's called the float, they can put it to work. And we also know that Warren Buffett is a value investor.
Huge bets on Apple. That's still his biggest holding. The 13F came out one day. I think 40%-45%, but he's really loading up on what? Energy, Chevron, Occidental Petroleum.
And a lot of people look at what Warren Buffett is buying and say, well, I should be in that too. You're not going to get the same deals he does. You're not going to get that 8% preferred share dividend, but I do like Berkshire.
And I'm going to go to, let me see. Oh, I still have this up. I think I can show the mega caps and this is pretty instructive here. A lot of things too, notice Berkshire is the only one in the green, up 2% for the year.
Tesla down 33%, Microsoft and Apple, Alphabet down more than 20%, Facebook and Nvidia off more than 40% this year alone. I think Berkshire will tend to be one of the better performers in the coming decade. So any thoughts on Berkshire? Oh, you don't do individual stocks--
CALLIE COX: No, no, no. I will talk about Warren Buffett all day.
JARED BLIKRE: OK, all right.
CALLIE COX: Yeah, so Jared's right. Can't talk about individual stocks, can't make recommendations, but what I will say is I feel like Buffett gets a lot of hate, but like you said, he's a value investor. And if you believe in value here, he's probably not a bad person to watch.
JARED BLIKRE: Not a bad person.
CALLIE COX: It's Warren Buffett.
JARED BLIKRE: Yeah, well, not a bad person to watch. I'm going to quote you on that. So now is the time I'm going to do my little dog and pony show here for Yahoo Finance Plus. So just give me a second while I set this up. As I said before, we do have some new users in here.
So I just want to kind of give an overview. If you've tested some of the features out here, you can sync it with your brokerage account and you can watch your portfolio in real time here. I have a fake portfolio that I constructed, but you can see it is underperforming the S&P 500 right now. Why is that? Well, we can take a look and see that I am over invested in some of these growth sectors.
So first of all, we have investment ideas, I'll get to that. We have both fundamental and technical ideas that come out on a daily basis. We have research reports on all the big tickers. We have the Peter Lynch valuation of stocks that is fair value.
You can see where Apple is right now, Amazon within about 7% down from that, Costco down 13%, AT&T up 2% from that. We have company outlook in terms of different themes, dividends, innovation, hiring, insider sentiment, sustainability, earnings, technical events. If you like technicals, I love technicals. I'm not going to spend too much time on that because I kind of focus on that in other webinars, but those are there too. And you take a look at the risk level here.
I'm going to click over and I can see that I have a number of stocks that in communication services, probably Netflix in there, I am overweight that sector. And so not surprisingly I am underperforming the S&P 500. So let me go back to our investment ideas and let's go to, let me see, we'll get a big ticker here. Prudential, kind of big. Let's see, a lot of these come out after earnings, and you can see these are a number of ideas that have been generated over the last 24 hours.
Anything with a little chart right here is going to be a technical event. We'll click on Foot Locker here. We see a technical pattern. Megaphone bottom, this stock has formed a megaphone bottom, providing a target price for the intermediate term in the range of 34.20, 35.20-36.10. And there's also a moving average crossover.
And if we take a look in the chart, you're going to see it draws it out pretty nicely for you there. And not all these patterns are going to be perfect, but it does show the consolidation and a potential breakout here. So this is just for generating ideas. You don't want to necessarily just execute when you see something, but it does give you a lot of information. Here is the explanation of the pattern, the megaphone bottom.
And you can see right here we have a rising line and a declining line. Kind of looks like a megaphone. And it tells you what it's mean what it means and also the event description. And then we have support and resistance levels, we have stopped losses up here. And over the short term and the medium term we're seeing the technicals land in a bullish fashion.
Longer term is bearish and we can see that in the chart here. That is the definition of a downtrend, but looking for a short term bounce potentially. So let's take a look at what the Argus Research, we have a partnership with them, what they are saying about Prudential Financial. They're talking about strong, long term outlook for the leading life insurer.
We were just talking about Berkshire Hathaway and how insurers have tended-- everything's kind of tanking right now, but insurers have outperformed the market when value trades have been in vogue and things were working. So lots to read here. You can get a more in-depth report. You can view the chart of Prudential and see what's been happening here.
And like most things, it's been down this year, and it's been trading sideways. But we're just looking for potential entry points and ideas. So lots to do there.
I just want to show one more thing that I really like. I've been highlighting this since it was added last year-- Community Insight. So if you follow Yahoo Finance, we talk about our trending tickers. This is a huge-- it's like a huge crowdsourced experiment where people come in our site. If they're going to the Apple page, that counts as one. If they're clicking on the Tesla page on the ticker page to see what's up with Tesla, that counts as one.
When you add it up to our millions and millions of users, then you get a pretty good idea of the zeitgeist. So Yahoo Finance Plus takes it one step further and really delivers these on longer time frames. If you go to our site, the free site will give you Yahoo Finance trending tickers updated maybe once an hour. This will give you a lot more information.
You can see a little sparkline graph here. You can click on things to get more information. And it looks like we only have-- this is blowing by really quick. We only have five minutes left. So I'm just going to scroll down here and say anybody who has Yahoo Finance Plus, you definitely want to take a look at this Community Insights page.
CALLIE COX: Oh, now it's turning off. Sorry about that.
JARED BLIKRE: That's quite fine. I want to take another question here. This one is about bonds. We haven't talked about them in a little bit.
So is this a time to purchase bonds? Jonathan is asking this. You know, I think that the 3% that we've seen in the 10-year-- and I'll see if I can talk and also pull up a chart at the same time-- the 3% in the 10-year was a huge move. And it appears I can't talk and manipulate these things at the same time, so I'm going to pause. Here we go.
So I'm going to load the [? carrot ?] TNX ticker. This is a long-term chart, OK? This goes back to the spike here-- the high in 1981. Can you believe the 10-year used to be 15.8%? I wasn't doing much back then. I was trying to probably go to kindergarten.
But that-- if you look at this long-term trend line that we see right here, well, we just broke out of that, OK? I think that we are going to go higher. I think that the secular downtrend in rates, which means there is a secular bull market in bonds, is over.
So I think 3% is probably the high for now. And I think you could punt bonds based on just the technical setting up. Basically you would be shorting yields. And I think that 3% is going to stick for a while.
But I'm not excited about-- I want to see what the Fed does. You know, after the terrible start that we've seen this year, it's difficult for me to get excited about bonds except for the fact that you could be in muni bonds. Those haven't fared quite as well. But you do get the coupon.
We haven't talked about dividends. But cash flow is key in the market environment in this. And I'll give you the floor here, Callie.
CALLIE COX: Well, I'm going to take the other side of that. So--
JARED BLIKRE: Oh, really?
CALLIE COX: Yeah, yeah.
JARED BLIKRE: Go for it. I love a controversy.
CALLIE COX: [LAUGHS] Yeah, so if you look at bonds from a valuation perspective-- and I'll start off by saying there are many different kinds of bonds that can do many different kinds of things for portfolios. I'll be talking about bonds from a very macro lens. But ultimately, it's up to your goals, your needs, and your portfolio.
But if you want to look at yields, I mean, Jared, you mentioned the 10-year yield popped above 3%, couldn't quite sustain staying above that level. And funny enough, that was about the level that the 10-year struggled in the last cycle as well. That's where it hit in late 2018.
So bonds-- you know, they look pretty oversold at the moment based on recent history and based on how stocks are looking PE-wise. If you want-- if you run the equity risk premium, you'll notice-- and the equity risk premium is essentially the 10-year yield minus the earnings yield on S&P companies. If you run that and you like to use that as kind of a valuation gauge for bonds against stocks, that's at the lowest point since 2010 or so.
And if we see peak inflation-- you know, if we see-- if we see a little bit more trouble and [INAUDIBLE] worldwide, too-- you know, global investors are looking at treasuries as the cleanest shirt in a pretty dirty laundry pile of yields. So there are a lot of-- there are a lot of factors, in my view, pushing for the-- pushing for possibly a near-term [? topic ?] yields. I mean, long-term, it's really hard to tell because I think yields move more on demographic forces if you're thinking like years, decades, stuff like that.
But I think for right now, we may have seen the top.
JARED BLIKRE: Yeah, I think-- so I think we have-- I think we've seen a short-term top. I think you're looking at a little bit longer-term one. But good to have that discussion there.
A couple more questions in the last few minutes. Most of the energy stocks are at their 52-week highs. How much more leg do these have? Is it better to invest in XLE instead of picking individual stocks?
I'll tell you what, Callie, I'm going to blow through this one myself because I want to get to one more. But you know, I've watched energy stocks blow through big, big levels over the last year. I think this is a secular trend-- not secular, excuse me-- I think this is a long-term trend that persists at least through the end of the year. And you know, you can wait for the pullbacks, but they might not necessarily come.
I think you got to choose the quality names. You got the majors plus Occidental Petroleum. Warren Buffett kind of gives a little bit of a tailwind to that. But I still think there's room to roll with those.
And I always-- I do like the secular ETFs. So XLE could be just fine. You're not going to get as much juice, but you're also not going to get as much volatility. And so having said that, I want to get to our last question. I'll give you-- I'll let you weigh in on this one, too.
Some stocks like Netflix are down over 70% in less than a few months, drastically reducing the PE. At this new valuation, with a two to three-year horizon, is it safe entry for decent returns going forward? And we're getting very similar variations on this question. And it tells me that a lot of people and-- are underwater, some of these big names. And that happens.
You know, if you have a five year-- or two or three-year horizon and things are looking good now, OK, maybe you don't sell or maybe you add some. You can dollar cost average down. But I still don't expect a lot of these high-growth names to really recover for years. And some of them might never.
Netflix is a big name. Probably it's not going to go away anywhere, but they got to retool. The subscriber growth, getting the fundamental is just catastrophic for them right now
CALLIE COX: Yeah, and I agree with you, Jared. I think it really depends on your horizon. I think near-term, tech is in a really tough spot with rising rates. And going back to the growth of winter, a lot of these firms-- I know this doesn't really apply to Netflix, but a lot of these firms are going to struggle to find financing. And they're going to be under a microscope.
You know, if you give it five or 10 years, you know, I'd say maybe lean on your targets. Because tech has a lot of promise, but it's hard to say stock A is going to do well, stock B is going to do well. Stock picking is-- is an interesting strategy in today's environment because there probably are a lot of deals. But at the same time, there comes a lot of risk. You can't invest in a theme and expect the cream to rise to the top, if you will.
So if you're looking at individual tech stocks, thinking about taking a flyer, I just really encourage you to set your targets. Know exactly why you're investing, exactly how long you want to wait, and think about what you want to see in price and return before you're satisfied. Because if your target is just to see Netflix go back to the highs, I don't know if that's going to happen. I don't have a crystal ball. And some of these tech stocks are trading at pretty high valuations.
JARED BLIKRE: Well said. And we're going to have to end on that note. Callie Cox, really appreciate you coming here today. Some great information for everybody.
And I certainly appreciate everybody in the audience. We had a number of great questions. And going forward-- this is the first one that we've done for Yahoo Finance Plus subscribers only. We're going to keep it this way.
We're going to give you access to people-- to me, to other people who come in here. You can pick our brains. And we're also going to email you within, I think, the next 24 hours, a copy of this presentation for you. But I don't think we're going to be making it public, so just for you guys.
Anybody who signed up for the free trial here, hope that you stick with it. So once again, Callie, thank you for joining us here today. And I am signing off.
CALLIE COX: Thank you for having me.