Megan Horneman, Verdence Capital Advisors Director of Portfolio Strategy, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss what's moving the markets following the opening bell on Friday.
BRIAN SOZZI: Megan, always good to see you here. In short, where'd all the buyers go?
MEGAN HORNEMAN: Well, I think that there's several reasons we're seeing what we're seeing in the market now. And I've been on this show before and mentioned some of the factors. The first one, it's been mentioned earlier, is the Federal Reserve was a bit confusing this week. I think that market participants were looking for a little bit more information about how they were going to reflate the economy, whether that's through additional measures from quantitative easing, or easing some of the lending facility programs that they have.
But they continue to tell us that they'll let inflation run hot. But we don't see how. And even if you look at today's consumer confidence information, that show that consumers aren't necessarily worried about high inflation either. Valuations was another thing that we've talked about. Valuations were just stretched. And now, we're looking at the fact that earnings is getting a little bit more unclear. Because the economy-- the economic data's been a bit mixed.
The market was pricing in earnings for 2021, 2022. And now that's becoming a little uncertain. The technology side of it was extremely frothy as well. And now we're looking at just some profit taking on that end as well as now some tensions between China and the US on the technology front.
ALEXIS CHRISTOFOROUS: Megan, the Fed this week basically said they're going to keep interest rates super low for a long time, possibly through 2023. And normally that would be welcome news on Wall Street. But are investors thinking maybe the Fed knows something here we don't know? And perhaps this means that the economic recovery will take that much longer to take hold.
MEGAN HORNEMAN: I think you nailed it there. There's always that, you know, the devil in the details and looking, what do they truly know? And are we missing something? Because they're basically saying that the economy is not going to be any better, or at least better enough, that they can raise rates for several years.
And while the federal government has done so much stimulus right now, the federal-- the Federal Reserve is telling us that basically it's not going to do much to the unemployment situation for some time. Even if you look at their forward projections that they gave this week, they're telling us that unemployment's not going to make it to that pre-pandemic level until at least 2023 as well.
So I think that there is some confusion there from the Federal Reserve. And as I mentioned, the biggest thing is they can continue to say that they're going to do whatever is needed. But there needs to be a little bit more information on what they can and what they're going to do.
BRIAN SOZZI: Megan, I'm glad you mentioned earnings earlier on. How are you positioned into the coming earnings season? If you look at the news drip over the past week and half, more layoffs continue at the banks. Layoff announcements being teased at the major airlines. You have a cruise line. And Carnival Cruise line, which is still not sailing, saying yesterday they're going to sell 18 of their big giant ships. To me that suggests the third quarter is not panning out like many expected.
MEGAN HORNEMAN: And we've talked about this. This is part of the reason why we, in our portfolios here at Verdence, we did start to reduce some of our global equity exposure a few weeks ago. That was because we were concerned the second half of this year that we have finally gotten that huge V-shaped recovery, and not just the economic data but the earnings. And now the hard work begins.
Now we have to see where the economic future lays with an unemployment rate that's still elevated. There's still over a million people filing continuing claims for unemployment. And we don't have a fiscal stimulus package yet. So we were concerned about several risks going into the second half of this year. So we actually started to reduce our global equity exposure and hold on to a little bit more cash, with the hopes that some volatility would give us opportunity.
We're still optimistic over the next 18 to 24 months on the economy. But the issue is that, right now, I think the market got a little bit too much ahead of itself. And we need to get a little bit clearer picture of where we see the economy going forward.
ALEXIS CHRISTOFOROUS: What do you like right now outside of US equities, if you're playing there at all, Megan?
MEGAN HORNEMAN: So we do have exposure into the emerging markets. But we did reduce some of that in the past couple months. Our bigger play right now would be in the developed international. So that would be in the European equity markets.
BRIAN SOZZI: Megan, before we let you go, your first thoughts when you saw Snowflake up over 100% at the closing bell?
MEGAN HORNEMAN: Again, this is a market where investors are chasing momentum and chasing some of these names. That doesn't surprise me. We've seen what happened through this entire recovery. And what we've seen with the five to seven names making up over 100%, it's a hot-- you know, the hot names, they're just being run by momentum. But again, this is something that we're not going to chase these names. We'd rather wait and see how this materializes over the next few months.
BRIAN SOZZI: What profits? They don't matter, right Megan?
MEGAN HORNEMAN: Exactly.
BRIAN SOZZI: All right. We'll leave it there. Megan Horneman, Director of Portfolio Strategy at Verdence Capital Advisors, always good to see you.
MEGAN HORNEMAN: Thank you.
BRIAN SOZZI: Have a good weekend.
MEGAN HORNEMAN: You, too.