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What’s next for markets amid correction, Fed tightening, and earnings

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WealthWise Financial CEO Loreen Gilbert and Shawn Cruz, TD Ameritrade Senior Market Strategist, sit down with Yahoo Finance Live to discuss the market outlook amid corrections and session lows, Fed tightening and interest rate hike policies, inflation, and Russia-Ukraine's geopolitical impact on the market.

Video Transcript

[MUSIC PLAYING]

- Welcome back to Yahoo Finance Live. As we count down to the bell here, let's take another quick look at how markets are faring. It's obviously a down day today, all three indices in the red. We're seeing the Dow down more than 400 points, edging closer to 500 points, and seeing the S&P down almost 80 points, and the NASDAQ down just over 330 points. I'd like to make sure that we get time to check in our panel here.

Loreen Gilbert, WealthWise Financial CEO, will be joining us. And Shawn Cruz, TD Ameritrade's senior market strategist, will also be joining us after the bell. So as we wait, just a few seconds left, and here we go with the closing bell.

[BELL RINGING]

- All right, looks like a good old fashioned hoedown at the New York Stock Exchange. Unfortunately, stocks also down today. Major averages across the board in the red. Closing lower, Dow Jones Industrial Average, that closes down by about 1.4%. We'll round that up to, on today's session, 464 points. The S&P 500 also continuing its slide, slide, slippity slide, to quote Lakeside, closes down by about 1.8%. And then NASDAQ, that closes lower by about 344 points, 2 1/2% lower here on the day. Slide, slide, slippety slide is a technical term for Loreen and Shawn to weigh in on.

But getting back to our market panelists that we have here with us today, a critical level that we've been tracking coming into today's close, and that was the S&P 500 2022 low. Loreen, when you think about where we could potentially see a bottom, what would be the catalyst, what would be the marker that you're even evaluating right now?

LOREEN GILBERT: Well, there's a lot of nervousness in the markets. The VIX is up, the markets are down, and we're in correction territory. So now, it's a matter of staying the course and making sure that we're making adjustments in portfolios, making slight adjustments. And ultimately, I think that we are close to capitulation. We haven't had this kind of pullback in two years. So the markets, in a sense, were due for this. And so I think it's a matter of now looking for the opportunities.

If you liked some of these companies last year, you know, which ones do we like today? We want the ones that are profitable, not the ones that are not profitable, leaning towards more value names, kind of more of a defensive side of the portfolio.

- We also got some more news coming in towards the close here today, and I want to get your take on this, Sean, that the Fed may need more than four rate hikes. What does that signal to you, not just about the quantity but the quality, or the size and tenor, of the hikes, as well, that are anticipated to come forth over the course of this year?

SHAWN CRUZ: Yeah, I think that's really going to be the key, and that is is that their way of saying, maybe signaling we're not going to do 50 basis points here in March. We're going to do 25, but we are maybe going to add an additional rate hike in there somewhere along the way. There's also other things they can do to tighten policy, as well, that I think also you want to pay attention to. And that's not just with the asset purchase, it's also with the size of the balance sheet.

If they start reducing the balance sheet that's another way of tightening monetary policy, as well. And I think if you're looking for where that will feed into the markets, right now, the one place I don't see a positive scenario forming anywhere is for some of those high flying, growth tech stocks because one, if we get more of an escalation with what's going on in Ukraine in Europe, that's really going to strain the supply chains for some of those precious minerals and metals that we need, that they need for their inputs. So that's going to be one issue.

If not, then you're probably going to see a lot of people start flowing out of the safe haven of treasuries. And just that selling can cause interest rates to move higher, which is also another hit to that asset class, which has a little bit more duration on it. So I think right now, I would agree that you maybe want to look in some maybe some of the more value oriented areas of this market.

- And Shawn, to follow up with you, where do you think we might get an acknowledgment, if at all, from the Fed after its March meeting with regard to what's going on in Russia, Ukraine? Is it going to come about with a potentially less hawkish tilt to their actual monetary policy signaling, or is it just going to be an acknowledgment, potentially in the statement or the press conference, from Powell?

SHAWN CRUZ: I think that would actually be something maybe a little bit more similar to what we saw when there was a lot of geopolitical, geopolitical tensions going on with China, where they were acknowledging that, but they were really treating that more of an externality that was more or less out of their control but acknowledging some of the impacts that that could have on some of the things they follow. And I think in the one that I would really focus on, obviously, would be inflation. I think that's really what the market's focusing on right now, as well.

- And Loreen, when we think about Russia, Ukraine, what does history say about how stocks perform during geopolitical turmoil? And do we have reason to believe that this time will follow the same playbook?

LOREEN GILBERT: In general, the markets don't react long-term to geopolitical situations. They tend to react short-term with about a 5% decline, on average and, within 60 days, coming back up and surpassing that 5% decline. So we expect that this would be somewhat similar, that we're seeing the decline that will not last long-term. If we look one year out, certainly one year out from a correction like we're seeing now, it's 90% probability that we would see positive returns, and most likely double-digit returns. So at this point, good entry points for cash to come in and reallocate.

- And Loreen, you've said that you have concerns regarding pricing on commodities in the eurozone, particularly grains and natural gas, as well as the impact on consumer sentiment. How is this informing how you're positioning your portfolio?

LOREEN GILBERT: Well, we are concerned about the eurozone because of the the amount that they rely on trade with Russia. And so that will impact Europe much more than it impacts the United States. Our impact is negligible. On publicly-traded companies, we're looking about 1% of revenues, so very slight in the US. But the eurozone is a different story. So with that, we're actually trimming some of our European exposure right now, we think they'll be entry points later on in the year, and increasing commodity exposure as we see commodity prices.

Between inflation and this current situation, we think that that's a commodity play.

- And Shawn, some, at least something of a silver lining during this time, what we saw with Q4 earnings season. Given what we're seeing then in terms of your projections for how the rest of the year is going to be looking, how do you think that's going to inform how retail investors invest versus, say, institutional investors as they look based on the Q4 earnings?

- [INAUDIBLE] I think looking at Q4 earnings, one thing was very clear, and that was companies that were not able to come out and at least maintain, if not improve, profitability or margins, those are the companies that really got hit the hardest. So I think what we're going to start seeing from clients, we've already seen some hints of that, is a lot more selectiveness in terms of where they're going into. They're no longer going into, say, tech as a whole. They're not going to the S&P 500 as a whole. They're going in-- and actually, I would say they're not even going into say consumer discretionary as a sector, either.

They're actually going in and being very selective in the companies that they're looking at. And I think what it boils down to is effectiveness of management. And you're going to want to start tracking some of those companies. And the way you're going to measure how effective management is in this sort of an environment is their ability to maintain and defend profitability.

- Loreen Gilbert, WealthWise Financial CEO, and Shawn Cruz, TD Ameritrade senior market strategist, joining us here today. We got to leave things there. We'd love to have you back to continue this conversation and dialogue, as there is much more to discuss in the very near future.