Rolling recession to lead to ‘a couple of rough months’ in early 2023: Strategist

Defiance ETFs CEO and CIO Sylvia Jablonski joins Yahoo Finance Live to discuss inflation, Fed rate hikes, recession fears, consumer sentiment, energy, and the outlook for markets going into 2023.

Video Transcript

- As we continue to count down to the new year and look toward 2023, we welcome in our first guest this morning. Says the themes of inflation and recession will be sticking with us well into the coming year. Joining us now is Sylvia Jablonski, Defiance ETF CEO and CIO. Sylvia, good morning. It's good to see you. Happy holidays.

Not a very happy holiday message, I guess, that we're going to be dealing with all this stuff going into 2023, right? But it does seem like, especially on the inflation front, that things are at least getting better or getting less bad. What are going to be the implications for the markets in early 2023?

SYLVIA JABLONSKI: Hi, Julie. Great to-- great to see you again. And thank you for having me. Well, look, it's not actually all bad news. I think that, you know, where we're at today is probably where we're going to be in a couple of months, right? We have a Fed that remains hawkish.

He wants to get to that 5% plus terminal rate. We'll see if he actually gets there because a lot of the work that the Fed has done, you know, hasn't really impacted the economy just yet. There's a little bit of a lag to that, as there is to job numbers and some of the data that they look at. So who knows?

But let's take them for their word and assume that it's going to be a couple of-- a couple of rough months to start the year. But the good news is that inflation has fallen from a peak of 9.1% to 7.1%. It's trending lower. You know, you're starting to see some softness in the housing market.

So you do see this rolling recession that's actually happening out there. Consumer sentiment is terrible. Retail spending, although the consumer is resilient, it's starting to give a little bit. So a lot of this tells us that the Fed might not have to do as much as-- as, you know, he says.

And I think that on the other hand, though, if we have a recession, it's likely to be a soft landing because, although the numbers are softening, they remain resilient, whether it's production, the consumer, and otherwise. But the good news is-- sort of the spin on this is every single time a market falls 3% to 5%, if you're a young person or if you're someone who has a retirement account and you're not retiring for another decade or so, these are great times to gather up stocks and create some value. So it's not all bad.

- Well, let's talk about some of the areas where you might be seeing some opportunities in early 2023. I'm looking at your list here-- travel stocks and some defensive names. Could you going to little more detail there?

SYLVIA JABLONSKI: Yeah, sure. So I think when I think about 2023-- 2023, the first half of the year just based on what I mentioned before, probably be a little bit defensive. So I'll look at things like health care. You know, a lot of these companies pay dividends.

There's a massive aging Baby Boomer population. They're going to continue to consume medical services-- pharma, biotech, things like that. And they tend to do well in recessions anyway. You know, you're not any less sick if the market pulls back, right? In terms of the travel trade, you know, it's sort of counterintuitive because if we go into a recession, perhaps people might not spend as much.

But I do think we're talking 2023-- if you look at the outlook and the last earnings calls from companies like Delta, for example, and Norwegian, you know, they're talking about doubling their revenues for the next year. They're talking about increased demand. So you sort of already have that information from them. And you know that the next quarter or two might be OK there.

I also like alternative energy. You know, we're talking a lot about diversification. We're talking about looking at commodities that have done well. And when you look at a space like hydrogen, for example, you know, it's-- it's a growing area that is actually picking up some steam. So you have these companies that are building out major hydrogen, you know, plant cell stations. We're talking about Bank of America by 2050 saying it's an $11 trillion marketplace, the Renewable Energy Agency saying that 12% of our electricity will come from hydrogen. Right now, that number is 0. So these are areas where I'm going to look to allocate next year.

- I want to pick up on hydrogen. And I have to admit, for people who saw a "Glass Onion," perhaps over the holiday weekend, there was a little bit of a hydrogen theme in there, although it wasn't necessarily a positive one. I won't go further for fear of spoilers. But what I will say is that it may get to that size by 2050. But it still feels pretty early in that space.

So what do investors need to keep in mind? I mean, this past couple of years saw a burning of investors who were trying to get in on disruptive technologies. And so what do they maybe need to keep in mind when they're investing in spaces like this?

SYLVIA JABLONSKI: Yes. And that's a great point. And I think, you know, when-- when we think about disruptive technologies, we're still thinking about companies that are around today and generating revenues, right? So while-- while I believe that quantum computing is going to be, you know, a massive innovation in the next decade, the companies that are just starting out in that space are companies like Google and IBM that are going to benefit from their existing business lines while they innovate, right?

So it's not so much, think about the small company that's going to be, you know, absolutely whacked by interest rates. That-- that's sort of not what we're looking at. In terms of hydrogen it's the same thing, it's companies like Fuel and Ballard and Plug, you know, that have these massive contracts with Amazon to run their forklifts and things like that. But, you know, to answer your question a little more specifically, I think if you're looking at true, you know, disruptive technology, like startups that are just on the map, perhaps just have gone public, not a lot of liquidity, I mean, they are absolutely going to suffer for the next couple of years.

There's no doubt about it. They need to borrow, and interest rates are going to be high. But if you're talking about innovation and disruption with companies that already exist, are quality companies, sizable market caps-- the IBMs, Microsofts, Googles, Amazons of the world-- I mean, for those-- those companies, I would argue, are absolutely on sale. And, you know, you gave some great stats before about how long it took them to kind of recoup their performance. You know, I don't think it's going to be two or three years. I think that this is going to be, you know, the end of 2023 when you start seeing some of these companies start to recover because they're just too good. I mean, they have too much cash. And they're part of every single thing we do in our day-to-day lives.

- All right, some uplifting-- an uplifting tone there, I would say, overall. And thanks for that. Thanks for being with us on a Tuesday morning here. Really appreciate you stopping by.

SYLVIA JABLONSKI: Thanks, Jared.

- As always, Sylvia Jablonski.