Snap stock: Digital advertising ‘pie is shrinking,’ strategist says

Jacqueline Remmen, Morgan Stanley Private Wealth Management Private Wealth Advisor and Senior Vice President, and Shawn Cruz, TD Ameritrade Head Trading Strategist, join Yahoo Finance Live to discuss the market outlook against tech sell-offs, Snap, inflation, and the Fed's interest rate hikes, and enduring market volatility.

Video Transcript

INES FERRE: Here's the closing bell for today, Tuesday, May 24.

[BELL]

[APPLAUSE]

SEANA SMITH: The Dow closing in a positive territory, you can see, as we shake out the final trades of the day. The Dow closing up just around 50 points. S&P and NASDAQ, though, remaining under pressure. Ines was just talking about some of the losses that we're seeing in communications names, social media stocks, the retail names, keeping some of the gains across the board in check today. The S&P closing off just around 8/10 of a percent. The NASDAQ off 270.

Let's bring in Jacqueline Remmen, the Morgan Stanley Private Wealth Management senior vice president, and Shawn Cruz, a TD Ameritrade head trading strategist. Jacqueline, first to you. When you're looking at a day like today, losses coming primarily from some of those larger cap names, a lot of those in the tech space, in the social media space, how worrisome is this on a broader scale?

JACQUELINE REMMEN: Hi, thanks so much for having me. It's great to be here. And what we're really seeing is that the market's digesting a lot of news. There's a lot of different factors causing volatility. And what we're talking to clients about is that that kind of timing call or individual stock trading on a day is not an investment strategy. And we're building all weather portfolios for our clients for the current environment, which we know is centered around heightened volatility. And what we're doing with that is having companies with strong dividends, strong cash flow, and in the sectors which we know will perform best in this kind of environment, including energy, utilities, healthcare, and real estate.

DAVE BRIGGS: Remarkable, Shawn, to see Snap's worst day ever, down 43% on the day. Is this 2000?

SHAWN CRUZ: Yeah, I mean, I think that one thing I was-- I was just discussing this with another trader earlier-- if, really, the environment might be changing overall for Snapchat. And we're used to looking at it as far as who's winning the war here. Is it Snapchat? Is it Instagram, Facebook, one of those platforms? But I think TikTok might also be coming in there and taking some of those ad dollars. I think I saw a commercial the other day where there was actually a famous TikTok content producer was used in a TV ad, which I thought was interesting. It shows the power of that platform.

But at the end of the day, I think what this shows is, there is a lot of pressure being put on these revenue models, which rely on robust ad spending from corporations across the board. And in this type of an environment, this is telling you the macro situation is getting so challenged, you're not really seeing companies wanting to go out there and spend a lot on ad spending, at least right now, when they're trying to tighten up expenses, because some of the expenses they have are skyrocketing out of their control.

So I think there's a lot of challenges, coming into this space. And I always like to bring in maybe some of the challengers that are coming in that aren't publicly traded or as easy to track. You want to make sure at least being cognizant of what kind of traction those are getting, because that actually will divide that pie up a little bit more. And the pie, at least for now, it looks like it's shrinking on top of that. It makes sense. You're not going to see a lot of buyers coming in with that backdrop going on.

RACHELLE AKUFFO: So then, Jacqueline, are there some tech stocks that still do look attractive in this environment?

JACQUELINE REMMEN: Yeah, that's a great question. We've seen the PE of the NASDAQ, by and large, reduced by 50%. So we do think that there are some great companies with strong balance sheets, dividend paying that we would definitely think this could be a good entry point into.

SEANA SMITH: Shawn, zooming out a little bit, obviously, a huge headwind, a huge challenge, a huge issue here for investors, for Wall Street is higher inflation, right? And we're trying to figure out whether or not we've seen peak inflation, when it will considerably pull back. Curious, how are you looking at this? And I guess, when do you see this having a material and an actual impact here on the markets?

SHAWN CRUZ: We're starting to already see that get priced in. And if you look at what's been going on with inflation, one is, what is the reaction function of the Fed? And can they really control a lot of these drivers? And I think we like to focus on the Fed easing monetary policy. That's what's driving a lot of these inflationary pressures.

But the Fed can't really do anything about what's going on between Russia and Ukraine. They can't do anything about China's zero COVID policies. And as long as those are out there, and those persist, there's not too much the Fed can do. And I think that is where the economy and a lot of traders are starting to get a little bit concerned. If nothing else, it's certainly driving a lot of this uncertainty in the market.

The way the market, to me, is reacting to that is, one, there's deleveraging going on. There are some liquidation events out there as well. And that is one of those selling begets more selling type of environments. And then the other one is, there's just not enough confidence out there to come in there and meaningfully put money back to work. So I think you have the absence of aggressive buying going on out there. And once you start to see leverage start going back up, cash coming from the sidelines, that, to me, would be an indication that there is, at least, a little bit more certainty in the outlook for a lot of these people on the sidelines to come back in.

DAVE BRIGGS: Jacqueline, when it comes to people stressing out, worrying about their retirement, that's what we think about in times like this. And mid-career workers actually had the biggest rise in stock market exposure. And they went from 69% to 82% of their retirement is now in stocks. What do you tell those people?

JACQUELINE REMMEN: So the first thing we would tell them is that fear-based thinking is not an investment strategy. We would also tell them that it's understandable to feel concern, as there's so many different factors causing the market to really be volatile. Any one of them would be good for 2% to 3% price movements, and we're seeing all converge at once.

So what we would tell them is that to remain disciplined, dynamic, and domestic at this time, to be looking for opportunities to buy strong companies with good cash flow and have balance sheets that are able to endure the volatility that we're seeing, to be focused in defensive sector, overweighting value, and in the sectors that we know are going to benefit most from where we are right now, which is in real estate, utilities, and in healthcare.

RACHELLE AKUFFO: And Shawn, what are some of the top questions that you're getting from clients right now? And how are you addressing them?

SHAWN CRUZ: So the one thing-- and I think it's adjacent to what you were just discussing-- is, where should we go to ride some of this out? Maybe they don't necessarily want to be in cash. But they don't feel confident enough to go into equities, and they've also seen fixed income getting hit pretty hard here so far this year.

So the question is, where do I want to go now? And what we're seeing a lot of them do is, they are moving into some of the more defensive areas of the market. We're also telling them to go out there and find fundamentally sound companies, positive cash flow, positive earnings, some sort of growth that could be defensive. But you can even find some of those core tech names that meet that mark.

But then also, looking at going in the fixed income spectrum, we're seeing some of them go into the shorter duration side of the fixed income world. They're looking at asset-backed securities. They're looking at floating rate notes. There's a lot of little things that you can do to manage your risk or go into some of the areas where you don't want to view it as fixed incomes getting crushed across the board. It's not always the case. There are some areas you can go into, especially now, and pick up some pretty decent yield, but at the shorter duration side of that fixed income spectrum.

SEANA SMITH: Jacqueline, what's your reading on the consumer? Because consumer sentiment is right around the lowest level that we've seen in just about 10 years. We've seen some of that fear creep up in some of the retail earnings reports that we've gotten, just in terms of the reaction that we've seen Wall Street give some of those big names. Is the consumer, though, stronger than maybe we're fearing it is at this point?

JACQUELINE REMMEN: Yeah, we think that the consumer is strong. Balance sheets for consumers are very strong. We know, too, that there's a natural shift right now where we are in coming out of the pandemic from more consumptive goods to more consumption around services. So that's just a natural shift to where we are. And that as much as inflation is on the minds of consumers, we know that they have very strong balance sheets and are also supported by a really strong labor force right now. We know that unemployment's at record lows, at 3.6%. And we also know that wage growth is averaging on 5% a year right now.

RACHELLE AKUFFO: All right, we'll have to leave it there. A big thank you to our market panel. Jacqueline Remmen there, Morgan Stanley's Private Wealth Management private wealth advisor and senior vice president, and Shawn Cruz, TD Ameritrade's head trading strategist, thank you both.