Tech trade isn’t dead: Defiance ETFs CEO

Defiance ETFs CEO and CIO Sylvia Jablonski joins Yahoo Finance Live to discuss the tug-of-war between tech and bank stocks, investor sentiment, rate hikes, and the expectations for a soft landing.

Video Transcript

RACHELLE AKUFFO: All right, continuing to watch the big turnaround in tech. Now our next guest says, that as the markets continue to be volatile, the tug-of-war between tech and bank stocks. We welcome in Sylvia Jablonski, Defiance ETFs' CEO and CIO. Thank you so much for joining us this morning. So talk about this tug-of-war and how investors are playing it.

SYLVIA JABLONSKI: Good morning, and thank you so much for having me. Well, I think Jared did a really great job of covering what we've seen in tech. And I think so many of the tech stocks were just absolutely beat up last year. So you can say that in the last few months, the froth had been taken off of tech. And then if you think about investors and their mindset about the fed perhaps being closer to the end of rate hikes and being closer to being finished than starting coupled with a bank collapse, that actually did provide a tailwind for some tech stocks.

But then this week was super interesting. We started the week actually with a lot of confidence brought back into the banking system. So you had the Citizens-SVB story. You had a lot of government officials coming out and saying that the backstop for banks is there, and essentially really trying to put out this fire, and I think they did a good job putting out the fire.

And then what you saw was that a lot of investors in the beginning of the week took some of those tech gains, to Jared's point, I mean, you have some of these stocks up 70 or 80% starting into this year, and perhaps allocated back to banking, which had been beat up. But my sense of this is that it's kind of going to revert to the mean. I think you'll have this ongoing volatility.

Today's inflation read was sort of just fine. We're at 4.5%, that didn't go away, but at least it wasn't too hot. So we'll have stability in that tech trade.

Longer term, I think it's smart to sort of diversify to all of these areas, but I actually don't think the tech trade is dead. They're not near their 52-week highs, for example. We're kind of at 27 multiples, down from 33. So I do think that there's a little bit of room to run, given the rate hikes are meant to pause.

BRAD SMITH: In the event of a recession, are there areas within tech that are most resilient, especially considering the fact that you would have a lot of those large companies that we were talking about that have made up for the majority of the gains here that are very much intertwined within consumer technology and the discretionary dollars that might continue to dry up for the average individual, or household, or even for the business spending that could dry up on the other side of that on the web services side that many of them have been accustomed to seeing really line their profit margins.

SYLVIA JABLONSKI: Yeah, that's a great question. And I think-- I've been thinking a lot about this with tech. I would argue that tech has already been in a recession basically for the last 14 months, and is coming out of it. And all of the things that you just described have actually happened.

So could this happen again if we come to a screeching halt and we do see more than a soft landing? Then absolutely, I think we'll be in the same boat that we were a few months ago, really, and tech stocks will fall and the whole market will pull back. But in my mind, those will just be great opportunities to continue to dollar cost average into tech.

To answer your question a little more specifically, these tech companies, those top 10 that a lot of us talk about, the Microsofts, Apples, Amazon, and so on, they have strong balance sheets. They can weather a recession. Maybe we won't get that 10% growth out of them, but if you're looking for a stock that you have patience to hold for a few years, why not keep something like that on your balance sheet.

That you're not going to have like a bank run type of situation on an Apple or Microsoft, for example. They pay out some good dividends. The future of AI, they're the future of innovation, cybersecurity, cloud.

So I just, I think that tech has a lot of room to run, actually, especially with rates falling. And I think that spending is going to pick up. If we have a recession, I suspect it will be shallow enough, and I think that some of that spending is actually going to come back into tech because it's been on hold for the past year and a half.

RACHELLE AKUFFO: And Sylvia, I mean, we've had guests say, the fed should have paused already, perhaps should have started cutting rates by this point. How do you position yourself? And what are you steering clear of as you try and make sense of this volatility?

SYLVIA JABLONSKI: You know, I'm steering clear of trying to guess what I think the Fed will do, and I'm going to just start listening to what they're saying because I think for a long time we just didn't believe that. We didn't believe the Fed, and we still kind of don't believe the Fed. But the messaging hasn't changed.

I think the difference though is it kind of doesn't matter. It doesn't matter whether or not they hike another 25 bips at this point. I think what matters is if they hold it higher for longer. When does that unwind come, and at what point does it come?

I do think that the last level of messaging that we heard suggests that they are very aware of what happened with the banking crisis, but then again, maybe that was just a blip in time, and it doesn't impact inflation that much. So then the Fed continues to hike. But still, I think we're closer to the end than we are to the beginning.

I'll just listen to what they say and on pull back days, I'm going to pick up the names that are most hurt when they raise rates because I do think we're coming out of this eventually. And that goes to tech and semiconductors.

BRAD SMITH: Sylvia, in your notes you say that telecommunications is now essentially a subset of the tech industry. Help us break that down and the thesis behind it very quickly.

SYLVIA JABLONSKI: Yeah. So if you look at what happened, you know, when we think about the hot topic of this year, it's been very much AI. And if you think about the staples that help AI work, they're A, the big tech companies that are investing in AI, and then the semiconductor companies. You know, that's why they're catching the bid. They're a major component of the AI revolution innovation, whatever you want to call it.

But if we think that some of the semiconductor stocks have benefited a lot, and they have a ways to go, but maybe they're closer to the end of their rally, you can look a little bit further down and look at the communications stocks, right? So you need 5g to actually power AI, machine learning innovation. So start thinking about companies like Verizon, AT&T, T-Mobile, Skyworks, American Tower, some of the REITs that actually are necessary to-- the property REITs that are actually necessary to power all of this.

And I think if you look at what kind of powers 5g, what power speed and lower latency, it goes beyond just semiconductors. So I just started looking a level down and thought, some of these top telecommunication stock are going to be a big winner of the AI revolution going forward.

BRAD SMITH: Does that mean that they should also have the same or similar PE ratio?

SYLVIA JABLONSKI: You know, I don't think so because they still-- you know, they're still classic communications companies. I just think that they're going to benefit from a technology trend. So I do think that they'll get additional revenues perhaps, and additional margin expansion because of AI, because of innovation, because of machine learning. But that will come with time.

BRAD SMITH: Sylvia Jablonski, always a pleasure to speak with you. Thanks so much. Defiance ETFs' CEO--

SYLVIA JABLONSKI: Thanks for having me.

BRAD SMITH: --and CIO. Appreciate it.