Portia Capital Management owner and CFA Michelle Connell sits down with Yahoo Finance Live to talk about market reactions to the Fed’s interest rate hike cycle, the semiconductor industry, inflation, and recession indicators.
RACHELLE AKUFFO: Welcome back to Yahoo Finance Live, everyone. As we can see, markets are mixed at the moment. So let’s take a deeper dive into how they’re moving and why. I’m joined by Michelle Connell, the CFA and owner of Porsche Capital Management. Good to have you back on the show.
So, Michelle, what do you think markets are really reacting to right now? And are they overreacting as we see these mixed markets here with the Dow the only one in positive territory, and just barely?
MICHELLE CONNELL: They sure have been volatile the last few weeks, right, Rachelle? I think there’s a lot of fear and anticipation as we’re moving into this period of higher interest rates, and we’re just not quite sure how much the Fed’s going to dial those up. So I think there’s a lot of uncertainty. And I’m hopeful part of this, especially today, maybe it’s some uncertainty before the holiday weekend.
RACHELLE AKUFFO: And we do tend to see this sort of shift, especially, as you mentioned, right before a holiday weekend. Now, obviously, this is coming on the heels of a lot of data, CPI data, PPI data, retail sales data coming in a little bit softer than expected as well– but we’re seeing also this pullback in tech stocks as a result. What do you make of that?
MICHELLE CONNELL: I think it’s indicative– typically before you have a period where the Fed is increasing interest rates, I do look back to history and say, once those rates start moving forward, growth stocks, especially tech, react well. So I just want the Fed to get onward with what they need to do, raise those rates, and hopefully the growth stocks and the tech stocks will settle down a bit and the market and investors will recognize the growth that they have in them, and the fact that they’re really not going to be discounted that much by some of the moves in interest rates.
RACHELLE AKUFFO: So then, within the tech sector, which is obviously not a monolith– you have some of these stay at home tech stocks, you have cloud, you have all these different moving parts– where do you see within the sector the biggest opportunities versus the biggest risks right now?
MICHELLE CONNELL: Well, obviously, we’ve seen so much damage to the semiconductor area, haven’t we? And that has continued this week. And there has been some bright news. Taiwan Semiconductor has come out with some good results saying that demand has been strong.
So I think when we’re looking at things like Nvidia and Taiwan Semiconductor, as well as Lamb Research, I think there’s some opportunities there, given how much these names have pulled back– anywhere from 25% to 35% this year. I think there’s going to continue to be a strong demand in this area, because so many of these chips go into not only our computers, our devices, any electronics in our cars.
So I think people are going to be– I’m hopeful that there’ll be some positive news not just for Taiwan, but it’s going to be a trend for semis. And I think this might be an opportunity to wade in here, maybe you’re cautious, and you start to see where some of the other semiconductors report before you go full on in.
RACHELLE AKUFFO: And we’ve obviously been hearing a lot about whether or not we’re going to have a recession in the US. In your notes, you say that the likelihood of the recession is low. The Fed certainly hopes, sharing that sentiment as well. What are some of the factors that you’re looking at in determining that?
MICHELLE CONNELL: We always look back in history, but we also know, don’t we, Rachelle, that things are different now between getting out of the pandemic and, unfortunately, what’s going on over in Ukraine. But if we just look at history, if interest rates or your Fed funds rate stay below 4%, the odds of getting into a full-on recession are extremely low. So I think, like a lot of other strategists think, that we’re just going to have a slowdown here.
And hopefully it’s not going to be a full-on recession, but we’re going to have to deal with slower growth. And if that’s the case, tech stocks and growth stocks typically do better in a rising rate environment.
RACHELLE AKUFFO: And as you mentioned the conflict in Ukraine not just affecting Europe, obviously commodity prices as well. And then you have, of course, the COVID flare-ups in China that they’re still trying to get under control. How is that impacting how you’re viewing emerging market funds?
MICHELLE CONNELL: Well, I think you just have to be extremely selective in those markets because there are so many potential landmines. But I also think there’s some opportunities as well, as some of the emerging market countries start to recover from COVID. Obviously, it’s going to take them longer, but they have a lot of demand, especially within their middle class that is trying to be a more middle class consumer. So I think you’re going to have some opportunities, whether it’s in China, India, or other Asian countries.
RACHELLE AKUFFO: Lots to keep an eye on there. We do thank you for your insights– Michelle Connell there, CFA and owner of Porsche Capital Management. Thank you as always.