Economy is going to run hot next year: Analyst

Ryan Payne, Payne Capital Management President & Payne Points of Wealth Podcast Host joins the Yahoo Finance Live panel with the latest market action.

Video transcript

AKIKO FUJITA: We are kicking things off, as always though, with the market action right now. As we said, we saw it up in the session early on the Dow, up more than 300 points. It's dipped back into the red and now up about 190 points, bouncing back there. In terms of sectors, consumer discretionary and tech among the sectors seeing the biggest gains.

Let's bring in our first guest for the hour. We've got Brian Payne, Payne Capital Management President and "Payne Points of Wealth" podcast host. A lot of pain in there, Ryan. That's what we've been seeing in the markets. Walk me through what you've seen, how you interpret it, and what this means for your portfolio.

RYAN PAYNE: Well, first off, thank goodness we got a correction. I wouldn't even call it a correction, right? 10% or more is a correction. The S&P 500 was down 5% from the highs, which were earlier in the month. Like we haven't seen any selling during the last year and a half, Akiko. So I'm just grateful that you have an opportunity here to put some cash to work if you haven't. Because if you look at the last year and a half, you know, markets bottomed in March 23 of 2020. We've only had one correction, you know, gotten close to a 10% decline in the S&P 500. This market just hasn't let you in at all.

AKIKO FUJITA: Is this the beginning? Or do you think this was just a one-day blip, in terms of a sell off, this being a big reaction to what was playing out in China and Evergrande?

RYAN PAYNE: Well, I think we were due for some sort of quote, unquote, "market correction." I mean, every strategist on Wall Street has been calling for like a month now. Now I'm always suspect when the strategists all agree on what's going to happen next, because it usually doesn't happen. So I think we could see some more selling here, but I don't know how severe it's going to be. I

Think, you know, if you think about what's going on with the economy right now, what's going on with company profits, you know, companies are going to continue to be very, very profitable in the next year. You know, we could see 9% earnings growth next year. Not only are we going to have a great year this year, the economy is still going to run relatively hot next year. And in the meantime, the world is just awash in so much cash, Akiko. It's crazy how much money is out there right now.

And from my standpoint, look, that money is either going to get spent in the economy, which is great for profits, or you need to get a return on your money because we know inflation's real right now. We've seen heightened inflation, sitting in cash just like isn't an option. So I think you're going to see a lot more money get funneled into the stock market here, which says to me, this correction or sell off, whatever you want to call it is going to be very, very shallow.

AKIKO FUJITA: I want to get to your strategy in just a bit. But we've got the Fed meeting today, kicking off that two-day meeting. What do you think the market's priced in? And how big of a risk does that decision tomorrow present? Whether it is a policy change or not, we have seen investors get really jittery over the timeline of the tapering. It feels like there is a little more clarity in the markets right now. Can we expect a big move on the back of the decision tomorrow?

RYAN PAYNE: Yeah, I think tomorrow is more of a non-event. We know the unemployment numbers didn't come in as good as expected back in August. So that gives you more reason for not to start tapering yet. I don't think we'll get our timeline on the actual tapering just yet. I suspect by November, we could see an announcement to start tapering by December. But, again, I think this isn't really a surprise, right?

The markets are anticipating this. We know that at some point, you know, the government can't just go in or the Fed can't go in and just buy these bonds forever. So I don't think it's going to be a big surprise even if they maybe postpone that decision for another meeting. So I don't think that's going to be a big deal.

And I don't think anything's happening with interest rates. I don't think we're going to see any clarity around maybe raising interest rates earlier come 2022 versus 2023. The bond market is telling you that. I mean, the bond market is basically going nowhere right now. So I think the bottom line with the Fed is, the punch bowl is really still filled here. They're not taking the punch bowl away. And we may get some tapering by the end of the year, but, really, it's nothing the market doesn't already know.

AKIKO FUJITA: So Ryan, you're saying that the market was overdue for a correction, you think the pullback we saw yesterday is healthy. Do you now then go in and buy on the dip? And do you move away from some of the value stocks I know you love to talk about?

RYAN PAYNE: I love value. And I've been right, Akiko. Value has done very, very well this year. No, I think value is still a great place to be. And it all goes back to that inflation story. Unless you believe inflation is transitory-- and I don't. You know, I think that inflation is going to stay heightened here.

You know, one of the biggest issues we have going in the end of the year, and I've talked about this a lot, is we're probably going into a labor shortage, right? There's just so many job openings. There's not enough people to fill them, which means that employers are just going to have to keep raising wages, which means their costs go up, which means they're going to keep raising costs on you and me, which is very good for value stocks because most value stocks are cyclical stocks have what we call pricing power, right?

They can continue to raise their prices, which is good for the revenue and good for their profits. And I think from a buying perspective right now, don't wait. I know we may get a little more selling in here. That's great. But your biggest risk here-- and I've been saying this a lot-- is the market could just literally melt up from here. There's just too much cash out there. Your bigger risk here is missing any move on the upside, you know, not getting the move on the downside. There's not going to be a big one in my estimation. So even if you buy in today, it sells off a little more, that's not your biggest risk here. You've got to be worried about a melt up. You heard it here first, Akiko.

AKIKO FUJITA: I'm surprised we did not get a plug for your podcast today, Ryan. I'm going to plug it for you, "Payne Points of Wealth" podcast. You host that. Of course, you're also capital, Payne Capital Management President. Always good to talk to you. Appreciate the time.