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'The market doesn't like an information vacuum, and now we have two,' strategist says

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Chairman & Managing Member, Great Hill Capital Thomas Hayes joins Yahoo Finance Live to discuss as stocksfell following the news of Omicron variant.

Video transcript

KARINA MITCHELL: Let's get more on this topic and go to our first guest, Thomas Hayes, chairman and managing member of Great Hill Capital. Sir, thank you so much for being here on what is turning out to be an exciting day in the markets, to say the least. You know--

THOMAS HAYES: Thanks for having me, Karina.

KARINA MITCHELL: --when I was thinking this morning-- thank you. When I was thinking about what I should ask you before testimony came out today, it was, what factors would force the Fed to address inflation, even if the labor mandate isn't met? So I guess I got my answer in part right from the horse's mouth. So I want to get your reaction to Powell's comments today. And do you agree that we should be thinking about accelerating the timeline?

THOMAS HAYES: Yeah, well, everything has been in flux today, Karina. So I completely understand. Thanks for having me. You know, the market doesn't like an information vacuum, and now we have two. Not only did we have the CEO of Moderna expressing concern that his vaccines may not have full coverage for omicron, but then you had Powell throw this monkey wrench into the mix at the hearing, saying that maybe we'll speed up taper by a few months. That's no small potatoes for sure, because the market had anticipated over six or seven months that we would get another $660 billion of liquidity.

Now, not only are you going to speed up the timeline, but that amount of liquidity, the reinvestment is going to be smaller. So it showed that he's very concerned about inflation. He even made the statement which also spooked the market, it's time to retire the word "transitory." Well, you can retire it because you birthed it. That was his term.

So it's telling us that his appointment is in, and now he's focused on inflation. And he wants to move quickly, and the market certainly doesn't like that. So we have until the Fed meeting two weeks from now to find out that information. And we have probably two weeks to get more substantive information on the impact of omicron. So, two things the market certainly doesn't like.

But as they say, when Wall Street throws a sale, it's one of the few places that no one shows up. So we do have a shopping list out. We are slowly nibbling here and there. And we're happy to talk about that as we move ahead if that makes sense.

ALEXIS CHRISTOFOROUS: Yes, definitely want to talk about where you're nibbling in the markets right now. But I'm a little confused because for the past few weeks, we've been talking about the market wanting the Federal Reserve to sort of step up to the plate when it comes to inflation and admit that it's not transitory, that it's going to be around for a while, and then take actions to combat it. Why are the comments today from Fed Chair Powell not having sort of the reverse effect?

THOMAS HAYES: Yeah, well, I think it's two things. I think, one, the timing couldn't be worse with omicron until we have more information, although we did get a headline over the tape recently that there were 44 cases in the EU. And they're showing to be very mild so far, so the consensus that maybe it will be more transmissible, but the symptoms will be milder. So far, anecdotally, that's been the case. But we won't know for sure over the next two weeks.

So if it is going to slow down the economy just a bit, like we saw a little bit with delta over the summer and in September, the last thing you want to do is an aggressive tightening much faster than people were anticipating. I think the better thing to have said was, we're discussing moving up the timeline very quickly, but we need full data on omicron in the next couple of weeks before we do anything drastic.

I think that's the better way to frame it. And the markets probably would have liked that a little bit better. However, as we've seen in the past, when the communication is a bit strong, they can always walk it back during the second day of testimony. And maybe we'll see that tomorrow.

KARINA MITCHELL: And what's your anticipation on rate hikes, then, given, let's say, if they do accelerate and they double? So we're shrinking by $30 billion a month. That brings a taper timeline to the end of March. When do we start seeing rate hikes, do you think?

THOMAS HAYES: Yeah, well, it's interesting that you bring that up, Karina, because despite the fact that the expectations for taper have come in, the expectation for rate rises has not today. So they're still pricing, if you look on the Bloomberg, about 26% chance, I believe, for the month of March. So there's not a high probability. The key here is that rate hikes and taper are still separate. They're still distinct. And the possibility of seeing rate rises that quickly is still low probability, showing at just-- I'm sorry-- 26% for May. So they're still saying even if the taper winds up quickly, we're still looking towards the summertime before we see the rate rises, which is a positive thing.

ALEXIS CHRISTOFOROUS: So Thomas, I want to get to some of your picks right now and where you're seeing some opportunities. I know you mentioned Boeing. I know I wrap that up in with the travel sector, which looks to be super uncertain right now, especially with omicron spreading pretty quickly across the world. So tell me what you like within travel right now.

THOMAS HAYES: Yeah, well, you know, coming into omicron and coming into this taper announcement, you basically saw an economy that was running on all cylinders. And if you look at 2022 earnings estimates, they were expected to grow just about 9%. So it would have been reasonable to expect the S&P up high single digits to low double digits next year with a lot more volatility as liquidity comes out. But the key inside that 9% earnings growth was that industrials are set to have the highest earnings growth of any sector next year at 36.2% relative to the S&P around 9%.

And within industrials, Boeing, if you listen to Dave Calhoun on the Q3 conference call, he expressed confidence that he would get the Boeing 737 MAX recertification in China before the end of the year. The stock is not pricing in anything close to that because if that happened, you would see production go up from 19 planes a month on the 737 Max to 31 planes a month by Q1. And if he is right, I think that could be a huge catalyst higher.

I think when you pull out a shopping list in an environment like this, you have to look a little through, Alexis, six months from now, 12 months from now. We've been through a couple of these variants. We also have the Pfizer pill, the Paxlovid, which is showing 89% efficacy. That CEO said that he believes it will work against this variant as well. So a lot of positive things in the work.

Are more people going to be at the park 6 to 9 to 12 months from now as this variant-- as we work through this variant? Are more people are going to travel? If you look at the past week, we were at 80% to 90% of 2019 TSA passthrough levels. We had 2.4 million people travel just two days ago. So, and that's kind of coming off the tail end of Delta. So I think people are just ready to get back. People are vaccinated, 70% vaccinated. That's going to go up.

The CEO of Pfizer also felt that if people got boosted, he seemed to express a level of confidence that there might be a solution there with the new variant. But we'll see more in the next two weeks. So when you put all of that into context and you look at catalysts for names like Boeing that you know they operate in a duopoly, the demand for planes is going to come back, is that two months from now, if this turns out to be a small variant or is it four or six months, either way, if you can take a six to nine-month view and think like an investor, these are opportunities, days like this.

KARINA MITCHELL: All right, there are so many more questions for you, but we are out of time. Thomas Hayes, chairman and managing member of Great Hill Capital, thank you so much.

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