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Market recap: Friday, Dec. 17

Kevin Simpson, Capital Wealth Planning Founder and Chief Investment Officer, and Dory Wiley, Commerce Street Holdings President and CEO, join Yahoo Finance to discuss the day of trading and what to expect for falling sectors as we approach the end of the year.

Video transcript

- All right, we're going to get the closing bell in what, two, less than two minutes. And let's bring into the stream the people that are going to help us understand what we've just witnessed, not only this week, but today. Kevin Simpson is Capital Wealth Planning Founder and Chief Investment Officer, Dory Wiley, Commerce Street Holdings President and CEO. Before we do a recap, Dory, let me just start real quick with you.

What's driving the fear? Why are investors getting out? And I've got to keep it short in this first answer.

DORY WILEY: Well you know, that's a good question. You know, people are throwing up the Omicron variant. I'm not sure that's it. Maybe it's year end. Maybe there's not enough volume support, a little profit taking. You know, maybe it's a delayed reaction to the Fed given the surprise positive reaction [INAUDIBLE].

- All right. So let's take a look at where we're setting up. And we're going to get to you, Kevin, in just a second. But we've got to get the bell. And I just want to point out, I'm looking at airline stocks right now. And American, United, Southwest, they're trading higher. Go figure. Delta is up too.

But when we take a look at what the markets are doing, you've got the Dow is going to be off roughly 520 points when we get the closing bell. NASDAQ's going to be down about 10 points. At one point, the NASDAQ was positive today.

But we've seen this concern over the 10 year and the correlation with tech stocks. That's been a problem. S&P is going to be down about 1% again today. But right now take your breath. Take a deep breath, because here's the closing bell.


- He's a happy camper. All right, we've got the gavel. We got the closing bell. Once again these markets are going to settle and we're going to settle down. The Dow is going to be off 1 and 1/2%. Another big drop for the S&P, down another percent. NASDAQ is off, well essentially, flat. It's down 10 points.

But let's face it, the sectors today, everybody in the red. Haven't seen this much red since the Soviet Union Communist Russia was in power. Let's get back to the panel to understand what is coming down the pike. Let me start with you, Kevin. And I'm glad I was able to get a smile out of you.

We heard from the Fed today. We heard from the Fed Wednesday. I think there are days we wish we didn't hear from the Fed. But we got one of Governor Waller saying, we're going to have interest rate perhaps lift off come March. No surprise there. So what is it? Is that what drove markets down or is it this fear of Omicron?

KEVIN SIMPSON: Yeah, I think, Adam, it's much more the Fed than it is Omicron. I know we responded very favorably when Chairman Powell gave us the information after the Fed meeting. FOMC met. They came out and told us exactly what we expected and wanted to hear and there was a short term rally.

And you kind of wake up the next day and sort of look around, and you think, how do we reposition our portfolios for a Fed tightening environment? And typically, that's going to cause a little bit of volatility. We had quadruple witching today.

Omicron is not to be ignored. I'm not suggesting it's not an issue. But you put a lot of soup-- a lot of ingredients in that soup, you start up and you're going to have some volatility. Quite frankly, I'm surprised that we're down only this much following this massive, massive stimulus and the idea that, hey, the party's over. We're increasing the taper and higher rates are not that far off.

- Kevin, let me just follow up with real quick, because quadruple witching. I mean all of the projections going into next year are that we're going to have continued economic growth, that earnings, despite these hiccups, are going to continue to remain strong. So shouldn't we have seen at least in options contracts, people getting ready for that. And the contracts that would have closed today, I mean did someone get caught short?

KEVIN SIMPSON: Somebody always gets caught short, Adam. But I think the zero interest rate trade's over. We had so much fun talking about [? meme ?] stocks this past year. Valuations were thrown out the window. But that changes in a tightening environment.

And it's not, you know, it's not a dance we haven't been to before. We've had tightening. We haven't had much. I mean I've only been in this business 30 years and there's been only a handful of times. I remember '95, 2000, 2007, 2018. In each one of those instances, you reset the deck. You kind of circle your wagons. And you look at profitability.

What surprised me more than anything today was the fact that financials and energy traded off the way they did. You know, you think logically what kind of companies are going to do well in 2022? What do well in tightening? I mean, certainly financials are an obvious one.

Energy is another sector we like a lot. And I think this is an opportunity to continue to add to those positions. And that's what we did today.

- Dory, what about you? You've talked about that this would be a good time for sector rotation into cash flow companies, low debt companies. What would that look like for an investor who wanted to follow that?

DORY WILEY: Well, I agree with Kevin. You know, I'm surprised that fundamentals and energy and financials would be off today. You have People's United down over 2%, or over 4 and 1/2%, excuse me. And Goldman Sachs down over 3%. Goldman Sachs forward PE is a single digit. Both those have good years, I mean good yields.

Goldman Sachs at 2%. People's close to 4%. There's no reason for that and you still should have a good rotation into consumer staples like Walgreens or CVS. So it doesn't make a lot of sense on some of this. But banks have been a fear trade for a long time. Energy is also a fear and ESG trade.

So that's going to be-- there's going to be some really good times to buy into those. And anytime it's fear and not fundamental when we're having a rotation into fundamental, that's a great time to buy.

- You also brought to our attention an event that happened, you called it a big blockchain. Event, which took place just yesterday. Can you share that with the rest of us? Why it was big?

DORY WILEY: Yeah it looks like a Steve Jobs event. You know, it was amazing. Tacit, the Blockchain company, that does signature and customers. They are the first Blockchain payment system in the banking industry. And they had an event, the very first bank to bank Blockchain payment between two banks, you know. They

Had over 60 banks there. They had over 100 banks on the web. There was some limited press there. But it met some big fanfare and a really revolutionary change in the banking industry, when you think about getting Blockchain into a regulated environment.

- Kevin, I'm going to let you pick. But my question is going to be about financials. But if you want to go somewhere else, you go for it. Given what Dory just shared with us about the fears with financials and then what's coming down the pike, whether it be the use of more efficient payment systems or the regulators clamping down, should I as an investor, fear the financials? I mean that sector was down more than 2% today.

KEVIN SIMPSON: No not at all. And we could stick with any theme you like. Adam, I'm here at your beck and call for any topic there is. But I agree completely. I mean, you're looking at Goldman Sachs. I think they increased their dividend by 50% this year. Single digit moving forward in terms of earnings, I mean, it's practically unheard of.

So when I'm thinking about building quality, these are the names that I want to own. These are the dividends that I want to collect and enjoy. And these are the stocks again that in a rising interest rate environment will benefit. And we're going to have it.

I mean, interest rates are going to be higher next year. They're going to go two, three rate hikes in 2022. We'll see another three or four more in 2023, all of which really sets up a great environment for quality stocks, profitable stocks, dividend paying stocks.

If you take the thesis and you look into 2024, you're looking at a target Fed funds rate of about 2 and 1/2%, still super, super cheap money, very, very profitable for banks. So it's a place I'd like to be. It's a place I am. It's a place we added to today.

- All right. Got to say thank you to both Kevin Simpson, Capital Wealth Planning Founder and Chief Investment Officer, Dory Wiley, Commerce Street Holdings President and CEO. And Dory, I just got to tell you, I used to wear bow ties. I used to tie my own bow ties. The whole team has given you a big thumbs up on that bow tie. Is that a clip-on or did you tie it?

DORY WILEY: No, no, I tied it. But I did worry a little bit with COVID. My bow tie wearing days have dropped tremendously.