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Markets will remain sensitive to variant news, says market analyst

Brian Vendig, President at MJP Wealth Advisors, talks about how markets tend to overshoot both lower...and higher.

Video transcript

ADAM SHAPIRO: And let's bring in Brian Vendig. He is MJP Wealth Advisors. He's the president there. It's good to have you here. And one of the things that you've shared with your clients is that markets tend to overshoot in either direction historically. Now I think when you wrote that, we were talking about the optimism that we were going to finish this year in record territory. We should point out, even with what we saw Friday, that S&P 500 still up 24%. So what should we as investors consider when we look at the totality of Friday and today in the context of this whole year?

BRIAN VENDIG: Thanks, Adam. And happy holidays to you. I appreciate the question because I think we need to look at it in two lenses. The first is people are concerned about how we're going to finish the end of this year. And I think prior, when you receive that note, we're thinking about the market pretty much trading within a range as we move through the end of the year because we knew we still had policy debates in Washington. We know that we have a debt ceiling conversation that's happening and looking for extensions by the end of the week.

And then we got hit with this news as a reminder that we're still not out of the pandemic. So I think the fact of the matter is for the balance of this year, I think we still are going to be in that trading range because the market is going to be very sensitive to variant news and also news coming out of Washington. And we know the fed is also reducing some accommodation in the market as well. However longer term, we are still optimistic on this global recovery. And the reason being is that the fundamental economic data that is coming in as well as earnings numbers have been robust.

And even though right now, the variant news does seem to put a dent in that global growth story, I think we need to look at the measures that governments are taking around the world. And we're not all going back to March of 2020. Plus some of the news that came out even recently from the medical community and the health care community is maybe this variant might not be as bad as we thought on Friday. More data to come. But I'm still very confident about this recovery over the course of next year.

ADAM SHAPIRO: Brian, I appreciate hearing that. Because a lot of analysts were saying that before what we witnessed on Friday. And I think some are backtracking today and reiterating that they still agree with you, that that's what's coming. But then you take a look at sectors. Why would information technology today if there's any particular reason be performing so strong, say, over consumer discretionary? I mean, we're coming off of Black Friday. And we're in the middle of Cyber Monday.

BRIAN VENDIG: Great, great question, Adam. I'm totally with you. And I think the reason is primarily twofold. One, we've seen a macroeconomic correlation between the 10 year Treasury and overall technology stocks. And when the 10 year Treasury stays under around 1.6% on average, usually you see some good news coming out of technology and the IT infrastructure areas.

However, think about it longer term. Think about supply chain inefficiencies. When the variant, the concern with the variant taking hold is that that's going to add to our supply chain issues, might even add to some inflation concerns. However, the technology space is one area that can sidestep that. So I believe in a very short term window from Friday today. Investors might be thinking about supply chain risk and inflation risk and looking for companies that are able to sidestep that as well as have profitability and margin stabilization, which we know those large tech companies can provide.

ADAM SHAPIRO: When you're looking for investment return, I think one of the areas you're looking for is Europe, despite this latest concern over the COVID variant. You're thinking overseas stocks, specifically Europe is your preferred area to invest. What makes Europe attractive?

BRIAN VENDIG: Two primary reasons. First, when we think about overall international equities, they tend to do better when the dollar weakens. And we think as we move over the course of 2021 and throughout next year that there's a higher probability the dollar can weaken, which should help international equities, but specifically Europe. Because we favor more developed economies, Europe being one of them. They're participating in the export part of the world. They're supporting the supply chains to be rebuilt. Majority of their economies are export oriented.

And we think that bodes well as well as from a valuation perspective as compared to US equities.

ADAM SHAPIRO: When we look at ways to hedge our concerns over inflation or even our concerns over these markets, one area you're looking at people to consider in addition to commodities is lithium. And I was actually as you were just talking, I pulled lithium, Americas Corporation. You don't have to comment specifically on this stock. But it's up 14%. We've had their CEO join us in the past. What do you consider-- I don't know if there's any such thing as a stable hedge. But for those of us who get a little worried when the volatility is striking like it is, what hedges other than lithium should we consider?

BRIAN VENDIG: Great question again, Adam. I would say let's think about real estate. And I guess my comment around lithium is really it can be expanded to real assets. When you think about real assets such as apartments, life and health science building, industrial real estate, thinking about renewable energy and the need to improve the grid around the world. Some of these raw material components can definitely help. But a more stable hedge will probably be thinking about real estate and some of these infrastructure plays where academically they've shown to be a better hedge for inflation than both stocks and bonds.

And also it can provide a little bit of income along the way, which should provide some stable returns for investors. So hopefully that helps to clarify.

ADAM SHAPIRO: All right. Once again, we just want to remind you that Brian Vendig is MJP Wealth Advisors' president. We appreciate your being here and wish you this is the season of latkes and snow sugarplums, right? So happy holiday to you.

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