'I think the market is going to take a break here for a while': Annandale Capital CEO

Annandale Capital CEO George Seay joined Yahoo Finance Live to break down his thoughts on the tech sector and what investors can anticvipate going forward.

Video transcript

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SEANA SMITH: We've got just under 20 minutes to go in the trading day, and you're looking at a mixed picture. We have the Dow up just around 45 points. The S&P and NASDAQ, though, in the red. And you can see the Dow off its highs of the day.

Here to talk a little bit more about today's action and some of the trends he's seeing in the market, we want to bring in George Seay. He is the CEO of Annandale Capital. George, great to see you again. Let's start with one of the big stories of the day. And that is-- that, of course, is the bank earnings. Goldman is the big reason why the Dow is holding on to gains today, with shares up just around 2%. How are investors looking at the strong reports that we got out from some of those big banks this morning?

GEORGE SEAY: Good afternoon, Seana. I think investors are blown away by the earnings. They're significant, and the trading desks added a lot to that and the taking off of the loan allowances off the liability sheet because they're not going to need them. But the reality is I think the market's tired at this point. If you look at it, we've gone from roughly 2,150 on the S&P to 4,100 plus in a year. And we basically have gone straight up this year as well. There's been almost no break in the upward movement.

I think the market is going to take a break here for a while. I look at Home Depot as a non-bank stock. In the last month, it's gone from 250 to 320. So it's nearly gone up 30% in a month. And I think there needs to be a pause that refreshes here. And I think you're going to see a lot of sell the news on earnings. Because JP Morgan's earnings were just astounding. They were so good, and that's such a powerful bank, and yet it's down today. And I think that's people who wanted to take a few chips off the table and watch for a while.

ADAM SHAPIRO: So help us understand when you say take the chips off the table and watch for a while. We're going to get Delta tomorrow. You know, perhaps we're going to find out that they are going to be cash burn positive going forward. United's already indicated they could, going forward, be cash flow positive. And, you know, the bad old days are in the rearview mirror. Are investors really going to say, well, I want to pause on that news?

GEORGE SEAY: Well, I think you've got to look at two different types of investors, Adam. And that's basically the institutional investor that has a lot of trading going on and not long-term holding going on and your retail and long-term investor who buy great companies and put them away. Anyone who owns JP Morgan in the next 10 years is going to make money. And the investors are going to hold on to it for most of that period of time. They may trim on the top or bottom end, depending on where they're at, or add. But there's a lot of people trading right now.

And I think people, when they see a run the kind we've had so far this year, they're going to look for reasons to take some of their winnings off the table because they're more incentivized to take short-term gains and do it in the short-term. So you've got two very different types of people buying and selling stocks. And Wall Street, the volume is overwhelmingly on the trading side. And we've had such a move this year. I think a lot of those people are going to raise some cash and watch for a while this spring.

SEANA SMITH: George, what about what's going on in the tech sector? Because the NASDAQ today under a bit of pressure, off just around 1%. But we have seen investors warm up to some of those big tech names over the last couple of trading days. Are you seeing any opportunity there in some of those larger cap names?

GEORGE SEAY: Well, that's a great question. I've been thinking about that because you saw a pretty significant sell-off in the big names this first quarter. Apple is down 9%. Amazon was down. They were trading very weak. And they've had a really nice snapback bounce right now. But I don't think they're going to get a whole lot more further progress. Their valuations are a cap to that. And interest rates going up are a cap to that. And I think you've seen a bounce.

But unless their earnings are so blow-out that people rally them even further, I think this rotation that's been talked about excessively the last five to six months from overpriced tech stocks and growth stocks into value stocks is going to continue. I think that has legs. And I think for people with a two to three-year window, that they ought to be pivoting to value stocks and small cap stocks and even some international stocks. Everyone's down on international stocks right now because the reopenings are going so much slower there. But the other side of that is that when they do eventually reopen, you're going to get a huge surge in those economies. And it's a delayed reaction. So I think the biggest gains might actually be in international stocks several months out.

ADAM SHAPIRO: For those of us who might want to stay in the United States, though, you pointed out that the SPAC phenomenon and the Bitcoin phenomenon essentially too much capital chasing, too few good ideas and will continue. Is that another way of saying when the tide goes out, we're going to see who's swimming naked?

GEORGE SEAY: There's no question that's a great question. And I think that there's going to be some of these SPACs. It's not, you know, the old classic Alan Greenspan irrational exuberance quote in 1996. And he was four years too early for the top of the market. So these kind of things can go on for a long time. And some of these SPACs have incredibly promising technologies, new businesses. And the growth rates are going to be absurdly strong. So they're going to keep going up even after they do these transactions because the potential is so high.

But the reality is, is that a lot of these companies are going to disappoint the market at some point. They're either never going to generate profits and real economic earnings for shareholders, or their growth is going to slow down. And those kind of situations can get hammered when that happens. So I think the tide will go out at some point. Economic growth will slow. Some of these stories will not work. And investors will get hurt then. So only people with a very, very high risk tolerance and a high level of knowledge of these kind of spaces should be trying to play those stories. Otherwise, it's gambling.

SEANA SMITH: Hey, George, when you take a look at the market overall right now, I think a lot of people are trying to figure out what the next big real risk is. What's on your radar for not so much the pause that you were talking about before, but if we could potentially see a pullback in the short-term?

GEORGE SEAY: Yeah, that's a good clarification because the pause is just a trading in a short-term factor. It's not a long-term substantive factor. And the long-term substantive factors are geopolitical risks, which don't seem likely right now, but you could eventually have a Ukraine or a Taiwan situation that could be highly disruptive or some kind of oil disruption. But the things I'm watching the most, Seana, are interest rates and inflation. And nobody's really buying the inflation story yet. But we're getting more and more data points that this could eventually be something very, very real.

And growth stocks just can't prosper if interest rates go up dramatically, and inflation heats up dramatically. And I think investors would be very well served to look hard, believe it or not, with the pandemic effects, at real estate and commodities and some of these kind of investments that historically have always done well in inflationary environments. And I would look a lot more skeptically at tech stocks trading at 200 times earnings or that don't even have any earnings yet and are relying on the argument of, well, interest rates are at 0, so the price of this stock could be infinite. I think that argument's going to get a lot tougher if those influences pushing us to higher rates and higher inflation bear fruit and come true.

SEANA SMITH: George Seay, always great to speak with you, CEO of Annandale Capital.