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Until we see higher rates markets are in a pretty good place: Capital Wealth Planning CIO

Kevin Simpson, Founder & Chief Investment Officer of Capital Wealth Planning, joins Yahoo Finance Live to discuss market volatility, the tech sector, and market correction outlook.

Video transcript

ALEXIS CHRISTOFOROUS: But for now, I want to bring in Kevin Simpson, founder and chief investment officer of Capital Wealth Planning. So Kevin, I'm going to start-- I'm going to sort of turn this around for a minute and say, you've got this huge sell-off on Wall Street today. Are you a buyer right now? And if so, what are you buying?

KEVIN SIMPSON: Well, Alexis, I think whenever you see pullbacks, it makes sense to buy quality names. We've seen a rotation happening as far as a correction for the past few months. There were so many companies that have had 10% to 15% peak to trough pullbacks. This is one of the first times where we're seeing it with some of these larger names.

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So as far as where to put money today, I think your viewers can absolutely be looking at financials. Why financials? Well, they're beneficiaries of rising rates. We like Goldman Sachs. We like JP Morgan. Two companies that have a strong investment banking presence as well. Solid dividends, tremendous history of dividend growth. And in addition to the financials, also sticking with the thematics of higher rates and some inflation.

Also, energy names can be a great place to go. Now, we're seeing oil trending near a three-year high. So you wonder, is it time to be buying these names now? Do they still have room to go, especially after Jared's story on Ford and the electric vehicles? But we're going to have oil. We're going to have gasoline. We're going to have petroleum for a long time. And I think if you look at companies like Chevron and ConocoPhillips, sticking with that theme of dividends, dividend growth, rock solid earnings, you can do very, very well, layering in on those trades.

ALEXIS CHRISTOFOROUS: Yeah, you know, Chevron is actually one of the few Dow components actually in the green today, one of just three of those 30 Dow stocks that are actually moving higher. So what do you do with the tech sector right now? The FAANGs, the big mega-cap tech stocks getting slammed. And we know that higher interest rates, at least for that sector, makes their future cash flow less valuable. So what do you do if you're holding on to a lot of those big name tech companies right now?

KEVIN SIMPSON: Well, you don't sell them, Alexis. I mean, we did see a big jump in the 10-year. I think it was trading at 1.29 last week, and it's over 1 and 1/2 today. And on a percentage basis, that's a big move. And we've seen this before. And whenever you see higher interest rates or the threat of higher interest rates, there's a rotation out of technology for exactly the reasons that you mentioned, the higher cost of the future value of a dollar.

But I think people will always pay up for growth. And I like some of these names a lot. We are adding to Apple. We're adding to Microsoft on weakness. I think your viewers can do the same thing. You're getting these phenomenal companies a little bit cheaper. The volatility isn't gone. You know, we almost made it through September.

I was on about a week and a half ago, and we were talking about volatility and pullbacks. And for a brief moment, in early part of last week, we saw a 5% pullback. A lot of the big names weren't down as much as they are today. But we're still probably 4% from all-time highs. So I would not be a seller of big tech. And if anything, I would add to weakness 100%.

ALEXIS CHRISTOFOROUS: You speak of volatility. The volatility index, the so-called VIX up another 23%, 24% today. Do you think that the sell-off we're experiencing today is the beginning of something bigger, something more sustained? And I'm really talking about that correction that so many market watchers have said we're going to get here in the third or fourth quarter.

KEVIN SIMPSON: Yeah, I'm not in that camp, Alexis. I was saying a 5% to 10% pullback would make sense. We had a 5% pullback. Who knows? We may get another 5% to 10% here. Got a lot of things happening in Washington that are causing angst. We've got the delta variant, which is hurting the supply chains, which are going to hurt earnings. We've got the higher interest rates. We've got lots of things happening with the Fed.

So seeing volatility, you're seeing the VIX at 22, although that sounds like a big number on a percentage basis. You're right. It's probably up over 20% today. Still, relatively speaking, over the past 52 weeks, we've seen that volatility index spike a few times. It's a great reason to write covered calls for sure. That's what I'm doing. I think you could see more volatility continue. October's still been historically a month of cascade and waterfall declines, although I think September historically is the worst month. We have a few days left.

I think volatility is here for the foreseeable future. But ultimately, I think markets end the year around this level, if not a little bit higher. And I don't see a massive correction where that big pullback that some pundits are talking about. Even with a 2% 10-year, that's still almost 0%. Like, it's really free money for people. So until we see higher rates, I think markets are in a pretty good place. And as far as what we're hearing from the Fed, we're not going to be seeing those higher rates for at least another year.

ALEXIS CHRISTOFOROUS: Yeah, we're still chasing yield. And it looks like the equity market, by and large, still the place to get it. Kevin Simpson, founder and chief investment officer of Capital Wealth Planning, thanks so much for stopping by.