Investors ‘have a pessimistic view’ going into 2023 amid Fed tightening, strategist says

Brian Vendig, President at MJP Wealth Advisors, joins Yahoo Finance Live as he discusses the major theme in markets for next year: The Federal Reserve’s plans on tackling inflation.

Video Transcript

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BRAD SMITH Let’s move on to the markets at the end of the year. There is a lot to think about for investors heading into 2023. Brian Vendig is president of MJP Wealth Advisors. We are glad to have you join us. Is there a major theme that you would like to see us leave behind in 2022 or 2023?

BRIAN VENDIG Good morning Brad. I’m not sure if we will be able to get past the Fed’s theme about what they’ll do in 2022. That theme, which is the Fed’s vision of inflation, will still be the dominant song in 2023, however, I think it’s still the main tune. Are they doing enough to combat inflation? Is there too much they are doing to combat inflation?

I believe that investors are more pessimistic about next year than ever. They think the Fed is too aggressive in limiting interest rate increases. The trillion-dollars that will be rolling off their balance sheets over the next twelve months, I’m sorry.

So, I believe that once we reach the end January, we’ll hear Fed talk about interest rates and outlooks again. The market estimates suggest that most expect the Fed will change its tone or lower rates by the middle of next year. There’s a higher chance that the US economy is slowing, and that this will happen. Maybe we’ll see a recession.

In the short term, I think you’ll hear the same story in the next couple weeks and indefinitely during the Q1. Volatility in markets. Multiple compression of high-value stocks is a concern. Look for companies that will support dividend growth and free cash flow to help you get through these uncertainties.

BRIAN SOZZI Brian, which stocks have suffered this year? I’m focusing on big-cap tech. Would you consider buying those stocks in January?

BRIAN VENDIG Brian, I think it is still a bit early to discuss tech stocks. They are definitely appealing, especially the large mega-cap tech stock. You know that many of the concerns and problems and valuations have been priced into some of those stocks, especially in consumer discretionary. We know that the NASDAQ and tech stocks are trading down, even though we looked at December for an example.

That’s my concern, because we know the Fed will raise rates by 50 to 75 basis points next year. Also, we must not forget about the story regarding inflation and labor market. This again raises valuation issues.

So, I would still recommend that clients tilt their portfolios. And that our audience consider dividend payers, the sector with high free cash flow yields, and companies that will help solve the European energy crisis. As a way of sort of getting through this, I would still consider financials and consumer staples.

Brian, I like tech long-term, so that brings me back to my question. However, I’m still cautious in the next three to 6 months.

BRAD SMITH Talk to your clients and those who are asking questions about their attention in 2022. It’s just something that might be a sideshow. What would be my New Year’s Resolution as an investor? Not to pay attention to any one thing in this market?

BRIAN VENDIG Let’s avoid speculation-based investments. There were a lot of people who, I believe, heard about certain things and saw historical numbers. They were interested in those things because of the dramatic decline in value of some assets, from their 52 week highs to where they are today.

Clients will be able to digest this adjustment and market valuation, which I think is a good thing. It is important to remember that investing perspectives are based on fundamentals. It is important to focus on the things that will support income generation.

Cash is becoming more important. Short-term treasuries, short-term municipals and dividend payers are all attractive options. Keep in mind that it’s best to avoid anything too good to true. Let’s instead focus on the basics for the balance.

BRIAN SOZZI These are great words of wisdom. Brian Vendig is the president of MJP Wealth Advisors. It’s a pleasure seeing you. Happy New Year.

BRIAN VENDIG Happy New Year.