Personal Wealth Management / Market Volatility

Fisher Investments' Aaron Anderson on Navigating Market Volatility | CNBC's Capital Connection 8/22

Fisher Investments’ Senior Vice President of Research Aaron Anderson shares his thoughts on recent Federal Reserve comments and his forward-looking stock market outlook. Aaron believes the Fed’s inconsistent messaging about its monetary policy intentions has influenced recent market volatility. While Fed Chairman Jerome Powell has maintained a hawkish tone on inflation, Aaron says many inflation gauges have been improving. According to Aaron, moderating inflation may provide the Fed an opportunity to do less than the market might currently fear.

Looking ahead, Aaron believes a stock market recovery may happen sooner than many investors anticipate. The stock market pre-prices all widely known information–such as headline fears like geopolitics, aggressive monetary policy, high inflation and COVID-19 lockdowns. Aaron says stocks could surprise to the upside based on several underappreciated positive fundamentals like strong corporate earnings and retail sales. For investors positioning for an eventual market rebound, Aaron reminds us that parts of the market hit the hardest in a downturn—Technology and Communication Services in this year—tend to rebound most as markets recover.

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Title screen appears, "CNBC First in Business Worldwide”

Followed by a title screen "Capital Connection"

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A man appears on the screen wearing a navy suit, standing in a news studio, and behind him four screens with news content being played.

He begins to speak.

Dan: Aaron Anderson. He's Senior Vice President of Research at Fisher Investments. He joins us live now from San Francisco. And Aaron, how would you characterize trading post Powell? I think it's been so interesting to watch the sectors and components of this market pullback that we've seen, I guess it goes back to that old saying, that old adage, you can't fight the Fed.

The screen was split in half and another man appears on the other half of the screen wearing a navy suit, sitting in his office.

He begins to speak.

A banner identifies him as Aaron Anderson, Fisher Investments.

Aaron Anderson: Yeah, nice to speak with you, Dan. I think describing it is interesting, is an interesting way to put it. It's been quite volatile, quite eventful, of course. And what I think this tells you that the Feds is that the Feds had a real communication problem.

On the screen a chart appears that shows the CBOE Volatility Index.

Aaron Anderson: I mean, for the market to react so dramatically to what was actually a relatively benign speech, I think tells you that the Fed has really struggled with describing what it intends to do. It's very hard for me to get my head around how the Fed can make the declaration that monetary policy is going to remain tight for some time on the one hand, but then on the other hand say that they're going to look at incoming data and adjust as necessary. Those two just don't seem to jibe with one another. And so, I think the Fed has really created a lot of uncertainty with its communication over the course of the last few meetings. And that's what the market's grappling with right now.

Screen is back in split-mod with both Dan and Aaron on each side.

Dan: One thing that Powell did say was that the next CPI print and of course the jobs data at the end of the week is probably going to help determine whether or not we see 50 or 75 in September. What's your view?

The screen changes to Aaron talking then to a Data-Grid in Dan’s studio showing the U.S Jobs snapshot from Aug to Jun average earnings and unemployment.

Aaron Anderson: That's a very interesting point because you could argue over the last few CPI reports, the PCE, which is the Fed's preferred gauge, of course, those have actually, been heading in the right direction here recently. And so, if you relate that back to Powell's speech the other day, we've actually had some positive data. We've had some signs that inflation may have peaked, seems to be moderating, and yet there seems to be this hawkish tone all of a sudden. And so, I would expect that data continues to head in the right direction.

Again, the screen changes to a data-grid of the U.S Treasury Yields for the last 30 years span.

Aaron Anderson: I do think that we're probably worse past the worst of inflation numbers. If you look at energy prices, they've been coming down. If you look at supply chain issues, they've been improving quite a bit here recently. You still have a lot of pressure on service prices, that's true. But I think overall inflation ought to be headed in the right direction over the course of the rest of the year.

On the screen, another data-grid appears, this grid is showing wall street close ratings of many major companies.

Aaron Anderson: And so, I think ultimately that should mean is that the Fed actually has an opportunity to do less than the market might be fearing right now. But that doesn't seem to be the message that they're sending in some of these recent speeches. But as we've seen over the last few months, that can change quite a bit from meeting to meeting.

Screen is back in split-mod again with both Dan and Aaron on each side.

Dan: So, Aaron, walk me through how you're allocating in this environment. September, we know historically one of the worst months for the S and P 500, for example. So, should investors be rethinking the trading strategy, rethinking how they're allocating risk in this environment right now, given the Fed is unlikely to take its foot off the gas, at least according to what Powell has said on Friday?

The screen changes to Aaron talking then to a Data-Grid of U.S Fair Value.

Aaron Anderson: Well, I think a lot of worry is already baked into markets. If you look at how long the market has now been worrying about the Fed, worrying about interest rates, monetary policy, all of that, it's been going on for quite some time. And although clearly it still has market moving power, I think eventually the market becomes more comfortable that maybe the Fed doesn't hold all the cards, that maybe how the market does isn't just about the Fed, it's about corporate earnings as well. And those have been holding up quite well. It's about margins. It's about sales. All of that looks actually quite good. What I see today is a lot of attention paid to the negatives in the economy and worries about geopolitics and Fed policy and a number of other issues.

On the screen a new chart appears that shows the U.S Dollar Index stats over the months.

Aaron Anderson: COVID, as you've been discussing here this evening, not enough attention paid to some of the positives that are out there. To me, that says there's a real opportunity here for upside surprise, that maybe as some of that negative focus shifts to be more positive, that that can help fuel a market recovery here.

Again, on the screen, another data-grid appears to show the S&P Sectors stats.

Aaron Anderson: And so, you're right to say that historically September has been one of the more choppy months within the markets. But I don't think in the midst of a market recovery that we're expecting here that that should really be the primary consideration. I think the way to position a portfolio right now is it expecting with some volatility, of course. And whether we've seen the bottom of the market or not, I certainly don't know. But I think a recovery is coming more quickly than many investors can anticipate right now. And focusing in on some of those areas that you've mentioned tonight, things like technology that have been hit very hard. Usually, it's the parts of the market that get hit the hardest in a downturn like we've experienced. Those are the parts of the market that tend to rebound most once the market does start to recover. And of course, that includes a lot of technology and services, but it also includes a lot of industrials, a lot of banks, some of the value segments, the market.

Again, while Aaron is speaking a new chart appears showing the progress of S&P Technology over the months.

Aaron Anderson: And so, we see a lot of opportunity in a number of different sectors and industries.

Screen is back in split-mod again with both Dan and Aaron on each side.

Dan: A stroke of optimism, if you will, Aaron. All right, we'll leave it there. Appreciate the conversation today. Thanks for joining us. That's Aaron Anderson of Fisher Investments, live for you out of California.

Title screen appears, "CNBC First in Business Worldwide”

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