In the Media: Brian LIVE on Yahoo! Finance Discussing Investing, the Economy and Inflation

Brian Seay appeared on Yahoo! Finance Live to discuss Investing, markets, the economy, inflation and the Fed.

The economic data from 2/17/2023 confirmed our view that the economy continues to slow down from the post-pandemic boom. That is a feature - not a bug - of higher interest rates. The Fed has been clear that rates are still moving higher and will remain high for an extended period. Markets are finally starting to listen after a stubborn streak in January.

Inflation is moving lower - despite noisy economic data. It’s critical to step back in turbulent moments and keep a long term perspective. Even if the labor market remains tight, there is a path to sub 4% inflation (measured by PCE) by year end.

We feel the economic noise, not longer term trends and historical data. It’s important not to make investment decisions based on feel. Stick to long term data and facts. Even if we have a recession or really slow growth, history suggests quality growth stocks may outperform the traditional value shelters we want to hide out in.

See the video and transcript of the full discussion below for more!

Video Transcript

JARED BLIKRE: And it looks like we got some stocks closing the day higher, investors waiting for what is next here. But as we are considering what's next from the fed, Seana.

SEANA SMITH: Yeah, the latest housing data, Jared, was one of the main things that the street was looking at today. And when you take into account the activity that we've seen, this is just the latest evidence here that the economy is resilient. Take a look at people buying homes once again, with jumping about 8.1% month over month. You're looking at pending home sales.

So month over month increase, though it is off 24% on a year-over-year basis. So here to discuss what this means for the market, what this means for fed policy going forward, we want to bring in Brian Seay. He's the Capital Stewards founding partner. Brian, great to have you here.

So of course, the real estate market maybe not be the best thing to point to here. But pending home sales was stronger than expected last month, how are you looking at this just from an equity perspective and the activity that maybe we'll see in the markets here going forward?

BRIAN SEAY: Yeah, so on pending home sales, we sort of suggested back in December, it seems like the market is bottoming out. The housing market, the underlying fundamentals, are pretty strong. There's a lot of folks that are starting to form families, and they need housing. It was under built for a really long time in the United States.

And so the sort of pessimists got really pessimistic back in November and December when mortgage rates were kind of at all time highs. But now those have come down a little bit. And so the housing market in particular is kind of bottoming out. And it's going to go maybe sideways from here. But we're done. And we're not going to see some sort of crazy correction like we saw back in 2007 and 2008.

Overall, when we think about the economy, our view is that it's slowing down, which is exactly what the fed is trying to engineer. We're not in a recession, but the economy overall is slowing down from really high levels coming out of the pandemic.

JARED BLIKRE: And Brian, we're talking about various inflation measures here. So-called super core that excludes the housing sector when you're talking about services inflation. That ticked up, I believe, to 4.8% with the latest PCE data that we got last Friday. Depends on how you measure it. But it's certainly not dropping at a fall-- at a quick rate here. What do you think that says, given that that is the preferred, at least one of the biggest measures that the fed is looking at right now?

BRIAN SEAY: Yeah, the fed does follow the PCE measure of inflation. And again, I think it's really important that we look at any economic data, and we back up, and we look at trends over longer periods of time. It's really, really difficult to guess which way economics is going to go this month or next month. You've got to back up and look at longer term trends.

And when we look at longer term trends, we see PCE going lower. It peaked at almost 7% last year. Now it's down to 5.3%. And it's not going higher. It's moving lower. The labor market certainly remains really tight. And I expect that that's going to continue to be the case. There's no magic that's going to happen as we get into the second part of this year that's going to produce more workers that are going to come back into the market.

But even if the labor market remains where it is now, even if it remains really robust, if we see housing, food, energy, consumer goods prices continue to decline, then we can get to the high 3% range on PCE by the end of the year. So we can get to a more reasonable level of inflation.

And that can be a pretty good environment for the economy. If you just think about the 1990s, we had inflation levels 3% to 4% on a regular basis. And we were just fine.

JARED BLIKRE: And Brian, when we think about the fed's terminal rate, that is they're raising short term rates, and eventually, they're going to get to a level at which they stop. And that's kind of what the market has been trying to figure out. It looks like the street expectations and the fed's expectations are somewhat in alignment right now. But we're going to get a brand new summary of economic projections from the fed at their next meeting in March.

And a lot-- there's a lot of chatter that that's going to move up, that their expectations for what they're going to do for their terminal rate are going to move up even further than they are now. So just wondering how the market can-- you expect the market to digest what's going to happen at this next fed meeting.

BRIAN SEAY: Yeah, I think the fed has been really clear since the beginning that inflation is high. It's a problem. They're going to continue to raise rates. And then it's going to take a long time for the market to correct and for inflation to fall.

The market has struggled to believe that narrative coming out of the fed. And I think what we've seen over the last couple of weeks is the market coming around to the fact that it is going to take a while for inflation to come down. Because even though some of those metrics that we talked about a minute ago in housing, and food, and energy, and some of those things are coming down after some shocks last year, that core labor market still is really, really tight.

So as we come in to the next fed meeting, I think the market has gotten that message finally. I think we see longer term interest rates starting to go up and sort of price in higher rates for longer. And so I don't expect there to be a significant market reaction just because the fed sort of says what they've been saying for a long time, which is that they're going to take rates a little bit higher from today's levels probably and leave them there for a period of time.

And when they release the summary of economic projections, I would expect those to show similar things as well. So no huge market reaction coming based on that. But that probably would have been a completely different conversation six or eight weeks ago when the market still sort of was fighting the fed, as they say.

JARED BLIKRE: Yeah, I would agree there. And just thinking about some of the investments that might do well under what you're projecting, what are you looking at here? What kind of opportunities for investors?

BRIAN SEAY: Yeah, so I think it's really important to look back at historical data when we think about what does well in periods of market turbulence. I think when we look going forward, we say, hey, rates are higher. Maybe we're going to have a recession. Maybe we're not going to have a recession. Everybody wants to go into those more traditionally conservative sectors, into utilities, into consumer staples, things like that.

And the reality is over the last month as we've had some market volatility and last week, when we had market volatility, the S&P 500 growth index outperformed the value index here short term. And that was also true during the financial crisis and during the COVID recession. And by the way, there's a big difference between quality growth and sort of venture-- venture companies with no profits, no cash flow, where all of that economic benefit is further out.

When we think about companies that are profitable today that are growing their business regardless of the economic environment, that's really the place that we want to be as we go into sort of a slower growth period regardless of whether we end up having a technical recession or not.

SEANA SMITH: All right. Brian Seay, we've got to leave it there. The Capital Stewards founding partner. Thanks so much.

Transcript Courtesy of Yahoo! Finance