Bear market has ‘longer to go’ amid inflation, strategist says

Wall Street Alliance Group Partner Aadil Zaman joins Yahoo Finance Live to discuss bear markets, recessionary risks, consumer confidence in this environment, and the outlook for inflation.

Video transcript

- All right, getting back on the markets. They're still taking their cue on all things inflation and Federal Reserve. That raises the argument, folks, that for stocks to exit bear market land, inflation will have to cool down. Let's get into this more with Aadil Zaman, a partner at Wall Street Alliance Group. Aadil, good to see you here this morning. When do you think we'll see just inflation start to cool more broadly? And when will the market actually start to realize that is, in fact, actually happening?

- Great to be with you. So we think that this inflation is going to take time to come down. It's not going to be quick. If you look at the 30-year fixed mortgage rate, for example, is jumped up from 3% to north of 6%. But yet, housing prices year over year are still up. If you look at things like oil inflation, natural gas inflation, food inflation, those are things that the Federal Reserve has very little control over.

And globally, inflation is skyrocketing as well. You think we have it bad, look at Turkey. The inflation rate is around 79%. So for those reasons, we think that inflation is going to come down, we are headed in the right direction as shown by the PCE, but it is going to take time. And until then, the market is going to continue to be down.

- What is the reality of comments that we've already started to hear pour in from the likes of Jamie Dimon, from Elon Musk, from Mark Zuckerberg around what they're seeing in kind of the economic gloom, perhaps, that they're forecasting at this point in time?

- Yeah. So we think that the right now, Chairman Powell has made it clear that his priority is inflation, to control that, even if it lands us up in a recession. And we think that the next shoe to drop is going to be donward earnings revisions. And we are going to, as you mentioned, comments from Jamie Dimon and Elon Musk, we are going to start to hear more CEOs echo those comments. And we feel that could be the next shoe to drop in the market. And we have to remember that a bear market usually lasts for around 16 months. We've just entered this one. So most likely, we have longer to go over here.

- Is there anything positive you're seeing in markets?

- The positive thing, Brian, about bear markets is that it always creates opportunities, buying opportunities. Some of the stocks that are on our watch list that we like right now on this decline are companies like Amazon, companies like Home Depot, companies like Visa. And if you see people are splurging on traveling right now, there's something called "revenge traveling" where people are traveling because they couldn't during the pandemic. And that helps a company like Visa that benefits tremendously from cross-border travel-related spending.

If you look at a company like Amazon, the stock is down more than 30% year to date. A case can be made that the Cloud division by itself is valued more than what is reflected in the stock price. And home equities have soared North of $27 trillion. This would help a company like Home Depot because people can use that equity to upgrade their homes.

- OK. And so at a time where consumers still are going to have to navigate higher prices for those who, perhaps, are priced out of buying a new home, there's all of the other considerations because the necessities that you're paying for are costing more. And so what is the real confidence that a consumer has in this environment and where does that also impact companies margins at the end of the day too?

- Great question. So we think that as far as the consumer is concerned, their balance sheets are still very strong. Consumers are sitting on north of $2 trillion in savings. If you look at home equities, they've soared to a record north of $27 trillion. If you look at the unemployment rate right now, it's south of almost 3.6%. Contrast that to the previous recession where it was north of 14%.

So for that reason, we think that is one of the reasons why you're seeing that the housing market is cooling off, but it's not dropping off the cliff. And also, we have to keep in mind that we are in a housing shortage right now. For the past decade, there has been an under construction, which hasn't kept up with population growth.

- But just to follow on that very quickly here because in the event that people are, and households still have that savings, are they starting to tap into that savings is the question? Because not everybody is looking at their home equity and saying, all right, well to solve all the financial problems I might have, or to really get ahead of it, I'm just going to put my house up for sale.

- Yes. So people are starting to tap into their savings, people are prioritizing their spending. They're spending less on brands and more generic things, they're spending more on services. So they're prioritizing their spending. But at the same time for every unemployed person, we have two jobs available. The labor market is strong, the consumer spending is strong, and 70% of our GDP is consumption. So that's why we feel a recession, even if it happens, it's not going to be very severe.

- All right, we'll leave it there. Aadil Zaman, partner at Wall Street Alliance Group. Good to see you. We'll talk to you soon.