Market 'getting repriced' on Russia conflict, Fed policy expectations: Strategist

Emily Bowersock Hill, Bowersock Capital Partners Founding Partner, and Ryan Payne, Payne Capital Management President and podcast host, join Yahoo Finance to discuss how markets are responding to geopolitical risks, economies reopening, and Fed policy.

Video transcript

BRIAN CHEUNG: Of course, a rip higher in markets reversing a lot of the concerns that we had seen in the past few days over Ukraine and Russia. So let's bring in our markets guest for the hour, Emily Bowersock Hill over at Bowersock Capital Partners, founding partner, and also Ryan Payne, Payne Capital Management president and "Payne Points of Wealth" podcast host. Great to have both of you on the program.

I just want to start off with you, Emily. Obviously, we are watching markets in the green so far. People kind of optimistic that maybe the concerns over a spat between Russia and Ukraine might not happen with some of the positive developments. What do you see on that front? How sensitive do you feel US equity markets are still to news coming out of Eastern Europe?

EMILY BOWERSOCK HILL: I think equity markets were on edge anyway. And so they are reacting more than they like, than they typically would to geopolitical events. Obviously, the Russia-Ukraine tension is more than just a standard geopolitical event. But I frankly think the Biden administration has actually handled this quite cleverly, almost narrating it like it's a sporting event. And I think that they may succeed in neutralizing some of this tension, which obviously would be good for markets. I'm not surprised to see this surge today.

AKIKO FUJITA: Ryan, you know, I'm thinking that your energy holdings have looked pretty good over the last few weeks or so. But we're seeing declines today. And I wonder to what extent we're likely to see a more meaningful pullback here if, in fact, it does appear as though both sides are able to pull back from the brink of a war.

RYAN PAYNE: Well, I mean, it looks like we're getting repriced on that today, right? Obviously, we had the fear of war yesterday. Markets were down big. No fear of war today, markets are up big. But I think the bottom line is what's interesting about this whole pullback that we've had here, it's really been concentrated in growth. I mean, if you look at value stocks, they're barely down for the year. Emerging markets are actually up for the year.

We know commodity prices through the roof with one of my great calls on your show. And I do talk about it on my podcast, "Payne Points of Wealth," one of the fastest growing podcasts in America. Whereas growth, on the other hand, has gotten trounced here. If you look at anything as like a disruptive technology, like that Cathie Wood's ARKK fund, it's down 50% from its peak. And the NASDAQ is still down, like, 12%, 13% for the year.

So I think what's really going on here if we look at the big picture is this narrative of interest rates are going higher. And you're getting a big repricing of those growth assets that I've warned about on your show time after time again. And it's all kind of coming to fruition right now.

BRIAN CHEUNG: Ryan, as a follow-up here, I mean, your note noted three R's, right? Raising the policy rate, repricing of stocks, and the Russia conflict. But one R I didn't notice was the reopening of the economy. And it's interesting because today, we're getting a lot of travel stocks, Airbnb after the bell. We got Marriott before the bell today. How important is that thesis or because of all the concerns and the macro picture, you want to stay away from those types of equities?

RYAN PAYNE: Brian, I totally regret I didn't add that R to my thesis. It would have been four Rs. Because yeah, you're right. The reopening is huge here because that's the thing, is, if you think about all the lockdown restrictions globally right now, we're still coming off of those. And that's why I think this summer, you're going to see the economy boom, right? Because there's still so much pent-up demand. The middle class is still sitting on a trillion dollars that they didn't have before the pandemic because of stimulus. We know wages are going up.

And, you know, contrary to popular belief, inflation is extremely high right now with the Producer Price Index coming out today. But inflation is going to slowly come down this year, but wages are going to remain high. So you've got consumers with money in their pocket. Their wages are going up. They're just, like, amping to do things. And this summer, you know, you're going to see-- you've already seen the polls on this. People say, you know, it's becoming endemic. We accept the virus. We're going to live our life, which is going to be a huge spending boom, which is phenomenal for earnings, which is going to drive this market higher if you call it all that.

AKIKO FUJITA: Emily, you know, we've had a lot of guests on, you know, who talked about the fact that they're turning bearish on US equities. They see more opportunities outside of the US. It sounds like you're looking to emerging markets, too. Can you talk a bit more about what opportunities you see there? And how much of your exposure to the US is getting moved in the other direction?

EMILY BOWERSOCK HILL: International stocks generally are trading at about a 30% discount to US stocks. So we did not see the surge in values that we saw in US growth stocks last year. So they're still really good opportunities, especially on the value side. And you've got good cash flow, good dividend paying stocks. With regard to emerging markets, I think you need to proceed with a little bit more caution.

But as Ryan points out, emerging market stocks are actually up for the year. I think that is partly because they had such a terrible 2021. And the Chinese stock market really struggled. So you have much better prices in emerging markets. And also, you know, you've got a country like China that is actually starting into an easing cycle, while the rest-- while the developed world and the US, and soon Europe, is going into a tightening cycle.

So that should be a tailwind for stocks in China and potentially for emerging markets generally. Now, again, I would tread a little bit cautiously in re-entering emerging market stocks. But international stocks generally are absolutely at a better price than US, and particularly, US growth stocks.

BRIAN CHEUNG: And I'll turn this over to Ryan to respond to that. I mean, you know, she kind of referenced your thesis there with regards to emerging markets. I mean, you feel the same way?

RYAN PAYNE: Emily, it just warmed my heart to hear that because, you know, most strategists out there aren't talking about international. And it's just so undervalued here. You look at growth rates in the emerging markets. They're going to be faster than US. They've got cheaper multiples. And I think that's really significant, what Emily just said, is, as we're tightening, they're actually loosening their policy because they already tightened.

And if you look at China specifically, loan growth is up big over the last 12 months, which bodes well for all the world. And if you look at the UK stock market right now, it's actually up this year as well. It's outperformed the US market over the last three months. And you've got a lot of old school industries, right? You've got energy, financials. You've got materials, whereas if you look at the major US indexes, like the S&P 500, it's like 35%, 40% tech, again, which is experiencing this repricing.

So I think you've got to have money overseas. The dollar is actually starting to weaken as well, which is very beneficial for those overseas assets. So you want to have a value oriented international portfolio. That's the place to be this year. Well said, Emily.

BRIAN CHEUNG: All right, good note to end on there. Emily Bowersock Hill, Bowersock Capital founding partner, and Ryan Payne, Payne Capital Management president and also host of that podcast, "Payne Points of Wealth," thanks so much for hopping on.