Transcript:

Caroline WoodsMy next guest says it’s time to deploy your cash. Eddie Ghabour is co-founder and CEO of Key Advisors Wealth Management and joins us now. Eddie, great to have you on.

Eddie GhabourThank you for having me.

Caroline WoodsSo, Eddie, you’re telling investors to buy the fear. We’re seeing some of that cash being deployed right now. Green arrows across the board. Make the case. Why?

Eddie GhabourYeah. Look, one thing we’ve learned over the years here, especially since post-Covid, is this market structure is change. It moves a lot faster. And if you just focus on fundamentals, you’re going to get left in the dust. You have to respect the market flows, the technicals. And right now the technicals are telling us because markets generally are forward looking, that over the next couple of months things are going to get much better geopolitically.

And prices of oil and inflation should start to stabilize and trend down. And this is why we think this market is catching a bit. So for those fortunate enough to have raised cash prior to the drop that we had, now they’re in a very strong position that we believe it is back to a risk on market. And you want to start buying dips in the areas that you’re underweight that you think can outperform the S&P 500.

And we did yesterday morning at the open when markets were down. We were fortunate enough to be able to deploy a decent amount of cash. And we’ll continue to do that over the next couple of weeks, because we think this market will absolutely be at, all time highs sometime in the month of May.

Caroline WoodsSo dig in. How should investors position right now? Where should they be putting money to work? Where are you putting money to work?

Eddie GhabourKnow the playbook, in our opinion, should be very similar to what it was coming into the year, which is the overweight, the economically sensitive areas. The top on our list is small caps. Small caps. We bought small caps yesterday. We think small caps, which was having a fantastic start to the year prior to the attacks, will now start to recalibrate, as it has called a major bid here over the last week.

We think the momentum is going to be very strong in the setup is fantastic for small caps over the rest of the next two quarters. Industrials are another area you want to get into. Again, the economically sensitive areas, a contrarian play in software. Software is the most hated area in tech. We have personally avoided software.

All of this year. And now you have an opportunity to get in. You look at the ETF, the IG, it’s down 20 to 25% on a year to date basis. It’s not for the faint of heart, but we are comfortable starting a position in software. On the tech side. And then the other area as well too, that you can look at.

We did not buy this yesterday, but taking a look at financials, financials generally will do really well as the economy picks up. And as the fed potentially starts to cut rates sometime this summer. So it’s going to be a risk on environment. And we think these areas along with international because international has taken a bigger beating than domestic with this geopolitical issues that we’ve had should all beat the S&P 500 in our opinion, and generate a lot of alpha for investors.

Caroline WoodsWhen it comes to software. Do you stock pick within that or do you just stick with the AGV?

Eddie GhabourYou know, for our clients, we’ll do a combination of both. I think when you’re first dipping your toes in the water for most investors, based on their risk tolerance, I think the IG has plenty of upside, and you kind of get the best of both worlds versus trying to pick some individual names. I know, a name that many people love is Palantir.

Microsoft has taken a big beating. We personally would lean more towards the ETF right now because we’re certainly not out of the woods. We’re still going to see some volatility. We still expect to see 2 to 4% pullbacks over the next couple of weeks. As we head into the end of April, if we get that, that’s when we would take a look at some of the more individual names because they’ll take a bigger hit.

But for now we would lean on the ETF.

Caroline WoodsBut I was taking a look at your notes and you’re actually underweight tech. So why step back from the biggest part of the market right now, especially given the fact that maybe valuations are looking a little bit better for some of the mag seven?

Eddie GhabourWell, we’ve been underweight tech since August of last year. August of last year we started taking profits from tech and we came into January very underweight tech. So we kind of got the best of both worlds in our opinion, where tech has really underperformed since last August as we rotated into economically sensitive areas, those areas were outperforming tech.

So this is the first time that we are starting to net increase our tech exposure since last summer. So for us, it was a rotational play. And going into the areas that the bar wasn’t set so high on earnings. And now we’re looking at some of this tech space that has just really taken a beating like software. So, we’re now comfortable increasing our exposure to tech.

We’re not going to go overweight tech because again, I think small caps and other areas will do just as well or better. The beauty of this market is it’s going to broaden out, which means you don’t have to be so concentrated in one area to outperform the S&P. And this broadening out to us being able to diversify versus being so concentrated, it should be music to investors ears.

Caroline WoodsWhat does that mean though, for investors who are heavily exposed to the S&P 500 and in turn tech, the fact that you think that small caps will outperform, what should they do.

Eddie GhabourSo again, they got to look at their tax situation and risk tolerance. But I mean if you’re just if that’s all you have in your portfolio and you want to beat the S&P, you know I think you got to look at the market signals and where we are economically. I mean, the market was pricing in rate hikes and a big deceleration because of what’s happened geopolitically.

And now we’re seeing this re acceleration trade happen. So taking some profits and rotating to broaden out your portfolio I think not only diversifies you but allows you an opportunity to level out your volatility. So you’re not so concentrated in one area and at the same time outperform the broad market. You know it’s very rare to get opportunities like this.

And so again it’s it’s a beautiful thing because for the last few years, you know, prior to coming into this year, tech was the only game in town. And now there are many other areas that you can go to, really get exposure to other areas and bring down the volatility of your portfolio.

Caroline WoodsWhat’s actually going to drive the market from here, though? Because we do have an S&P 500 that’s very close to all time highs. It’s now positive year to date. I know you said you can’t only focus on the fundamentals. But as you think about where the market goes from here what’s driving it for us.

Eddie GhabourSo there’s going to be a few things that drive it after we kind of get this, this relief rally. You know, a lot of folks were short going into last week. And then when we start to see things cool down geopolitically, you’re seeing a lot of short covering, which makes the moves that much more violent. You’re not going to see this type of straight up the rest of the year.

So now as we look forward, there’s going to be multiple things that move the market. Number one is we need to make sure that the dollar has peaked, oil has peaked, the VIX is peaked. I think we’re going to see a fed that starts cutting rates which adds liquidity. So I think you’re going to see liquidity increase in the market which will add fuel to the fire.

And then lastly earnings. I think you’re going to kind of start to see things focusing more on those things and less on the war as we head in to next month and the month after that. And if you have strong earnings with a dollar and rates and a stabilize with a fed, that’s cutting rates, that’s about as risk on for economically sensitive areas as you can potentially ask for as an investor.

Caroline WoodsAs well is down today pretty sharply. It’s trading above $90 a barrel though. So still what up 60% year to date. How should we be thinking about the inflationary environment and what would higher inflation break.

Eddie GhabourSo right now I think you’re going to see the inflation print next month still accelerate because you can’t ignore the fact that oil’s still substantially higher, even with today’s sell off than where it was a few months ago. But I think the fact of the matter is the market is looking through that data because it’s expecting oil to trend down over the next 3 to 6 months.

And I think that’s what you’re going to see. I think you’re going to see inflation accelerate again next month. And then in the month of May you’ll start to see stabilization. And then we should start to see a deceleration of inflation in regards to its acceleration. So you’re going to see it spike more and then head down.

And that heading down is what the market is looking at right now. If not it would have sold off last week. And with oil at 100 you would have seen bigger sell offs. Right now the market is telling you that the coast is clear for inflation. When we look three and six months out.

Caroline WoodsSo to sum it up, volatility in the near term potentially more downside. But ultimately you think this is a market that is heading higher.

Eddie GhabourYes I do I think this is a buy the dip market now. And my how fast things change. But you can’t ignore the market signals. So any 2 to 3% pullback. You see if you’re underweight and you have the right risk tolerance. I wouldn’t be buying that okay.

Caroline WoodsPerfect time to pivot to our rapid fire game of this or that. Quick questions quick answers. Are you ready, Eddie?

Eddie GhabourYes.

Caroline WoodsHere we go. This market, durable or fragile? Durable turning point or just a bounce.

Eddie GhabourTurning point.

Caroline WoodsThis year, single digit or double digit returns?

Eddie GhabourDouble digit. In our opinion.

Caroline WoodsAdd risk here or wait for a pullback.

Eddie GhabourAdd risk here and buy pullbacks.

Caroline WoodsGo all in or scale in slowly.

Eddie GhabourScale in over the next 2 to 3 weeks is beyond what our strategy would be. Don’t want to.

Caroline WoodsSell winners or buy losers? All right.

Eddie GhabourNow add to your ride your winners and sell your losers.

Caroline WoodsTech opportunity or risk.

Eddie GhabourOpportunity in the right sectors. In our opinion.

Caroline WoodsAnd that sector is software.

Eddie GhabourYes.

Caroline WoodsLarge caps or small caps.

Eddie GhabourSmall caps.

Caroline WoodsEquities or gold.

Eddie GhabourEquities. But I would replace your bonds with gold in our opinion.

Caroline WoodsSo best safety play in the market is gold.

Eddie GhabourGold. Yes. Gold to us is a great place to be. Yeah.

Caroline WoodsOne area of the market that’s still mispriced. Software highest conviction investment right now. Small caps economy heading toward a slowdown or staying resilient.

Eddie GhabourStaying resilient and accelerating in the back half.

Caroline WoodsSo fed hike cut or holes cut. One word to describe how you’re feeling about the market for the rest of this year.

Eddie GhabourVery optimistic.

Caroline WoodsWhat changes your very optimistic view.

Eddie GhabourIf this war, if this market’s wrong on the war and this war starts to get to new levels of height and other countries come in and takes oil back up to new highs, that will change the dynamic of this market. And we will have to pivot again.

Caroline WoodsEddie Ghabour Co-Founder and CEO, Key Advisors, Wealth Management. Thank you so much.

Eddie GhabourThank you.