Why this is not the time to sell tech stocks

Brian Belski, BMO Capital Markets Chief Investment Strategist, joined Yahoo Finance to evaluate how inflation concerns are impacting the market.

Video transcript

SEANA SMITH: Let's talk about the markets huge drop today because you're looking at losses across the board, stocks sliding after inflation number jumps to its highest level that we've seen in 13 years. We want to bring in Brian Belski. He's BMO Capital Markets Chief Investment Strategist. And Brian, we see inflation clearly spooking investors today, it's a big reason that we're seeing that sharp move to the downside, especially in some of those big tech names. From your view, though, because there, of course, is there debate out there that we've been talking about. You and I have had this discussion in the past whether or not that this will continue to trend higher and whether or not this move is here to stay. What do you think right now?

BRIAN BELSKI: Thanks for having us, Seana, and it's great to be on Yahoo. And I hearken back to 1994. Ben Stiller directed a movie called "Reality Bites." And reality is biting the market here today. But it's not like we didn't know this was coming. And I think the biggest issue with what the market is doing yesterday and today is, it's focusing too much on what has already happened in terms of inflation and still isn't addressing the ebbs and flows, let's call it, of momentum type trading on the last, let's call it, three to six months.

Remember, I think the attention deficit disorder of our business, meaning financial services, we forgot that the Fed in August during the Jackson Hole meeting changed its mandate in how it's looking at interest rates and moved away from inflation and toward employment. That should have told everybody and their mother brother, sister, cousin, and uncle that inflation is going to get hotter than everybody thought.

And it seemed that we forgot about that because we were too busy worrying about the election. Then it was too busy worrying about the blue wave. Then it was inflation fears, and we were missing value. What's so interesting about this, Seana, is we hated the market all the way up. And we still hate the market being down almost 2% today.

So we think this is an opportunity. We think investors should be diversified across a lot of sectors, while focusing on the next 6 to 12 months, yes, on more cyclical areas like financials, consumer discretionary, materials, and industrials. But this is the time to kind of start your shopping list in technology. This is not time to sell technology. You should be more balanced in your portfolios overall. And let's not fight the Fed, Seana. Let's not fight the Fed. It's going to be on hold through all of this year and probably all of next year.

ADAM SHAPIRO: So when you say don't fight the Fed, I'm looking at the note that you revised your 2021 S&P 500 price and EPS targets higher. So I hear everything you're saying. I've had guests like you and others say, look, get ready for a correction perhaps this summer. But by the end of this year, S&P will still be 4,200 or even higher. Is that still where you're headed?

BRIAN BELSKI: Absolutely, and, you know, we're not market timers. We wanted to put the note out after today's events, but we put it out yesterday. Because, again, we are longer term investors. And I the problem with a lot of strategists and economists, quite frankly, is that they've never sat across the table from an investor. And we have the very good fortune of running nine equity portfolios. And we talk to investors all the time. And sometimes, we make mistakes.

And you have to sit across from investor and really understand what they go through in terms of investing. And for the long haul, this isn't about day trading stocks. This is about investing. And we think longer term stocks are higher. They're significantly higher three years from now than they are today. And we think the US and North America, in particular, are going to continue to lead the way, Adam. This is about earnings growth. And earnings did their job.

Given the fact that we're in a bit of a near-term news vacuum, no Fed meeting until June, no earnings news, really, until July, there was no doubt that the market needed to soften. And this is when you buy, when things are tougher. You don't buy and chase the market. You buy when you have an opportunity when things are getting rough. And things, obviously, have gotten a little bit more rough this week.

SEANA SMITH: Brian, another thing that you included in that note, you upgraded the S&P energy sector to market weight from underweight. Why does energy-- it clearly has been an underperformer previously, but why does it look more attractive to you now?

BRIAN BELSKI: Well, consumption wise, Seana, has surprised us, and notwithstanding the issues that we're having with respect to the pipeline that you talked about at the top of the broadcast. But really, supply a year ago was by far outstretching demand. And now demand and supply are roughly balanced. And I think that's a really big deal. And I do think that given the huge rebound in oil, I don't think we have a lot to go from here. I think the majority of the upside is done.

That's why I want to focus more on big cash flow delivery type names. US energy companies are more dependent on the price of oil. That's why they've done so well the last 12 months. But remember, it's 3% of the market. And you're talking about a stock like Apple or Amazon, which are well plus 5% of the market alone. So, you know, at the end of the day, should you be involved in energy stocks? Yeah, you should be more neutral, but that's really only 3% of your portfolio.

SEANA SMITH: Brian Belski, always great to speak with you, BMO Capital Markets Chief Investment Strategist. We'll talk to you again soon.