In this Jarvis Update episode, Brian Dress, CFA (Director of Research at Left Brain) and CEO Nolan Langford discuss whether the market is bottoming after a strong rally following the Federal Reserve’s first rate hike in years. They begin with brief promotional announcements for an upcoming webinar, newsletter, and portfolio reviews. The market recap notes a >3% rise in the S&P 500 and Nasdaq, a modest gain in the Russell, and a VIX below 30. Topic 1 – Fed Meeting & Interest‑Rate Outlook: The Fed raised rates by a quarter‑point, signaling a possible total of seven hikes in 2022, pushing the funds rate toward 2%. While conventional wisdom expects higher rates to hurt equities, Dress cites research (linked to a Forbes article) suggesting markets often perform well after the first hike, as uncertainty recedes. Both hosts view the meeting as a confidence boost and a sign of a market bottom. Topic 2 – China Volatility & Regulatory Risk: The China Internet Index (KWEB) is down ~75% from its 2021 peak, reflecting a year of regulatory headwinds and fears of U.S. delistings. Recent large moves in Alibaba (+37%) and Baidu (+39%) illustrate volatility. Langford argues that despite cheap valuations, the unpredictable regulatory environment makes China a risky investment, preferring U.S. equivalents for predictability. Topic 3 – Retail & Consumer Discretionary Valuations: Dress presents low P/E ratios for several retailers (Macy’s 6x, Crocs 7x, Best Buy 10x, Bath & Body Works 10x, Target 15x, Lowe’s 19x) and notes the consumer discretionary ETF (XLY) is down 16% YTD but has rallied ~10% since early week. Both hosts see attractive upside, especially in names like Target, while acknowledging macro headwinds (inflation, supply‑chain, consumer confidence). They tease upcoming research lists on high‑yield bonds and “bounce‑back” stocks for subscribers. The episode concludes with a call to action for newsletter sign‑ups, research service subscriptions, and audience engagement.
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Are markets starting to show signs of a bottom? We answer that question and more on this week's Jarvis Update. I'm your host, Brian Dress, Director of Research here at Left Brain, joined by our CEO Nolan Langford. Nolan, welcome to the program.
Hey Brian, welcome and happy St. Patty's Day to all the viewers.
Great, Nolan. Before we get into our 3 topics, a few announcements. The first announcement is our April 3rd Zoom event. We'll put the Eventbrite link in the description below. We're going to be discussing income securities and dividend stocks, so we invite everybody to join us for that free webinar. We'd love to see you. We also have the Jarvis newsletter. Um, we distill a lot of our ideas and thoughts for the week's investments in the Jarvis newsletter. And we invite you to make sure you sign up to receive that newsletter in your inbox every Saturday morning. As an inducement, anybody that signs up by the end of this weekend will receive our watchlist of short-term high-yield bonds that we'll be watching over the next few months. So make sure you go ahead and sign up for that. And then finally, portfolio reviews. We, uh, we manage portfolios here at Left Brain. So we invite you to click on the link in the description below and sign up for a free portfolio review today. With that in mind, let's get started. All right, so we'll start with our market recap. Uh, pretty strong week of action this week. S&P and NASDAQ were up, both, both up more than 3%. S&P and NASDAQ were both up more than 3%. We had a strong rally on Tuesday afternoon and Wednesday and a lot of, a little bit of follow-through on Thursday. We'll show you the chart here on the screen. Um, Russell was also strong, up more than 2%, but lagging, uh, the broader indexes. We had the Federal Reserve meeting this week. It was the first hike in a number of years. Also, major volatility in the oil markets continuing on, uh, as well as other commodities. So it's something we've been watching. And in general, volatility stays a little bit high, but it's back below that Mendoza line of 30 on the VIX index. Which is a good sign, and we'll be watching that over the next few weeks. With that all in mind, Nolan, what are your general thoughts on, on the market today?
Yeah, very strong action. I agree with you, very strong rebound action. I wouldn't say on the week, we had a strong 3 days. Monday was a complete disaster, but Tuesday we showed a nice recovery, followed that through with Wednesday. The Federal Reserve Board met and gave us the quarter-point interest rate. The market breathed a sigh of relief. And that continued today. And we had a double dose of good news yesterday. It wasn't just the, um, the quarter-point interest rate increase that the, uh, the Fed has been signaling, but also the China regulators, uh, came out and spoke in favor of the markets and supporting, uh, securities markets. So a lot of good news. It was really good to see that investors took it in stride and bid up securities prices. So a lot healthier action this week.
Thanks, Nolan, for teeing up all of our topics right there in one sentence. Uh, so topic 1, topic 1 was the biggest topic on every investor's mind this week, and that was the Fed meeting and the aftermath. Um, so as I said before, we had the first rate hike in a number of years. Fed telegraphing not only one hike this, this month, but probably around 7 hikes for 2022. So that would put the Fed funds rate near 2%. By the end of the year. I know that a lot of investors are concerned with interest rates going higher, and the conventional wisdom is, you know, stock market's going to struggle as interest rates move higher. But we challenge that conventional wisdom. We've done some research, and we're going to link this Forbes article at the bottom of the, of the screen here. Markets actually tend to do quite well after the first hike is actually announced. So a lot of that concern and consternation tends to take dissipate after the, the hikes begin. So that's something we're keeping an eye on. Nolan, what are your thoughts, um, your initial reactions on the, on the Fed meeting?
And they did what they said they were going to do. I guess the markets and investors were a little, uh, on edge to see if they would back off because of the Russia-Ukraine thing. Uh, it looks like they stood their ground and they're going to be data dependent. But right now I think we have those 7 interest rate increases priced in, as well as 3 for the '23 time period. So, um, they went according to plan, which is good.
Yeah, it's always kind of— the market hates uncertainty, and actually having the meeting this week, I think, did away with some of that uncertainty, and I think that may have added some confidence to investors. And let's answer the question that, you know, we started the video with. You know, are we seeing signs of a bottom in the market?
I'm going to say yes. It wasn't just tech, it's consumer discretionary. And even today we got some follow-through with energy. You have the Chinese shares that looks like they have bottomed and much healthier price action. And we haven't talked about earnings, but absolutely better environment.
Yeah, if you want to talk a little more about earnings, were there some earnings that stood out for you this week?
Well, there were a few, uh, talking about consumer discretionary. Today we got Dollar General, um, we got Signet today. And for those that don't know, uh, Signet all goes by the retail banners Zales, uh, Kay's, and Jared Jewelers. Better action there. And then in the, uh, unprofitable tech stock arena, PagerDuty earlier this week reported, um, and those shares were treated nicely. And earlier in the week we got Coupa uh, which is another unprofitable software company, uh, with good growth metrics, um, sold off very harshly on earnings on Monday, uh, but rebounded through the middle of the week when the other growth stocks took off as well. So, and then SentinelOne, which is another, uh, cybersecurity name, reported and initially sold off in after hours but ended up having a huge rally through midweek. So we're winding down with earnings, but the ones that we are seeing coming out have been very well received.
Expanding on what you said there, Nolan, my takeaway from this week and some of the action, especially in a stock like Coupa, is my sense is people are starting to look for bargains in, in that tech space, retail, and a number of other downtrodden sectors. And for me, that's, that's part and parcel for signs of a bottom. So we'll keep an eye on stocks like that. With that, we'll move to topic 2. So topic 2 is China volatility. This has been a big story really for the last year. China stocks— we'll put up the chart of KWEB. This is the China Internet Index. This is down as much as 75% from the February 2021 high. So just a terrible year in China stocks over the last 12, 13 months. And as you alluded to, regulatory environment is, is getting more difficult in China, or has been. There's been fears that U.S. exchanges will delist some of these stocks as a result of some of those issues. But also, as you alluded to, Chinese government is signaling an intention to pull back a little bit on the regulatory regime, and they definitely are showing that they don't want the stock market moving any lower. So And just as evidence of that, we saw a couple of incredible moves on Wednesday. Baba, Alibaba, ticker BABA, was up 37% on Wednesday. Baidu, BIDU, as you can see, was up 39% on Wednesday. These kind of cooled off on Thursday, but these are just incredible moves. So, Nolan, what are your takeaways on China and the events that we just witnessed over the last week?
Take them away. Like, that's the takeaway. I, when you mentioned that stat, the index is down 75% since their February '21 highs. I thought I read a stat earlier this week that said something like, if you go back and take a look at KWEB, it has erased all its gains since inception in 2013, which magnitude is breathtaking. Look, I looked at BABA earlier today, and if you look at the shares at their low, I think it was even at yesterday's pricing, you can go back to when they first listed and they've erased all of those gains. You're back buying it at the IPO price. It's unbelievable. And when you see shares move 35% in a day, you want to shake your head. That's not good. It's really not good.
So I think a lot of investors are probably thinking, is this a bargain? You know, obviously these stocks, these are quality companies. There are a lot of other things in play here. But in light of the fact that the government is so entrenched in terms of how the stocks perform, how the companies perform, do you consider China an investable place for investment?
Yeah, we've said for a while, you know, we generally focus on the, uh, the U.S. You can get sort of the same great tech exposure here in the U.S. And if you just look at small-cap growth stocks here, it's pretty much going to give you the same upside potential, but you don't have the regulatory risk, the legal risk, and the, um, you know, you have capitalism here, you have the rule of law. You just never know when you're going to wake up one day and the Chinese regulators are going to say something to decimate the industry. It's not just tech. Look at what's happening with the commercial real estate industry there. And look what happened in the education stocks in China last year. So, it's just one sector after another, gaming, technology, they're just very heavy-handed. And as an investor, I really want predictability in my holdings, and that's the last thing you get there. You know, it's interesting, for a long time, we've always said Chinese stocks are cheap. And now we know they're cheap for a reason. Um, I'd much rather stand on the sideline and watch the show.
I agree. I'm sticking with the USA, Nolan. Let's move to topic 3. Topic 3 is retail stocks. The question I'm posing here is, are they incredibly cheap or just inexpensive? I know it's a bit of a leading question, but I'll start it off with some statistics here. Um, these are the P/E price-to-earnings ratios of some selected retail companies. Macy's, ticker M, 6x price to earnings. Crocs, CROX, 7. Best Buy, BBY, has a price to earnings of 10. Bath and Body Works, BBWI, also around 10. Target at 15 and Lowe's at 19. So we've got some pretty cheap stocks here, Nolan. XLY, which is the consumer discretionary ETF, is down 16% year to date. And there's a lot of fear in terms of oil prices, consumer confidence falling, inflation, supply chain. Omicron was a problem first couple months of the year. But on the other hand, we're hearing anecdotal stories that mall traffic is high. And also kind of to that point, this XLY is up almost 10%, as you can see on the chart here, since Tuesday morning. So all of that is a backdrop, Nolan. What are your thoughts on consumer discretionary or retail?
You know, I understand why, uh, consumer discretionary would be down. A lot of headwinds. The inflation story, you know, the consumer has to pay a lot more for everything— their car, their Amazon subscription, their Netflix subscription, their cable subscription, gas prices. So it makes sense to me. House prices are up, rents are up. And so psychologically, that can be damning. That could be really damaging, particularly in way we have a war right now. So I see that, but within that, there's certainly opportunity as well. The PE ratios you mentioned are certainly attractive. The name that stood out that you mentioned is Target. And I think that is an attractive holding. I think if the market continues to get soft, I mean, economic conditions, weaken, I think Target's going to do just fine. And if they strengthen from here, I think Target's going to do fine. So generally speaking, I think the, um, the, uh, the consumer discretionary is an interesting place, and, um, I think those PE ratios do leave upside.
I agree with you, Nolan. I, as I mentioned, there are all these different headwinds, but what I find interesting is that As you mentioned, Target has sold off, and that's a, that's a business that would probably do well even if we were to have a recessionary environment. But there seems not to be too much discernment from one name to the other in this space. Really seems like a great opportunity in retail and discretionary. Um, any other thoughts before we close it out, Nolan?
Yeah, there are some other discretionary names you did not mention that we think are fantastic. For any subscribers, um, hop on over to LVIR, um, and see some of our work. We've written up some recent reports on a couple of consumer discretionary names. Brian mentioned earlier a couple of lists we're going to publish. One of them is for high-yield securities that have maturities of 3 years and under, where you can lock in some really attractive yields. Some things that we push— we published are like 4 to 6%, 3 years and in. The other list that we're going to be publishing is bounce-back candidates, some companies that have absolutely been hammered in their share price, but whose business models we're really convinced will— that are built to last. And it's a really good way to position yourself for rebound. We will be publishing that list next week. So if you haven't— if you're not a subscriber yet, that's a reason to go over to LBIR.
Make sure you sign up for the newsletter list. We'll get you those 2 lists and, uh, also the as Nolan mentioned, for subscribers to the Research Service. Plenty of new research out this week, so check that out. We also ask you to like, share, and subscribe and leave a comment below. We'd love to continue the conversation with you. If you leave a comment, I'll definitely respond. Any questions or concerns about the market, that's what we're here for. With that, we'll thank you for joining us once again. And thank you, Nolan.
