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Sylvia Jablonski Defiance ETFs Chief Investment Officer and Co- Founder breaks down her thoughts on the recent market moves and what opportunities investors should look for.
ADAM SHAPIRO: We want to talk about overall market reaction, not specifically to Archegos, but all kinds of things, which are hitting markets right now. We want to invite back into the stream Sylvia Jablonski, Defiance ETFs chief investment officer and co-founder. It’s always great to see you, Sylvia. And there’s a lot to talk about here. But overall, I wanted to get your impression of what we witnessed yesterday, which was the dramatic purchasing that drove us to the upside. And even today, even though we got a bit of a sell-off, it’s not that dramatic. We are still essentially in record territory. What do you make of this?
SYLVIA JABLONSKI: Hi, Adam. Great to see you. And, you know, it’s actually something that we talked about the last time I was on with you. And, you know, a few weeks ago and even after January, let’s say, there was so much talk in the market about the need to allocate to cyclicals and to value and that the growth story was sort of over. And that was partially because of valuations being deemed too high in the 10-year. But, you know, what we really saw and what I’ve sort of firmly believed is that a lot of those names pulled back enough that they all of a sudden became like the value trade and where investors wanted to put their money and to reallocate to.
So, when you saw the top FAANG names, for example, pull back, I think a lot of investors looked at that and said, hey, this is– you know, these are way off of the all-time highs. And although there are some headwinds, we would still expect these companies to have strong balance sheets and usually perform on earnings and things like that to potentially rally. And taking some profits out of the cyclicals and values probably freed up some of that cash, too. So it just goes to show you that the bifurcated portfolio still works. You know, you want to pick your spots in cyclicals and the service sector and the reopening trade, but pick your spots in the names that were sort of beaten down. And I think that’s what we’re seeing and what the market’s telling us is going on.
SEANA SMITH: So, Sylvia, then going off of that, though, this rotation at least that we have seen over the last couple of days with growth now back in favor, you’re saying that you still see some opportunity there. Do you think tech is going to resume, then, its leadership position? Is that safe to say? Or is that maybe going a bit too far?
SYLVIA JABLONSKI: You know, I think it’s tough to say whether tech will lead the market for the next decade. If you asked me 10 years ago, where do I put my money, it was sort of all tech and growth. And that was a really smart place to be. And I think that tech will continue to perform. We’re in the second year of a bull market. We saw, more or less, a 70% recovery, which was just unprecedented, so fast and so momentous. So I think that in the second year of a bull market, you see positive returns, but you also see lighter positive return. So I do expect tech to perform.
But, you know, that being said, I do still like some of the cyclicals. Like, Carnival’s off of its all-time highs. The airlines are off of their all-time highs. But the casinos and the hotels, for example, are kind of up there now. You know, they’ve picked up a lot of that reallocation trade. And unless I’m getting those names on the dip, I’m probably not looking there. So I think, though, what will lead the market into the next decade, let’s say, is going to be completely different. It’s going to be the fourth Industrial Revolution. It’s going to be technology in the way of machine learning, internet of things, quantum computing, the different types of tech.
ADAM SHAPIRO: Sylvia, what you also think, though– for instance, the energy sector up more than 30% year to date, but I’m not talking oil. You’re talking hydrogen and fuel cell technology. Tell me about the plays investors could get in on right now, especially with potentially $2 trillion in infrastructure spending, with a lot of it devoted to green energy.
SYLVIA JABLONSKI: Yeah, and I think this is a great story. So it’s been around for a while. You know, people have heard of the stocks like Plug and FuelCell and ITM. And these are basically companies that store, produce, and use hydrogen in different ways. So the hydrogen– the investment of hydrogen right now is about $150 billion. It’s thought to go to $11 trillion by 2050. So there’s just a massive amount of money going there globally. Saudi, $700 million, recently invested over a billion with the EU. President Biden coming out, talking about his infrastructure plan, and a huge part of it involves clean energy.
So I just think that we’re running out of fossil fuels. 90% of our energy comes from fossil fuels. They’re bad for the environment. Hydrogen is produced in a way where the emissions from it, if it’s done with alternative energy sources, is water. And there’s plenty of it. It’s the number one element in the universe. So if we can find ways to harness, store, and produce it, then our consumption of hydrogen will essentially make a lot of the stocks in that area soar. So, looking at, like, a hydro ETF– again, Plug, Power, FuelCell, ITM– I think that’s the next decade of energy.
SEANA SMITH: Sylvia, let me get your thoughts on the banks because the banks have had a nice run recently. And we’re set to get earnings from some of those big banks starting next week. Are they still attractively positioned right now? Or how are you viewing that sector?
SYLVIA JABLONSKI: So, you know, I like banks. Again, some banks, I think that what we just talked about with [INAUDIBLE] capital is a little bit alarming in terms of perhaps some of the banks that had big exposure there. But just in general, the story is that rates will eventually rise. You know, they’re paying out zero on savings. Obviously, home sales are at all-time highs, you know, so getting some payment there on mortgages and interest with the 10-year going higher.
So I do think that the margin favors banks right now. And I think that it’s a good place to allocate money. I think they’re well capitalized. They certainly survived this sort of COVID crisis over the last year a lot better than we thought they did. So we didn’t see a 2008. We saw resiliency there. So I do think that with consumer spending credit, all that kind of stuff, particularly home sales, it’s going to be beneficial for banks in the coming years.
ADAM SHAPIRO: Always good to see you, Sylvia. Sylvia Jablonski, we should tell you–
SYLVIA JABLONSKI: You, too, Adam.
ADAM SHAPIRO: –is Defiance ETFs chief investment officer, as well as the co-founder. Looking forward to when you join us again in just a few weeks.
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