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China ‘does not care about cratering its economy’ amid COVID lockdown, strategist says

Fitz-Gerald Group Principal Keith Fitz-Gerald assesses the trajectory of the stock market amid China's COVID lockdowns and the Fed's next rate hike.

Video Transcript

JARED BLIKRE: All right, stocks losing ground this afternoon. Keith Fitz-Gerald Group principal Keith Fitz-Gerald joins us now for more on the markets. And let me just ask you a question here. We were talking with Eurasia Group about the China situation. No big surprise that they believe that President Xi puts his own power above that of the economy there.

But I'm wondering, you've done a lot of business in China. What do you think this means for Apple and Tesla, who really rely on the country for a big part of their business and manufacturing and vice versa? China depends on them for a big part of the business in their country.

KEITH FITZ-GERALD: Well, I think that's a very sophisticated question with a lot to unpack, the first part of which we've got to understand is that China does not care about cratering its economy. The West perceives these protests as an issue of freedom and exercise that right. China perceives it as a challenge to its authority. So Beijing will not hesitate to clamp down, to your earlier guest's point. If these protests accelerate, you can expect a brutal and definitive response from China because they will not tolerate it, especially on Xi's watch.

As for the companies themselves, they're going to get through this. Apple's already moving outside. I think Tesla is ironically the one that I think is going to have a bigger challenge because it sells a lot into China, even on a more integrated basis than Apple is, I submit.

DAVE BRIGGS: But quickly, Keith, on Apple, do you think they make any further changes to their production, to the supply chain? Because, look, they are overly reliant on China, and they're very subtle changes they've made in moving to Taiwan and India. Do you think they'll accelerate that?

KEITH FITZ-GERALD: I do think they're going to accelerate. This is one of the rare miscues, I think, on Apple for the last couple of years. I think they should have been farther ahead of this than they are. But I see them talking with Tata, for example, in India, talk about iPhone production.

They're going to take 25% of global production, get them outside of China sourced factories and components. We're going to see reemergence into Vietnam, India. I've heard Thailand. I've heard Mexico, even manufacturing returning in some capacity back to the United States. But they can absolutely speed that up if they have to.

JARED BLIKRE: And Keith, I want to turn to the US here and investors really looking forward potentially to some end of the year tailwinds. We've got the Santa Claus rally potentially at the end of the year. Wondering if you're on board with this, what you're seeing in terms of any stock strength, notwithstanding what we're seeing today, and who do you like in these names.

KEITH FITZ-GERALD: Well, statistically, that is absolutely what happens. We get a Santa Claus rally. But the phenomenon is relatively well understood. It's 75% probability or so since 1945. But there are a lot of crosswinds right now. I think the biggest driver is ironically the most human element, the one that can't be factored into it monetarily-- hope.

People have simply had it with being cooped up. They've had it with all the negative headlines. They're getting out. They're spending money. They want to go see their families. So I think all of that powers or could power the markets higher much faster and farther than anybody is prepared to accept or think about today.

As far as what I like, I think it's going to be key tech because that's where the money is going to go. Cyber defense is a big one. Healthcare is another one. Those are areas that we have to have in our lives. We cannot live without.

DAVE BRIGGS: Not a lot of hope in the numbers we're seeing right now, Keith. The Dow down 1.3%. The S&P--

KEITH FITZ-GERALD: Nope.

DAVE BRIGGS: --and the NASDAQ both down about a percent and a half. Do you suspect that that's the action out of China or something else?

KEITH FITZ-GERALD: I do. I think that's almost entirely out of China. This is global traders who thought they had one thing on Friday when they left for the evening, and they have another on their hands when they wake up this morning. So it's uncertainty. That foments doubt. Doubt creates a risk off or a tap the brakes moment. That's what's happening today. The clarity on the Fed's weeks away. So it's really going to be headline to headline. It's a stock picker's market right now, not an area where you want to be cavalier or just throw caution to the wind.

JARED BLIKRE: And we were just-- we just got a report from Jen Schonberger a few minutes ago on some of the Fed speak today. Not any big surprises, two rather hawkish statements from Bullard and also St. Louis Fed, also Williams out of New York, basically saying they're not going to cut rates next year. That would be the Fed waiting till 2024. Wondering what your view is in light of the fact that we have another meeting in just a couple of weeks.

KEITH FITZ-GERALD: Well, my view is they ought to take away the microphones from everybody except Chairman Powell because the Fed-- we've got to be honest, right? The Fed got transitory wrong. They're still getting this wrong. They do not understand the impact they're having on the real world. I think they're great with their models and their inflation, and they've got to change the definition of recession. I get that.

But I think to create doubt right now is not what the markets need. It's not healthy for the country. They've got a fiscal problem in that the government keeps spending money. So it's not necessarily the rates, like they're trying to stick to their talking points with.

DAVE BRIGGS: All right, quickly, there's a few names that you think might not get through this next couple of years. Who are they?

KEITH FITZ-GERALD: Well, they're going to be stocks that are on the margin. They may be things like Zoom or Peloton or Carvana. These are stocks that were once upon a time Wall Street darlings, but always the hot money.

The question that people need to be asking themselves right now, and we talk about with our folks all the time is you want to stick to the very best names you can buy, companies you know that are going to be there in five years, 10 years when you need that money because, very realistically, a stock like Carvana or Peloton might not be at this point. The markets have moved beyond the fascination with those stocks.

DAVE BRIGGS: Yeah, Carvana feels like they might not make it through the year. Fitz-Gerald Group President--

KEITH FITZ-GERALD: Exactly.

DAVE BRIGGS: --Keith Fitz-Gerald, great to see you, sir. Appreciate that.