Fed moves and volatility will make for 'an interesting year in the stock market,' strategist says

AdvisorShares Investments Founder and CEO Noah Hamman joins Yahoo Finance Live to discuss his 2022 outlook and the biggest factors affecting the stock market.

Video Transcript

ZACK GUZMAN: And for more on what to expect in 2022, I want to bring on Noah Hamman AdvisorShares Investments founder and CEO joins us again. Noah, happy new year. Thanks for coming on for the first show of 2022.

When we look ahead, obviously we've been talking a lot about inflation and the pandemic, obviously omicron carrying over into 2022. But when you look a little bit farther down the line, what are you seeing for maybe what investors should expect this year?

NOAH HAMMAN: I think maybe some volatility ahead. You were just talking about some of the economic data that's coming out. And if those numbers start to improve, and we think that they might-- omicron's not helping in terms of people testing positive for it but not maybe being quite as physically or medically damaging as the delta virus as well.

So people are able to go to work and able to still function and still keep things open. And I think that we will be-- those economic numbers continue. I think positive economic numbers then starts to drive the Fed to move in a different direction, maybe rising interest rates, but certainly pulling back on their bond buying and increasing their balance sheet, like they said that they would.

I think if that liquidity is pulled from the market, it could be an interesting year in the stock market. The economy could be much better, but the stock market could really struggle if the Fed actually does do that.

AKIKO FUJITA: Noah, not that we want to tie everything to omicron, but I wonder how you're looking at the disruptions that we've seen from this variant on businesses in the context of the overall inflation picture. We've already heard from a number of businesses. We've talked about the supply-demand dynamics even getting exacerbated as a result of not being able to bring employees in, not being able to bring these supplies in.

I mean, is that only going to add to the pressure? Or should we be looking at this as just a temporary disruption that we'll probably get through by the end of the month?

NOAH HAMMAN: I think it will be both. I don't know that it'll be by the end of the month in terms of the temporary disruption. But I think it'll be disruptive. I'm actually sitting here now in part working from home because we got a dumping of snow here in the DC area. But I just found out I tested positive yesterday. And I feel perfectly fine, totally fine. But nonetheless, I still have to quarantine here.

And so, at least for what I do for a living, it's not going to be quite so disruptive. But when you think of the important jobs that really move the economy around in the United States, as people test positive and this seems to be moving much more quickly, though hopefully more people are like me and they're totally fine, they just happened to test positive, that quarantining aspect of things, I think, will be difficult. And it's going to slow some things down quite a bit.

So will that show up in these economic numbers that are going to come up here recently? I don't know. So I don't know. It'll be interesting. I think the impact is going to lessen over time. But I think we're still going to be in a rough patch maybe for a quarter or two, if not more. And that doesn't count what the next variant will look like, of course.

ZACK GUZMAN: Well, first of all, I'm glad to hear you're doing well. That has matched up with a lot of the stories we've heard from people who have tested positive in the omicron wave if they've been vaccinated.

And when we look at maybe the humbleness there too, the humility of you saying that the job is not that important, I would disagree, because you're going to answer the next question, which is, when we look at maybe the best places to put your money in 2022, you're still optimistic on the cannabis space, which of course, you guys have the MSOS ETF to have people kind of, I guess, tap the opportunities there.

It was a tough year last year, as we didn't really see any kind of federal changes come from the efforts. But when you look ahead this year, if you are optimistic in the space, can that actually be true if we don't see any legal changes? Why are you so optimistic after, I think, that ETF was down more than 30% last year?

NOAH HAMMAN: Yeah, it was down quite a bit after a strong early start. And I think I believe in it because the opportunities and the fundamentals are still showing positive growth. States are still coming online. I just saw a headline today from Texas with Beto now starting to run on a campaign and legalizing it in Texas.

Now, I don't know that I believe politicians when they say that. We saw a lot of that last year. So for me, I'm truly focusing on the fundamentals. If you look at any of their sales growth numbers, any of their revenue growth numbers, not for all of them but certainly for some of the tier one MSO players, the Green Thumbs and the Trulieves of the world, who I know, Zach, you've talked to on the show before, their numbers are improving.

And yes, they don't have a great tax situation because of the difficult federal situation along with the IRS and how they're overtaxed, really. But they are growing. More states are coming online. New York's going to take a little bit longer than expected. But more states are legalizing, either for medical use or for adult use.

And so the fundamentals are still there. And they're still strong. And in a weird sort of way, it's really creating this moat for these US multistate operators that's blocking any of the companies that we might typically see on the screens of Canopy and Aurora and Tilray. This makes it far more difficult for them to come into the US. And so it really only solidifies the opportunity ahead for the companies that, at least, we would hold in our MSOS ETF.

So I wish that, at least at a minimum, the federal government would take the opportunity to fix the social justice aspect of things. But then they really need to work on the social equity of things. But in the meantime, states are leading. The fundamentals are improving. And so even after a difficult year, a famous saying of when things go on sale in the stock market, people have a tendency to run away from it, even though they'll do something differently when their favorite product's on sale.

And in many ways, if you're a cannabis investor, this is that opportunity, at least we think. Now, still a volatile to ride ahead. These are still small, emerging companies.

AKIKO FUJITA: Noah, the Fed, of course, the big overhang here, sort of clouding the outlook for investors. Will the central bank in fact hike rates three times this year as expected? You said if they stick to their plans, then you would look to reduce equity exposure. Where would you put your money then?

NOAH HAMMAN: It's a good question. I might go more towards commodities. You talk about the inflation impact. I don't think that's going to slow down any time soon. You can certainly fix the issues around shipping and the backlog there in terms of things moving around the globe.

But I think other things like the increased wage costs that companies are finding themselves in, that's more difficult to change. And I don't think that changes any time soon. And either you have to live with lower margins in terms of how the company operates, or they're going to need to keep their prices a little bit higher as well.

And so I actually expect to see that inflation show up. And I think there'll be a great opportunity in the commodity space for that, not counting other emerging areas like cannabis or like psychedelics. But I think that'll make it much more volatile. And I think, especially if the Fed pulls back on the liquidity--

Again, it doesn't mean that the economy will be bad. It just means that stock prices will be challenged, for sure.

AKIKO FUJITA: Noah Hamman being bullish on psychedelics and cannabis. Always good to talk to you, AdvisorShares Investments founder and CEO.