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'It’s a risk-off trade if the Fed moves' to raise interest rates: ASYMmetric ETFs CEO

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ASYMmetric ETFs Founder and CEO Darren Schuringa observes market movements as investors weigh the Omicron variant, Fed tapering, and inflation's relationship with interest rates.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Darren Schuringa. He's ASYMmetric ETFs founder and CEO. Darren, good to talk to you today. You heard Brian breaking down the expectations or shifting expectations with the Fed. How does that change your outlook from a markets perspective?

DARREN SCHURINGA: It's risk-off. If you look at the Fed raising interest rates, that is a great indication that the market-- the equity market should be pulling back. The risk-free rate is moving higher. As interest rates move higher, that makes pricing risky assets more expensive. And you're seeing a bit of that trade rate now, particularly in the market. So I'd say it's a risk-off trade if the Fed moves as they're planning.

AKIKO FUJITA: I mean, a risk-off trade, you know, this seems to suggest, at least if you look at the moves in the bond yields right now, this is certainly accelerating at a level that maybe investors weren't necessarily anticipating. And that's raised the question here about whether, in fact, the Fed Chair has been behind the ball when it comes to inflation. Where do you stand on that?

DARREN SCHURINGA: Well, looking at the data, absolutely. I mean, we're at multi-decade highs from an inflationary data perspective. And so, I'd say arguably that the Fed Chair has been behind the inflationary curve right now in terms of moving. But the flip side of it, the dual mandate of the Fed, the Fed's been looking for full employment.

And I think the employment numbers in last week's data point haven't been as strong. So the Fed chairman's been caught between rising inflation, higher inflationary numbers, and not the employment numbers that he'd like to see. So it makes it difficult. So I think I understand his dilemma, but I'd say on an inflationary side standpoint, he's been behind the eight ball a little bit.

AKIKO FUJITA: We've seen the NASDAQ turn green again, but there seems to be this rotation that we're seeing out of tech out of concerns about those increased rate hikes, especially with these high growth names. How are you playing tech right now?

DARREN SCHURINGA: Well, I think it's interesting. Before I get to that, look at the sectors that are doing well today. It's sort of a weird trade. It's not just out of tech and back to the economy opening plays, your energy plays, your consumer discretionary plays, all the things that are early cycle plays. You're sort of seeing your defensive sectors do well, too. Consumer staples are doing well. REITs are doing well.

I mean, it's really confusing from an investor's standpoint right now, looking at the overall markets. And I think the point that Brian made earlier, too, the interest rates aren't moving up. So what gives, right? The Fed's going to be tightening, but interest rates aren't moving up. And you have this weird trade going on in the equity markets away from technology, but not a bullish call on the economy growing fast after this.

AKIKO FUJITA: I mean, with that said, how do you play your portfolio? Do you start to shift things up in anticipation of those rate hikes on the horizon? Or do you kind of stay put, given the volatility?

DARREN SCHURINGA: So, it's a good point on volatility, and I'll touch on the portfolio. Volatility has been rising. Rising volatility is never a friend for long-only equity investors. It generally is foreshadowing of markets that are going to be correcting or moving lower shorter and intermediate term. Our portfolio, the way we're doing it, actually, we look at vol of the market, and we look at the technicals of the market. So right now, the way the portfolio is positioned, the technicals of the market, albeit a ton more volatility, whether you look at it on a monthly basis or a daily basis, just the up and down movements of the market, volatility has increased, so that's a negative.

And then the second part is the technical. So the market still is trending upward. Long-term, volatility is rising. So we put both of those signals together to position our portfolio to profit either from a bull or a bear market. But right now, it's too early to call. Clearly, we're not in a bull mar-- we're still in a bull market. And we haven't moved into a bear market yet. So we're not doing anything to adjust our portfolio. In fact, looking at those two signals, we're still in a risk-on environment.

AKIKO FUJITA: And finally, Darren, we've seen these big swings in the market on the back of headlines from these omicron variants. It seems like the science is still in question here, but increasingly, we're hearing from the likes of Dr. Fauci, who were saying that these cases may not necessarily be as severe as initially anticipated. How significant is that as a risk to the markets right now?

DARREN SCHURINGA: Oh, extremely significant. I mean, if omicron variant is highly contagious and extremely deadly, we have a very bad scenario for the overall markets. And then we're going back into global lockdown and all the problems we just got out of from 2020 a year ago, come back in a front and center slowing economy, markets trading off.

But everything I've been reading, including the first doctor from South Africa, that the variant and the symptoms of omicron have been mild so far. And I think that data is now being substantiated and corroborated from more research we're seeing from CDC, WHO. So that's very encouraging for us. So when you look at the overall market going forward, if omicron is not a big issue, the opening trade still remains in place. It remains risk-on. And again, that's part of the bull market case.

AKIKO FUJITA: Darren Schuringa, ASYMmetric ETFs founder and CEO, it's good to talk to you on this Monday. Appreciate your time.

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