September sell-offs are a return to 'the scene of the crime' of June lows: Strategist

Portfolio Wealth Advisors President and CIO Lee Munson and Sound Planning Group CEO David Stryzewski join Yahoo Finance Live to discuss the recent market volatility, inflation, rising rates, and more.

Video Transcript

DAVE BRIGGS: All right, for a closer look at the markets, let's bring in David Stryzewski, Sound Planning Group CEO, and Lee Munson, Portfolio Wealth Advisors president and CIO. Good to see you both. Lee, let's start with you. Given all the numbers we've discussed, it feels like the markets are punching us in the face or something else. You say the market is giving investors a gift. How so?

LEE MUNSON: Well, you're getting a second chance to go back to the scene of crime back to those June lows, right? And I love it, and there's a lot of companies that are going all the way back to where they broke out the summer of 2020. So if you're a longer term investor-- and in these days, what does that mean? Like one to three years? I mean, it's not like anybody's thinking long-term is 5 or 10 at this point.

You're getting an opportunity to buy a decent valuation when we already know what the news is. We already have an idea that the Fed's going to raise another 125 basis points. We already know that we went from last year, where they said there weren't going to be any of these problems and they had to pivot in December. We'll see.

I think that this could be like Q4 2018, where they get all hard, going through the December. And then you start the next year. We see the slowdown. And then they got to give it back. And they may not be cutting rates, but they may really consider, can the market take so much quantitative tightening? And I think that we're seeing with-- I mean, this is the last day of the quarter.

Aren't we supposed to see-- we all get paid quarterly based on what the balances of our clients accounts are going to be today. And we're so bearish that we didn't want to jam up and jack up the Dow Jones Industrial Average to get paid a few more shekels.

So I think it tells you something about sentiment. And everybody is so universally bearish. So I take the contrarian approach. And I'd rather be a buyer here because higher prices are coming, but we just don't have the timing. But I think 3 to 18 months from now, you're going to be very happy with your purchases.

RACHELLE AKUFFO: And David, are you buying right now? And if so, what are you looking at?

DAVID STRYZEWSKI: Well, I'm not buying right now in a general sense. I will say this much. We are just cautiously optimistic. I have about 30 different portfolios. So it's mixed in each one. Where we think that we're headed right now is that we are certainly off the highs. We've broken through these lows. And we ultimately see more of a storm ahead of us. I think Jamie Dimon put it right when saying that there was a hurricane coming in our economy.

And so, I'll just take a slightly different view and say that I don't see a lot that makes me very confident about where we're headed right now. I mean, just even getting the consumer sentiment numbers today, they were slightly up, but still about 20% down from where they were last year. And if we remember really how bad 2008 was, we are just slightly elevated from the very worst point in 2008.

And I personally don't think that we've seen the full forecast of what's coming because we've not seen the Fed funds rate really hit our economy yet. Just think of as an example the housing market right now, which I know that you've been covering. But when we go from a 3% interest rate to a 7% interest rate, each 1% more that we have in an interest rate causes us to have 10% more income in order to afford the same home.

So, 40% would be the differential there, going from 3 to 7. And so the average person may have had some increases here in their income over the last couple of years. I don't think 40% has been those numbers. And so I think that there's some challenges ahead of us, given that that's a lagging indicator of our financial health, not a leading one.

SEANA SMITH: David, how much lower do you think we then could potentially go from these levels?

DAVID STRYZEWSKI: Well, I have a worst case in my mind, and then I've got a best case, which would be the splashiest landing from the Fed, which seems nearly impossible at this point in time. I don't think that we're at risk of missing a big upside at this moment. So to see a downside of 20% more would not be unfound, potentially even 30%. We typically see, like, a 50% drop. Well, we're about minus 20 right now.

So I don't want to see that. I vote it goes up forever. But the reality is what goes up does come down. And we have some cycle challenges here, given a global depression that's taking place. Just look at Europe. Look at truflation and see what our inflation is relative to what we're seeing even in the UK, which is like 15%, 16% versus our, like, 8.9%.

And so these things-- these times are tenuous at minimum here. And I think that people need to be very cautious right now as we move forward into the future in October here specifically, because bank earnings come out in the next two weeks.

DAVE BRIGGS: Lee, I want to get your reaction to what David just said. And also, you said you are buying, but you didn't say what you're buying.

LEE MUNSON: Let me talk about what I'm buying. I want to buy US small and large value. I'm more interested in a dividend paid tomorrow than profits in 10 years. I'm buying the two-year or less Treasury. No credit, no junk, no dice. On the hotter side of the bond side, I like mortgage rates. You know why? Because they're down a lot. They're down almost as bad as they were back in COVID because everything that the other guest is saying is true, right?

But markets look 6 to 12 months ahead. Volcker's market, the '80, '82 double dip recession saw a 26 decline-- 26% decline in the S&P. And now suddenly, we're moving the goalposts. This is going to be the worst-- as bad as the great financial crisis. 14 years ago, the system actually broke. We have an inflation problem. But you know what the problem is? We've had inflation going in one direction for 42 years.

So unless you're like me and you remember being five years old, hearing about it, if you're in your early 40s or younger, you've spent your whole life-- forget about your whole professional life-- not seeing inflation, right? Inflation has peaked. It'll be very slow to come down. And I know that's frustrating for a lot of people.

But when you have markets already pricing in-- I mean, look at mortgages. Have they not already priced in the storm that is coming? I'm just saying that if the storm is as bad or less bad, there's a lot of upside. And I also think that when you're in an oversold condition, it's hard because in oversold conditions, the market looks like they're worst.

And oversold conditions are difficult because you have to go there and you have to be a contrarian. And you have to zig when every single person on the Street says, I want to stay back in cash and wait for higher prices and for things to be better. And that's when I start giving them the stock overweights that I have and taking back those treasuries.

RACHELLE AKUFFO: Everyone's certainly parsing through this information and trying to figure these things out. A big thank you to our market guests, David Stryzewski and Lee Munson. Thank you, and have a great weekend, guys.