Volatile day of trading as Pence rejects call to invoke 25th Amendment

Yahoo Finance’s Alexis Christoforous and Eddie Ghabour of KeyAdvisors Group, discuss the latest market moves.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's stick with the markets now and bring in Eddie Ghabour, managing partner at KeyAdvisors Group, also the author of "Common Sense Bull." Eddie, good to see you again. So break this down for us. Do these impeachment proceedings going on right now in DC really mean anything to the markets? Should investors be paying more attention?

EDDIE GHABOUR: Absolutely not. I think one thing that has been proven correct again is politics are not going to matter when it comes to the market. The market cares about fundamentals. It cares about profits. It cares about consumer demand.

So these are headline risks. Sometimes people do make moves based on that, unfortunately. But look, we had people worried about the election. That proved to be nothing-- would hurt the market there. People were worried about the runoff election in Georgia. These are just-- again, headline risks have nothing to do with the fundamentals of the equities, and that's why the market is going to continue to ignore these things, in my opinion.

ALEXIS CHRISTOFOROUS: So then what is the market focused on? Because I know that you, actually, expect a sizable drop in stocks in the first quarter. So if that's going to happen, Eddie, as you look into your crystal ball, what's going to get us there?

EDDIE GHABOUR: So first off, I'm extremely bullish for this year, as I've said on your show before. But I do expect a sizable drop in the first quarter because I think we're going to get some bad economic numbers coming in at the beginning part of this year because of COVID that accelerated at the end of last year. And that will probably spook the market. And you also have had a ridiculously high run-up since the election, and that would be a good time for people to take profits.

But I think that drop should be bought because it may be the last opportunity for people that have not participated in this bull market, in my opinion, to really get some sizable returns this year. Because this market is looking forward, out the second half of this year. And we have so much pent-up demand from the consumer, and we have so much cash on the sidelines from the savings rates being as high as they are. I think we'll see some of the highest consumer spending numbers we've ever seen in this country, and that's why I expect double-digit returns in the equity markets this year, even with the drop I expect in the first quarter.

ALEXIS CHRISTOFOROUS: All right, you said a sizable drop. Define what that is for you. Is it a drop of 10%, 20%?

EDDIE GHABOUR: I would say 10% to 12%. You know, and again, that's normal, in a cyclical bull market, to expect at least one double-digit drop along the way. As long as nothing breaks down fundamentally-- again, in my opinion-- that'll just be a wonderful buying opportunity. Because there's a lot of retail investors that have not participated in this. There's a lot of professional money managers that have not participated in this rally because they continue to doubt it.

ALEXIS CHRISTOFOROUS: I want to talk a little bit about those fundamentals because today, we got some news on inflation, consumer prices increasing just modestly last month. We're continuing to see weak demand for a range of goods and services. But by and large, economists and others believe inflation will pick up later this year. What's your outlook for inflation in the next six months? And if it does pick up, Eddie, how does that inform your investment decisions?

EDDIE GHABOUR: So inflation is happening right before our eyes right now, and it's been happening. When you look at the commodity prices and how they've been going up-- look at oil. So we expect inflation. It's already here. So some people relate to that. But we expect that to continue to accelerate.

And the big risk with inflation is what the Fed does, OK? Because keep in mind, part of our bullish call is because we know the Fed is going to continue to be accommodative. We've got more stimulus coming. And so that's going to cause asset prices to go up and continue to go up.

But if inflation gets a little bit out of hand this year and accelerates higher, then the Fed starts to change their stance on monetary policy. That's what will change my tone and our tone, in regards to our bullishness on the equity markets. So that's the biggest risk, in my opinion, if inflation gets too high where the Fed has to act. And then that could derail the bull market.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there but to be continued, for sure. Eddie Ghabour over at KeyAdvisors Group, thank you.