Miller Tabak + Co. Chief Market Strategist Matt Maley joins Yahoo Finance Live to discuss the food trade, pricing power, what investors should be cautious of this earnings season, and the outlook for a hard landing.

Video Transcript

- Let's turn now to the latest Morning Brief. Today we're taking a look at a bright spot in an already better-than-expected earnings season. We're talking about food stocks. Investors are eating it up. Potential tailwinds, like slowing input cost inflation and recovery in China, could bode well for the sector, not to mention not to mention so-called food innovations may help drive higher price points, leading to better business performances. Quite a bit of food for thought as investors-- for investors as corporate results continue to roll in.

And we've heard a lot about the theme of pricing power over the course of the earnings season for many of these food companies as well. Here are some of the revenue breakouts. And we've also seen that some of these stocks have really performed well over the course of this week in reaction to those earnings. Well, these earnings may be better than expected. Investors, though, may want to hold off on getting too excited.

Here with some of his thoughts on the food trade and what investors should be cautious of this earnings season. We have Matt Maley, Miller Tabak chief marketing strateg-- market strategist. Thanks so much for being here, Matt. It's good to catch up with you.

So this has been one of the areas that's really gotten a lot of attention. And I just keep coming back to the pricing power theme, which is it's pretty surprising that these companies continue to be able to take price and that consumers keep on buying. The stocks have done well as investors have kept on buying, too. Is that an area that you would be looking at?

MATT MALEY: Well, it's certainly been a great area, Julie. And I think it's going to continue to be a good one on a long-term basis. I mean, gosh, you can go to a restaurant, any kind of restaurant, and they're packed all the time.

But it's interesting, too, for young people, young people, whether it be college, in their 20s, even into their early 30s, I mean, these people, they eat out all the time. And they don't seem to mind if some of their food that gets delivered to them isn't necessarily as hot as they'd like it to be.

When I was their age, the pizzas were usually hot. Everything else was cold. It bothered me. It just doesn't seem to bother them. They are eating this food all the time. And they don't really care what it costs. And it's a big market for all these food companies.

The one thing I'm a little concerned about, though, is just that they've had this huge run. On a techincal basis, they're getting overbought. And on a fundamental basis, they are starting to get a little bit expensive.

So if you already own them, that's fine. Hold on to them. But if you don't yet, I think you'll probably see them pull back a little bit next month as we move into May. And that might be a better entry point for some of these names.

- And, Matt, something that hasn't pulled back that much is technology year-to-date. It's done well. We've heard from the big tech companies. You've seen the reaction on various stocks. What do you make of what's been reported so far?

MATT MALEY: Well, it's been a big sur-- I won't say big surprise, but it's certainly been a pleasant surprise in that a lot of people were looking for these tech, especially the big-cap tech names, to report disappointing earnings or at least give disappointing guidance. Again, they've had a great run here.

The one thing I'm a little worried about, though, is that we've had this huge-- I mean, if you look at 24% of the NDX, the NASDAQ 100 index, which is heavily weighted with tech stocks, 24% of it is Google, Microsoft, and Meta, which have all reported unbelievable earnings in this week. Two of those stocks have rallied in a major way. And yet the NDX is only up 1%. And the S&P is actually flat.

And if you look at the XLK tech ETF, this month it seems like done really well, but it's actually down on the month, slightly, only about 1%. And you also have the semiconductor stocks have had a tough month. They're down 7%. So it just seems to me like even though the headlines and the individual moves of some individual names have been really good, it does look like this narrow rally in the tech stocks is starting to level off a little bit.

- And so what then, Matt? What does that tell you, I guess, about the sustainability of this move and where investors should be looking?

MATT MALEY: Yeah, I think it makes it hard for it to be sustained. I mean, the semiconductor group, the SMH technology ETF, I mean, that is one of the best leading indicators for the stock market, not just for the technology sector, but for the entire stock market. And that's been the case for several decades. I mean, I remember back in 2018 when the chip stocks rolled over in May. And several months later, the whole market rolled over along with it.

We're kind of seeing that decline now, again, down over 7% so far in April. If they continue to head lower as we move into May, that's going to tell us that this narrow-- such a narrow rally in the tech sector is going to fade. And if that fades, the rest of the market is going to fade with it.

- So are we headed towards a hard landing, do you think? And if so, what does that look like?

MATT MALEY: Well, I do think we are headed for a hard landing. And we've heard about in the tech area and several other areas, food stocks and others, where the earnings have been quite good. But some of the really important economically sensitive areas, we've had some very disappointing numbers.

I mean, look at UPS. And all of them cited poor demand, slowing demand. UPS, I'm sorry, Old Dominion Shipping, one of the big trucking companies in the transportation industry, has been hit because of that this week. Cat Tractor is down and, of course, these semiconductor stocks, which are very economically sensitive. So a lot of these areas aren't doing as well. These economically sensitive areas aren't doing as well.

And then when we throw into that this whole situation with the bank stocks and the credit contraction that's going to go with these failures, that just tells me that we're not going to have a soft landing. I used to say it would be very difficult to achieve a soft landing. I think now it's going to be-- even a mild recession is going to be-- is going to be hard to come by. I think it's going to be a more-- I say a severe one, but a more normal recession that we have seen in the past.

- Matt, you mentioned freight volumes. What's interesting is that as far as the consumer is concerned, Amazon in their call talked about the consumer going towards lower-priced items. Overstock had similar commentary as well. Yet you still have visa and Mastercard that is saying that there's still spending going on. So how do you decipher that?

MATT MALEY: Yeah, it's one of the things-- and I was just looking at this yesterday because, as you mentioned, Visa earlier this week, and Mastercard, I think it was yesterday. And American Express was about a week and a half ago or so. These companies reported some good things, but their stocks haven't done anything. Visa initially opened higher but has actually traded off since then.

Mastercard, I mean, everyone was talking about how great their numbers were and how great the consumer is. And yet the stock traded off a little bit. We're also seeing the retail stocks, the XRT retail ETF, that's badly underperformed the stock market so far this year. So even though we're hearing all this stuff of positive news about the consumer, we are hearing these anecdotal issues that they are starting to move down a little bit.

And the forward-looking-- the stock market is a forward-looking enterprise. When you see these stocks like Visa, Mastercard, and the retail stocks trading lower, it tells me that they're seeing that maybe that demand isn't going to remain so strong in the three to six months into the future.

- So, Matt, where do you go? It sounds like you're pretty negative on equity. I mean, do you go into fixed income? What do you do right now?

MATT MALEY: Well, I do think raising some cash, a little bit more cash. Again, you're getting paid to wait now. Money market funds or even just T-bills, if you run-- you can buy them directly from the government, no commission or anything, three or even six months out and just roll those. I mean, you're getting 4%, 5%, 6%, depending on what you can get. So that's not bad. It pays you to wait, I guess is my point.

But there are other areas. I mean, I tend to be more in the defensive area. But it's funny, we talk about one defensive group, it's the defense sector. And these stocks have been acting very well lately.

And I guess my point is the world is not becoming a safer place. They're starting to tone down a little bit on the top with China just this week. But we have, obviously, Ukraine and Russia. We have issues with Israel and Iran, et cetera. I don't think military spending is going to go down anytime soon. So that's an area where we can hide.

And I still think the energy sector is one that, even though oil prices are down back below $80, they'd have to drop below $60 for these companies not to be profitable. So I think there's still some good plays where you can still make some good money.

- All right, hope is not all lost. Matt Maley, Miller Tabak chief market strategist, good to talk to you, as always.