The S&P 500 shows how wrong Wall Street has been all year round: Payne Capital Management Pres.

Ryan Payne, President of Payne Capital Management, host of the Payne Points of Wealth podcast, joins Yahoo Finance to discuss the outlook for the S&P 500, tech sector and European markets.

Video transcript

JARED BLIKRE: Adam.

ADAM SHAPIRO: Jared, thank you. We will continue to talk about these markets and much more. And we’re going to do it with Ryan Payne. He is chairman of Payne Capital Management and host of the “Payne Points of Wealth” podcast. Glad to have you here. And welcome to the stream.

I was excited when I read the note you recently sent to your customers. Because you pointed out that so many analysts were saying this year will end on the S&P around 4,200. And you asked the question, is it time for Wall Street to increase its annual projections, or are we expecting what others say he’s coming our way? What do you think?

RYAN PAYNE: Well, first of all, I think every analyst can retire now and give up because he’s never right. But I think the bottom line here is that it shows you how wrong Wall Street has been all year round. And if you look at earnings per share on the S&P 500, every quarter Wall Street has to keep raising its earnings estimates because they’ve been so bad. At the end of the year, they could be about 40% wrong, based on what they thought at the start of the year.

So I think there is a narrative right now. Because we saw quite a bit of selling earlier in the week. It didn’t last that long. In fact, we finally got a bit of a sell. But are we now coming to a point where the markets are peaking? We are at record levels. You know, we have this proverbial level of sugar because the trillions of dollars created by the government have just been put into the economy.

And I think we have to watch if the momentum right now, Adam, is so great. If you look at the S&P 500 over the past five months, it has risen more than 5% every consecutive month, which is the first time since 1956. And when that happened in 1956, the market continued to rise. by 25%. Can we see the same thing right now? I am in the camp to say yes. We could see a merger here.

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ADAM SHAPIRO: OK, so let’s talk about this merger, especially with regard to the S&P 500. Because we are a lot of former passive investors, VR, 401 (k). We are very risk averse. We fix it and forget it in an index fund linked to the S&P 500. But you also point out that only a few stocks in the S&P 500, you know, would explain some of these dramatic increases. Is that a warning to those of us who put it and forget it in these stocks? Obviously, Apple, Microsoft, Amazon. What are you saying?

RYAN PAYNE: Yeah, I think right now, if you look at it, they’re 22% of the index. So if you are thinking of buying the S&P 500, right, that assumes that you have 500 stocks, you have wide diversification. But you don’t. And the only thing you just mentioned on your show is interest rates. And interest rates are rising. Even though that 10-year fell back to 1.3% from 1.7%, it is still well above the half percent of last year this time around.

So I think if we think inflation is real – and I suspect it is. If you look at the workforce, the current shortage, it’s hard to find workers. We have seen the prices of raw materials rise. It’s not great for big tech. And to put it in perspective, if those five stocks were down 10%, the last 100 stocks on the S&P 500 would have to go up 75%, just to keep the index level. So I think you absolutely need to expand your exposure here.

And we also see Biden going down hard here, looking at anti-competitive practices. Are they using our data? What they are. So I think there are a lot of headwinds here. And you have very high valuations on these stocks. So by buying the S&P 500 you are simply buying a tech fund in drag. You know, so you have to be careful here. If you want to get this reopening business, you need to expand your exposure. The S&P simply won’t do it.

ADAM SHAPIRO: But if I don’t want trade reopening, a lot of people were down on tech stocks at the start of the year. And now they’re back in tech, tech, tech. And the point is, when you look at the giant that is Amazon, it would take years for the federal government to break them down, like you just mentioned about the collapsing Biden administration. We know he’s signing the OE, as you and I are talking about right now. So for those of us who have benefited – you know, the S&P 500 up 16% year-to-date, much, as you just pointed out, thanks to technology – why? wouldn’t we just want to stay in it, stay with the technology?

RYAN PAYNE: Well you know the old saying goes that too much of a good thing becomes a good thing. And if you look at Amazon in particular, it has underperformed the market by around 20% since last September, which sort of coincides with the reopening of economic trade, right? It was then that the news of the vaccine started to come out. That’s when you start to see money entering this rotation of cyclicals, energy stocks, financials, which have outperformed significantly this year, well above what big tech did. And that’s 60 times the profits over time.

And if you look at big tech in general, you know, Facebook, 30 times the profits over time. Microsoft, 30 times the anticipated profits more. These actions contain a lot of good news. And you can come back right after the tech bubble burst in 1999, 2000, Microsoft, at that time, was one of the most important components of the S&P 500. They tripled their value. profits from 2000 to 2014, but because the valuation was so high, the stock did nothing.

And I think that’s what’s the biggest risk here. This is not a massive sell off of these stocks. It’s the fact that they are not doing anything compared to the fact that other industries, other sectors are starting to recover and are doing it, so much better. And the money will invariably find it where the growth is fastest. And now you are at a point where so much growth is ingrained in these stocks which is why they have underperformed so much over the past six months because we have really seen this dynamic of being locked into trading activity. resume again.

ADAM SHAPIRO: By the way, those of us who are nearsighted and only look at the United States, when you’re looking for growth, do you tell those who are listening to you, look at Europe?

RYAN PAYNE: And I realize, Europe has been a very dirty word, Adam, over the past decade. But yes I talked about it a lot on my podcast. But again, the money is going to find where the best opportunity is. If you are looking overseas right now, you have multiples that are much cheaper than in the United States. Growth rates in Europe will be faster than in the United States next year. It’s hard to believe, maybe because they come from an inferior base here.

But you are starting to see very, very good deals in Europe. You look at the dividend yields. We know how to get abysmal returns right now on your money market fund, the 10-year Treasury again at 1.3%. Well, if you look at dividend growth, it’s going to be around 11% a year for the next two years in Europe, faster than in the United States. And again, growth rates will accelerate. And if you start looking to catch up here, vaccination rates go up dramatically. They are starting to catch up with where they are in this cycle of reopening.

So if you’ve ever missed the boat, have cash, you definitely want to take advantage of the fact that Europe is cheaper. And this is where the money will flow. The dollar begins to weaken over the past 12 months. There has been a small spike here in the short term. But I guess with these trillions that we basically printed over the last year, it’s going to continue to weaken the dollar, which also acts as a little boost for your international exposure as well. It is also a way to hedge your bet in US currency, as opposed to cryptocurrencies or something like that.

ADAM SHAPIRO: Alright, I’m just going to leave everyone a treat that you provide to your consumers that you shared with us, that the average Robinhood customer had about $ 5,000 in their account in February. That’s far less than the average Schwab customer, the average household’s account with $ 320,000 in assets.

It’s good to see you. Ryan Payne is President of Payne Capital Management, host of the “Payne Points of Wealth” podcast. Thanks to be here. Have a good week-end. By the way, he was joining us from New York, one of the largest cities in the tri-state area.