John Davi, CIO of Astoria Portfolio Advisors, will attend the final round to discuss the day’s market action and how his company is building portfolios in that market.
MYLES UDLAND: Here, too, the markets are under pressure as we approach the closing bell. The NASDAQ is currently down 3 and 1/2%. The S&P 500 saves around 2%. Again, just three trading days after we saw S&P and NASDAQ close at record highs.
John Davi is with us now to learn more about everything that is going on in the markets. He is the founder and CIO of Astoria Portfolio Advisors. John, thank you very much for participating in the program. So let’s start with some sort of overview as you watch the setup sit here today, day three – this sell-out, is this the start of something bigger for you? Or is this a kind of unwinding of all of the things we have reported on in the past few days?
JOHN DAVI: You know I wouldn’t let up just yet. I think there are parts of the secular growth market that are expensive, you know, some single names that are crowded, vulnerable and too expensive. But I think if you look at the bigger picture here’s what we do at Astoria Advisors: if you look at the macro data, you have PMIs that flex higher.
You have housing data that is improving. If you look at revenue, we have bottomed out. The income is higher. You have the Fed who basically gave you this embedded put because they are telling you they are not going to raise interest rates and they are going to do quantitative easing. So I still think stocks are bought.
You can visit our website Astoriaadvisors.com. We have been constructive about stocks since late March and our portfolios have benefited from it. The only additional consensus position we have now is that if you look at what has happened in the past three days, while the technology is sold out, the economically sensitive sectors of the market are actually outperforming.
So that would be like energy, industry, materials. And for me that is an indication that market leadership has changed. So you know we were in the late cycle for many years. Everyone talked about it.
Now we’re a classic early cycle. And if you look at the performance of energy, small caps, and mid caps since March, they are market leaders. So we’re flipping our portfolios to be more cyclical.
MYLES UDLAND: And if you think about that rotation, John, obviously because of the way how so many indices, as you know, at least we’re going to be following cap-weighted media here, at least on NASDAQ and the S&P, this is certainly a challenge when you know 8% of market cap is in an executive position while the 23% weighting in the five FANG names is coming under pressure. Do you think that kind of distortion I think could create a worse looking market, maybe if you can put it that way when there is actually under the surface?
JOHN DAVI: You know it’s great on the way up, you know, Tech Leads, you know, the SPY, the ETF. But on the way down you get hurt. So we mainly invest in multiple factors as research shows that if you combine factors in a portfolio, e.g. B. Quality, you know, small-cap, you know, dynamism. So I would … I mean, as a company, I can tell you that we mostly invest through factor ETFs, so we lean on market cap. And I like days like today and Friday last week, so.
MYLES UDLAND: And then you outlined how we transitioned into this classic type of early cycle setup. When you look back and maybe take stock of how we got here in June, July, and obviously at the crescendo we saw in August, what do you think it was – did this move perhaps? And then it’s really just some kind of reopening, maybe the easiest way of saying it, that’ll step in here as we get closer to autumn?
JOHN DAVI: You know, good question. I think we had a pretty bad bad bear market, pretty bad recession. And as with all other cycles, there is a beginning and an end. And I think we are at the beginning of this new cycle.
So when you look at the leading economic indicators, you know that they have deviated from the lows and are jumping higher. Link that to the Fed, you know, watch the price. Price action is a very, very important indicator, and energy, industrials, cyclical stocks, small caps are their entry points.
I think if you want to be in the secular growth business, you have to be really careful about what stocks you buy because I think some of them have been relentlessly offered by people who are not really investment professionals. You know, kind of day traders, gamblers. So you really have to choose what I don’t mind being more active in this type of market. I think you want to be active as opposed to passive.
And I think this is a good time to pick stocks. We are not stick pickers in and of themselves. We build quantitative macro portfolios of ETFs. Sometimes we use baskets of stocks, but we’re not like that – we have no view of one stock versus another per se. I think you want to be careful, especially since we are in a fragile period in the market where September, October, you know, is quite volatile historically.
MYLES UDLAND: All right, John Davi. Founder, CIO of Astoria Portfolio Advisors. John, thank you for participating in the program. Nice to get your thoughts.
JOHN DAVI: Thanks for the invitation.