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Stock market is ‘unsettled’ and trying ‘to find a bottom’: CAPTRUST CIO

Giles Coghlan, HYCM Chief Analyst, and Michael Vogelzang, CAPTRUST Chief Investment Officer, join Yahoo Finance Live to discuss how the market closed on Feb. 1 as well as the outlook for energy prices, global growth, and Fed policy.

Video Transcript

[MUSIC PLAYING]

- Welcome back to Yahoo Finance Live, everyone. We are going into the closing bell here. And the closing bell has just rung as we're striking 4:00 PM. We're going to go live to that shot in a moment. But first, take a look at the US markets here.

Dow Jones Industrial Average, S&P 500, the NASDAQ, you're all seeing those in positive territory, that as we mentioned before the break, we've got 9 out of 11 S&P 500 sectors still holding onto gains with energy leading the way here on the day and up big by nearly 4%. So we're keeping tabs on that going into the closing cross here on the day.

We've got some earnings that are going to be coming out as well in the form of AMD, the artist or company formerly known as Google, of course, Alphabet, the parent company. They're going to be reporting earnings as well as Starbucks plus another major automotive brand. There you're taking a look at FedEx ringing the closing bell at the New York Stock Exchange. Let's listen in as they ring the closing bell here on the day.

[BELL RINGING]

All right, so the end of trade, that is what we just struck here on the day, end of trade. And this is exactly where we close things out. Dow Jones Industrial average closes higher by about 8/10 of a percent. There you're seeing gains of about 272 points on the day. The S&P 500, that closes in the green as well, 30 points to the upside there, 7/10 of a percent. And giving us the trifecta or the hat trick on the day is the NASDAQ composite. That closes higher by about 106 points. Just about 3/4 of a percent we'll round that off to there.

For more on the markets and how things are moving, we're going to bring in a few of our guests here as we're going to be breaking down earnings throughout the afternoon. We've also got some markets analysis. And first and foremost, we've got Giles Coghlan, who is the HYCM chief analyst, as well as Mike Vogelzang, who is the CAPTRUST chief investment officer. Great to have you both here with us today.

Michael, want to begin with you and just get your takeaway from what we've seen if you want to look back to the month that January was and bring us into your expectations as we move through February. Is the worst behind us? Or is perhaps more of the declines that we've seen during January yet to come?

MICHAEL VOGELZANG: Yeah, that's the $64 question, isn't it? You know, we had a pretty rough January. I think we're seeing a little bit of short covering and some bouncing here off the bottom. You know, I don't think the market's settled yet. We don't quite know yet what the Fed is going to be doing. We don't have a good sense of the path of inflation for the rest of the year.

We have Russia, you know, you hovering over the Ukrainian border waiting to-- waiting to invade. That has a potential to send oil prices up even higher than they already are, which, of course, could slow the economyies down and drive inflation higher. So I think the market's really unsettled. And I think it's trying to find a bottom. But I wouldn't-- we're not terribly bearish. But I just-- I just don't think we're settled yet

- Giles, we talk a lot about the Federal Reserve, of course, here on Yahoo Finance. But one place in the markets that we perhaps should be focusing on as well is what's happening in China. The PBOC, of course, has been maintaining its accommodative monetary policy, cutting interest rates whereas the Fed is moving towards hiking. I'm wondering, do you think now is the time to really be doubling down on emerging markets and Chinese stocks assets specifically? Or are there risks still in that geographical region as well?

GILES COGHLAN: Well, there are risks, but I think technically entering in to, say, China's A50 index looks very good around the 14,000, 15,000 region. It's a key area of support, and it has been holding. So it means risk can be limited quite tightly. So I think there is some attraction there, especially with the People's Bank of China cutting interest rates. The Fed is surging higher. The People's Bank of China is cutting them. There's also due to be fiscal stimulus.

And China's very well-placed in terms of its clean energy metals. It has a whole range of metals that it boasts produces and processes in China, particularly rare Earth metals, also nickel, copper, all of which are likely to see substantial demand in the next sort of three, five, 10 years time frame. So I think China has a lot going for it at the moment. There are risks, but I do think China's A50 index offers really good value particularly now.

- Giles, sticking with you for a hot second, energy sector the big winner here on the day from a sector performance perspective. What do you believe played into some of that activity here?

GILES COGHLAN: Well, oil markets have got this sort of twin factor pushing on them. So first of all, inflation expectations have been dropping recently, which typically you'd see oil prices fall lower, but they haven't been. Now, there's been geopolitical issues with Russia and Ukraine. There's questions about OPEC, whether even if it does increases production level, can it-- can it actually meet that quota? There's also been a series of low inventory demand levels. We've seen the EIA has-- eight out of the last nine inventory reports have been draws.

So the near-term factors keep driving oil higher. And I think as long as there's that Russian-Ukraine issue in the background, it doesn't give anyone confidence to be shorting oil, especially if OPEC can't really ramp up production. It does put the pressure on the UAE and Saudi Arabia. So perhaps if those two nations could increase production, we might see some downside in the oil markets. Until then, it does look like oil is heading on the way up to $90 and $100 a barrel.

- Mike, I want to stick with the topic of the energy markets and specifically energy stocks with you. Because for January, we saw the S&P 500 energy sector was the only major sector in the green, up nearly 20%. I'm wondering, is that outperformance a little bit long in the tooth and something that investors should be wary of in terms of how far and how fast this has run up? Or is there still further for energy stocks to continue rising?

MICHAEL VOGELZANG: Yeah, we think most of the easy money is gone. Most of the money that was-- when oil was coming still off the COVID bottom has been made. But you know, understand-- we think Giles is right. There's still a lot of pressure, at least short-term pressure on the upside. The question we have is, what actually happens to inflation and, more importantly, the global economy in the second half of 2022?

You know, people are starting to use the R word, that is, Recession, for 2023. So if the Fed continues to raise rates at the same time the economy continues to-- to roll over, we think energy prices will be significantly weaker by next year. So you know, it depends on your time frame. I think you could probably make a little bit of money if you bought some in anticipation of a Russian-- Russian invasion of Ukraine.

But you know, I think the-- I think the weakness in the global economy will eventually trump that-- that demand and that oversupply or that undersupply. And we'll see some-- we'll see some softening. We've generally been overweight our energy exposure. And we're beginning to bring that back in line and probably a bit under. So, yeah, I would guess that most of the easy money is gone.

- Mike, you know, sticking with you for a hot second as we're standing by for some earnings that are set to be coming out any moment now, when you think about the tone that the companies that are reporting this week and particularly today as well where we've got Alphabet, we've got, of course, the advertising side from Alphabet and all of their other bets as well, cloud included. But you've also got a semiconductor name in AMD, and then you've even got a food service, food beverage service company in Starbucks. You know, what type of tone do you believe that will strike for the rest of this earnings season from these companies and even a major automotive manufacturer as well later on?

MICHAEL VOGELZANG: Yeah, wow, that's a really wide range. And I-- and I think it's impossible to encapsulate that in a pithy phrase, right? I think that the biggest, largest, most-dominant companies we've ever seen, the Facebook and Alphabet and-- and Amazon and Microsoft and Apple, I think those companies are so large, and they're such huge cash flow generators, growing their earnings, growing their margins, growing-- growing their profitability and their cash flow that those are, you know, those are all-- they are the true unicorns, right? We overuse that word too much now.

I think, you know, the consumer issue is a problem. I mean, take a look at what's happened to the consumer names that-- that had demand pulled forward because of COVID, whether it's Teladoc or Peloton or Zoom. Those have imploded, right? The demand-- they pulled so much demand forward that now as it's normalizing we're seeing those stocks really, really struggle.

So it's a wide-- it's a wide path. It doesn't take easily to a single-- single sort of characterization. You know, we think the financials are a little tonar. We-- we like them. We like the tone that they're coming from. We think obviously the UPS numbers today were terrific news for the industrial delivery side of the economy. So you know, again it depends on the pocket you're in. Depends on the pocket you're in.

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