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Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi discuss the market action and outlook with Emily Roland, John Hancock Investment Management Co-Chief Investment Strategist.
MYLES UDLAND: But let's stay on overall markets and talk a bit about the rally that we've seen to start the year. As we noted, we saw stocks close at record highs during yesterday's session. Joining us now to talk more about all this is Emily Roland. She's the co-chief investment strategist over John Hancock Investment Management.
Emily, great to speak with you. This morning, I'd love to begin by just taking stock of really the last couple of weeks in markets and what we learned from sentiment, what we saw on the sentiment side. A number of individual names kind of going all over the place.
And, as a broader, you know, investor looking at markets from a top-down perspective, how does that play into the way you're thinking about this current period for financial markets?
EMILY ROLAND: Yeah, thanks for having me again today. And I think, you know, it was pretty unusual to wake up this morning and actually see futures pointing lower. We're not very used to that. And there's been, you know, quite a bit of risk-taking from investors, certainly, and looking at potential pockets of speculative excess in the market this year.
And I think it's a function of, you know, a couple of things. Rates being incredibly low, of course, based on this incredible amount of monetary and fiscal stimulus that we've seen that's drawing investors in. And investors looking for places to allocate capital and trying to find areas of opportunity, potentially parts of the market that look cheap.
And I think that's hard to find. So you're starting to see really kind of broad risk-taking taking place. There are still some areas that have some good catch-up potential in our view. So we have been rotating into smaller parts of the market.
We think mid-cap equities are a place where you could see a nice post-recessionary bounce, especially considering the fact that they're overweight the industrial sector, that should really benefit from, you know, potential fiscal stimulus. Seeing another round of that this year and potentially some infrastructure spending.
And then US value, we think, is a place to look for, in terms of allocating new dollars. A still nice catch-up potential and opportunity to see that rotation continue as we head out through the remainder of 2021.
JULIE HYMAN: You know, Emily, it's Julie here. We've got CPI coming this week. And I know the Fed has, you know, up until now, obviously has been saying they're going to let the economy run a little bit hot as far as inflation goes. Do you think that if we do see an increase in inflation it will be temporary?
Do you think that there is-- what do you think is the likelihood of the risk here that the Fed has to get more aggressive at some point?
EMILY ROLAND: Yeah, Julie, that is definitely the debate right now, and I think it's an important. one. You know, when we look at inflationary pressures, we will see them likely going up in the near term. Not only do you have some sort of temporary or transitory factors as it relates to the vaccine.
So, you know, clearly some issues in terms of bottlenecks and supply chains having been disrupted globally that can put some upward pressure on prices. You've seen these kind of dislocations when it comes to demand-driven disruptions around, you know, things like used cars, where consumers have pulled forward demand for those areas.
We don't expect that to be repeated post-pandemic. So those factors are transitory. And there are some also base effects that are gonna cause inflation to pick up a lot on a year-over-year basis over the next couple months. And the Fed has indicated that they are going to let that go. They do want to see inflation actually picking up and running hot.
You know, it's been a hard ask to generate inflation sustainably above 2% for, really, the last decade, as long as I've been doing this job. So we think it's actually going to be a challenge to get sustained inflation for a long period of time here, as there are some factors that are gonna continue to put downward pressure on inflation.
You think about demographics and technology being wildly disinflationary over the long term. So we actually think it remains well-contained, which is a reason that we're comfortable owning bonds.
BRIAN SOZZI: Emily, speaking of inflation, Bitcoin prices have been inflating at a very fast clip for a multitude of reasons. Are your clients calling you asking how to play the space? Have you develop any strategies to get in?
EMILY ROLAND: Yeah. You know, when an investment theme kind of becomes part of popular culture, I think there is always kind of-- you know, it's a time to kind of sit back and think about whether, again, we might be seeing some pockets of speculative excess building in the markets.
And, you know, I think there's a lot of issues around this. You know, certainly the news around Tesla and the tweets that we've seen out of Elon Musk have been pushing Bitcoin prices higher. And, you know, it feels good on the way up when Bitcoin is surging. But, you know, what happens in this speculative area where potentially you see some kind of precipitous decline at some point?
We don't know right now. It really just trades on sentiment, in our view. It's hard to really sort of identify the fundamental drivers of the space. So it's an area to watch for. We're certainly getting questions on it. We think that there are parts of the market with better fundamentals that are a more appropriate place to allocate dollars today.
MYLES UDLAND: And, you know, just finally, Emily you call out emerging markets here, which is an area that we don't talk much about on the program. Comes up from time to time as an area that looks attractive. What are you seeing there right now specifically? Is that really about what you expect to happen with the dollar, or is there a different story there?
EMILY ROLAND: Yeah, so we've been looking for ways to kind of play the reflationary trade and the reflationary outlook globally, and we want to kind of pick our spot. And one area that tends to have a lot of sensitivity to a weaker dollar is emerging market equity.
So in prior periods where we've seen a weaker dollar environment play out, emerging market equities have outperformed every other part of the global market. So we want to have that exposure. We haven't been firmly in the weaker dollar camp.
And, in fact, we think we could see some upward potential here for the US dollar as US economic growth is starting to look a bit better than it is particularly over in Europe. So we want to be careful there.
But, again, we want to have some sensitivity to it, and we want to remember that investing in emerging markets now is really about owning things like technology companies, consumer discretionary. And it's not sort of your father's emerging market index, which was more based on the commodity or an investment trade.
MYLES UDLAND: All right. Emily Roland, co-chief investment strategist over at John Hancock Investment Management. Emily, always great to get your thoughts. Thanks so much for joining the show this morning.
EMILY ROLAND: Thanks for having me.