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Chief Investment officer says tax hikes shouldn't change investments

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Kevin Simpson, Capital Wealth Planning Founder & Chief Investment Officer, joins Yahoo Finance to discuss the latest in the markets including when tax hikes may be coming.

Video Transcript

ADAM SHAPIRO: Kevin, good to have you here. And you know, before the opening bell we were setting up for what looked like a day where we might have turned around the past down days but as we're going into the close it's looking like we may be down again. And I guess the simple question is why? Is it the stuff with China? Is it this rolling out of the federal court with Apple, why?

KEVIN SIMPSON: Well, Adam, I don't think the Apple trade has anything to do with the markets being down. I think more than anything, it has to do with the Delta variant being a true third wave of the COVID. It's affecting the markets, it had a huge impact in the jobs report that we saw last Friday. It's affected consumer sentiment and business sentiment.

And we're teed up for next week because we'll get new information from the Empire State. We'll get new information from the Philly Fed on business sentiment. We'll get consumer sentiment out of University of Michigan. And we'll even get some retail sales news next week. So today was an end to what could be the fifth down day, the fifth lower session. And I don't think we've seen anything like that, Adam, since February.

SEANA SMITH: So Kevin, I guess when you're advising your clients here on their position right now, where you're seeing opportunity in the market. There certainly is a lot of uncertainty in the coming weeks ahead. So where are you seeing opportunity and how should investors be approaching the market right now?

KEVIN SIMPSON: Yeah, Seana, I'm expecting that we're going to get a 5% to 7% pullback here before the end of the year, probably after September option expiration into October. So as you position portfolios, I think keeping a little dry powder makes sense. Buying a dip would be a really, really good opportunity. I know we haven't seen a dip more than 4% this year but looking also at things that have pulled back, where there are opportunities, industrials, materials, energy, you know, Jared just went through lots of names that are down fairly substantially just this week. Dow Chemical, ConocoPhillips, Caterpillar, three names with good multiples, very, very attractive dividends, and nice valuations here.

ADAM SHAPIRO: You actually one of them that you highlighted for us that might be a potential for investors to look at is Wynn Resorts. Stayed at one of the Wynn properties years ago in Las Vegas, yes, was two thumbs up. But why would you make that play today?

KEVIN SIMPSON: Well, Adam, they're 34% off their high. The stock had gotten up to $134 a share, it's back down close to $105. The reopening stocks just took a huge jump when we thought we were out of this thing at the outset of the summer.

And if you think about what will take place in the future, we will be back to normal, we may see leisure travel continue to increase and business travel, which I know is taking a step or two back, will come back to normal down the road. But if you think of the commentary on Wynn being down 30% from peak to trough, these are the opportunities where you want to buy low. And someone very close to me once said that good things happen to cheap stocks.

SEANA SMITH: I'm curious to get your thoughts just on what we heard from President Biden last night and just in terms of what this means for the market going forward because as you were saying, the Delta variant obviously a big concern here for investors. It's one of the reasons why we've seen the market pull back a little bit over the coming days. And it sounds like it's going to be a worry going forward.

But from what we heard from the President last night, the fact that he wants to mandate vaccines, he wants employers with over 100 employees to mandate vaccines or implement a testing system. In terms of what this means for the market, does the market look at that as a positive step, a step in the right direction? Or is it still too early to tell?

KEVIN SIMPSON: Well, I think any time you can increase vaccines it's a positive. And if you look at the data, we're seeing this rolling over a little bit. Definitely, the spike has increased lots and lots of people I know to get vaccines who maybe weren't considering it at first. And if people aren't going to do it, having the mandatory testing makes tremendous sense.

So the more this takes place the better. I think we have a better opportunity to have the corporate world take care of it than the government world because inevitably, you'll expect lawsuits and some kind of push-back. But I think it's very, very important and certainly something that will help the economy get back on track. The sooner we're vaccinated as a country, the sooner we get back to normal, the sooner the consumer continues to spend, and it's a great circle of prosperity.

ADAM SHAPIRO: Like the prosperity. Question for you though about when you say there could be a 5% to 7% pullback, you know, loving buying things at a discount. But a lot of people seem to be very nervous about lining up their portfolios in anticipation of tax hikes. Would that be misplaced right now, do you think it's likely we're going to get tax hikes that would jeopardize how you make your investment choices?

KEVIN SIMPSON: Well, that's two different questions, Adam. I'm pretty certain we're going to get tax hikes next year in 2022. None of us like that but we've got to pay for a pandemic that we didn't ask for and I think everything with respect to the stimulus that came so far was appropriate and necessary. I don't know that you want to-- we're not going to change the way we invest based on future tax implications. We're not going to let the tax tail wag the dog. And I don't think investors should also.

As far as a 5% to 7% short-term pullback that we're calling for, that's not something you can do much in the way of planning, you're not going to try to time the market. We're definitely not calling for a massive correction. Regardless of what-- you guys have done a great job all week talking about tapering. Whether the tapering starts this year or next year, it's not until we see higher interest rates, which is a year out before you really need to worry about a market correction.

Market timing is something that's almost an impossible endeavor. We don't try to do it but positioning portfolios for a pullback means having a little cash on the sideline, taking a little profit on positions that have done very well. Maybe writing some covered calls. And as we were talking about earlier, if you see a pullback you can certainly buy the dip and take advantage of it.