U.S. markets open in 19 minutes
  • S&P Futures

    4,173.75
    +27.00 (+0.65%)
     
  • Dow Futures

    32,954.00
    +197.00 (+0.60%)
     
  • Nasdaq Futures

    13,310.75
    +82.00 (+0.62%)
     
  • Russell 2000 Futures

    1,936.10
    +14.30 (+0.74%)
     
  • Crude Oil

    87.90
    -1.11 (-1.25%)
     
  • Gold

    1,798.00
    +6.80 (+0.38%)
     
  • Silver

    20.26
    +0.42 (+2.11%)
     
  • EUR/USD

    1.0196
    +0.0008 (+0.08%)
     
  • 10-Yr Bond

    2.8010
    -0.0390 (-1.37%)
     
  • Vix

    21.48
    +0.04 (+0.19%)
     
  • GBP/USD

    1.2107
    +0.0037 (+0.31%)
     
  • USD/JPY

    134.8180
    -0.1520 (-0.11%)
     
  • BTC-USD

    24,073.68
    +923.98 (+3.99%)
     
  • CMC Crypto 200

    562.77
    +27.54 (+5.15%)
     
  • FTSE 100

    7,495.26
    +55.52 (+0.75%)
     
  • Nikkei 225

    28,249.24
    +73.37 (+0.26%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Current recession pressures are something 'we haven't seen in about four decades': Simplify ETF CEO

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Marta Norton, the Americas Chief Investment Officer of Morningstar Investment Management, and Simplify ETF CEO Paul Kim join Yahoo Finance Live to break down the market outlook amid recession scares and inflation, the Fed's interest rate hike cycle, and energy markets.

Video Transcript

[MUSIC PLAYING]

DAVE BRIGGS: A solo mission today, huh? All right, here's how the markets closed the week, on a high note. The Dow up 655 points, more than 2.1% on a Friday. The S&P up nearly 2%. And the tech-heavy NASDAQ, a 201-point gain, nearly 1.8%. What a way to round out the week.

Let's bring in Marta Norton, the America's Chief Investment Officer of Morningstar Investment Management, and Paul Kim, Simplify ETF CEO. Nice to see you. Marta, let's start with you. What drove this strong finish to close the week?

MARTA NORTON: It's kind of a microcosm of what we've been seeing, really, year to date, with the market selling off, having some relief rallies as we continue to process what the impact is going to be of inflation, what the impact is going to be of the interest rate hikes that we're seeing, and how strong the economy really is and whether it can weather it.

So I think today, as we start to see, and for the broader week, take a look at earnings and get a sense for some of these companies, some of these banks that are potentially healthier than maybe people had thought, I think that gives a little bit more momentum to the idea that maybe the recession, if it's here, won't be as severe as people expect.

SEANA SMITH: Paul, what do you think? Are you in the camp that we might already be in a recession? And I guess, if you are or you aren't, how bad could it potentially be?

PAUL KIM: There's more art than science to a recessions. So I think technically, we're probably pretty close, but it's a judgment call because we haven't seen these same set of factors, with a very healthy job market, with nominal GDP growing at such a high rate because of the high inflation, while at the same time starting to see some of the technical triggers of negative real rates.

So it's a mixed bag. And that's kind of what we're seeing in the market, right? It's volatility on both ends. And today, it was a very positive volatility day. But we've had plenty of recent negative ones.

RACHELLE AKUFFO: And Marta, when you're trying to plan for the short-term versus long-term, we saw financials doing well today. Obviously, a lot of that news coming from the bank earnings today from Citi. But what is your longer position in financials? How do you see them as a hedge against inflation and potential talks of recession?

MARTA NORTON: Sure. So with financials, we actually don't think they're a great tool for inflationary periods whatsoever. And I think that's some of the concerns surrounding financials, surrounding banks. They do tend to do better when we start to see interest rates tick up. So that's in their favor right now.

But when we're taking a look at financials, we're focused less on the near term. In fact, any sort of near-term volatility is actually more of an opportunity for us to maybe increase our position. And we're focused more on this long-term estimate of what their fair value is.

And so for us, banks and financials are a bit of an opportunity. When we survey the US market, we think banks and financials more broadly are one of the more attractively priced areas. The market in general entered this period at pretty high levels of valuation. So even though it's come off, it still seems expensive to us to some degree, but financials a bit less so.

DAVE BRIGGS: Paul, you say you're not buying this narrative about having hit peak inflation. You see a stagflation base case. Why?

PAUL KIM: Well, for one, we just had a 9.1% CPI print. So whether it comes down from there, it's still very, very high historically. So I think inflation is here to stay for a bit, at least maybe a couple of years even. And the backdrop of that, you're starting to see the sort of tightening start to bite and the recessionary pressures building.

And so that combination, again, very unusual is not really something that we're used to. And certainly not seen in about four decades.

SEANA SMITH: So Paul, what does that mean then for Fed policy? Does the Fed need to get very aggressive, do that 100-basis-point hike at the end of this month? And then what does that mean for the fall?

PAUL KIM: So what they will do versus what they should do is kind of a debate. So what they should do for a supply-driven stagflationary pressure is really help encourage investment, which is ironically lower interest rates and help sort of build a case for fiscal stimulus and sort of productivity gains. What will likely happen is what the market is pricing in, which is doing something about inflationary pressures today. And that's raising rates in the face of slowing growth.

And so that's the conundrum. Long-term, we should be encouraging investment. But near-term, it's very likely we're going to see the opposite.

RACHELLE AKUFFO: And Marta, I want to ask you about the strong dollar, perhaps opportunities that you're seeing in non-US currency, but also some of the risks that come with that in this sort of environment.

MARTA NORTON: Right. I think the currency question is a real conundrum for us. So as we look at the valuations, say, the yen or the euro, those look attractively priced to us, actually at pretty steep discounts. And you can take a look at the US dollar relative to the euro. And it's at parity, which we haven't seen in decades.

So that, at least from a historical basis, looks like a valuation opportunity. But then when you think about the dynamics that are at play, the Fed policy here, the policies that we're seeing overseas, what that can mean in terms of how investors are incentivized to kind of prioritize one currency over another--

And then when we think about economic risk, all of those factors are at play. So for us, there's certainly a valuation case for some of these exposures. But there's also a reason to temper position size so that you're not overexposed to what could be some fundamental headwinds.

DAVE BRIGGS: Paul, a number of guests yesterday telling us cash is king in this environment. And given what the markets just did today, hard to buy that number. You say energy is king. Where are the opportunities that this juncture?

PAUL KIM: And I agree. I think we just discussed currencies. But if you put a filter of energy-independent markets and economies versus those that are net importers, I think that's a pretty good way to explain a lot of the currency relative performance. And so I think energy is the biggest driver, the biggest wildcard, whether supply is going to be able to meet even diminishing demand, all the geopolitical risk that's still out there, as well as just the lack of investment over the past decade or so.

And so you just have a deficient amount of supply. And how it plays out is the story. And I think that is very much on everyone's radar and should remain a big driver because that, I think, explains a lot of the narratives we're seeing today.

SEANA SMITH: And Marta, when we're trying to dissect some of the narratives that we are seeing today, a lot of it is tied back to the consumer. And we got that retail sales number out this morning. It was better than expected. We saw that 1% move higher. Is the consumer even more resilient, maybe, than we initially thought.

MARTA NORTON: I guess when I think about the dynamics that we're in today relative to historical brinks of recession, I think you can argue that the consumer is healthier today than previously. You can point to the pandemic packages that helped the consumer. You can point to the fact that consumers weren't spending a lot of money for a few years' time. And so there's this of pent-up wallet that they have, I guess, so to speak.

But I think as we think about just a relative contrast, potentially we are in better shape than we have been historically. That doesn't mean that the consumer can take endless amounts of inflation. But it does put us in a better position. And I think it's one reason why the market is kind of seesawing back and forth between trying to price in what could potentially happen here.

SEANA SMITH: All right, Marta Norton and Paul Kim, thanks so much for joining us.