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The Fed is ‘easing back on the gas pedal’ with tapering: Analyst

Ross Bramwell, Homrich Berg CFA Principal joins the Yahoo Finance Live panel with the latest market action.

Video Transcript

ZACK GUZMAN: I want to focus in on the market action we're seeing play out today, as, of course, we got some interesting updates not only on the labor front with job openings still showing us a shaky recovery here in the wake of the COVID pandemic, particularly those sectors that had been hardest hit and bounced back cooling off yet again, but also updates from the Fed in terms of the thinking there around the timeline around tapering, as we got updates earlier today about the timeline there. And it's pretty intriguing when you dig deeper into how that could go for the Fed and what we're expecting ahead on that front.

And for more on all this, I want to bring on our first guest to reset us here in the back half of the show today. Ross Bramwell from Homrich Berg-- he's CFA Principal there-- joins us right now. Mr. Bramwell, good to have you on the show with us today. I mean, just kind of hearing the timeline issues around tapering, that was the big update for me.

According to the Financial Times, the discussion there with James Bullard, St. Louis Fed president, talking about tapering ending in the first half of 2022, beginning at some point in 2021. That had been a question mark and, again, kind of a decoupling of the underlying economy and where the stock market's at. I mean, what's your reaction as you see this kind of recovery a bit faltering here?

ROSS BRAMWELL: Well, I think there's kind of two things that we really kind of want to focus on when we're talking about tapering and kind of what President Bullard was talking about. You kind of have the tapering which is the Fed really just kind of easing back on the gas pedal. And it would not be-- I think Chairman Powell really kind of laid out the case that, hey, we probably are in a position to start that this year.

But really raising rates is really kind of the tightening, and that is much further off. So I think it does kind of make sense, hey, if over the next two to three quarters, I think the Fed really kind of wants to be in position to, OK, let's kind of get through this tapering. Let's kind of reset. Let's kind of see if inflation really is transitory, as we have been kind of really putting our flag in the ground saying it's transitory. Or it's really more of a sticky situation with some of these inflation data points.

And I think the Fed's going to kind of want some time in between the two. So it would not surprise me if they begin to kind of taper towards the end of this year and that they do. They kind of want to get through the first or second quarter because six to nine months after that, they're then going to be talking about, when do we make the first rate hike? So really, that timeline doesn't surprise me too much.

AKIKO FUJITA: And how much of that do you think is actually priced into the market right now? So much of the messaging around the timeline has really been about sort of keeping a close watch on investor expectations, although the Fed doesn't necessarily couch it that way. Do you anticipate that this is kind of the perfect scenario for the Fed being able to get that message out, or is there still risk of some kind of volatility around this?

ROSS BRAMWELL: The Fed has been communicating around this, I mean, even over communicating around this for the last six, nine months, even 12 months. I mean, they were talking about, hey, we're not even thinking about thinking about it. And then they're thinking about thinking about it. And now they're actually starting to talk about it and kind of starting to lay out a timetable. So really, when we begin to get to the actual tapering, I really don't think it's going to be too much of an event I think people have been prepared for.

And if you think about it, where rates are still so low, if they begin to taper and rates start to begin to inch up or getting towards some key levels where maybe we could break out to a little bit higher, really, I think most people are going to see that as a sign of, hey, it's an indicator of an improving economy.

Really, right now, where you're starting to see some of the growth kind of falter, maybe some weakness in retail sales-- you know, maybe people are worried about inflation-- you're starting to see GDP estimates come down-- corporate earnings, you know, a little bit flatter, although still growing-- you know, I think if rates start to increase a little bit because the economy is improving-- we don't need as much of the stimulus-- I actually think that could be-- that actually could help sentiment over the next two or three quarters.

ZACK GUZMAN: You know, when you look at kind of the best way maybe for investors to be playing this, it is interesting to see kind of the renewed strength among the big tech names today, Netflix hitting a new intraday high as well. But the expectation that eventually interest rates are going to be moving higher. So I mean, if that's the case, would your advice be here to really lean in more on those names that we saw get hit pretty hard earlier in the year as rates moved higher-- or yields, I should say, moved higher-- versus maybe some of those other pieces of the sectors that we watch in the cyclical side, like financials and industrials?

ROSS BRAMWELL: Yeah, I think there's really two ways to play this. And honestly, we've been telling clients to kind of use both. It's really kind of a barbell approach. As you mentioned, on the tech side-- and I'll hit that one first-- you did. You kind of saw this renewed growth and kind of momentum in the FAANG, FANMAG, you know, those handful of stocks, in August, really contributing to much of the performance, the S&P 500 and also to their individual sectors.

What's interesting, if you look back over the last 10 years, you know, some of these what you call tech names-- and they've been split out into other sectors as well, but these kind of platform names, they really have shown some defensive attributes as well. I think going back over the last 10 years, you know, in the down months, some of these tech names have actually been up over 70% of the time. So they have kind of been defensive.

So I think if you are worried about growth or are worried about, hey, what does it look like on the other side of the Delta surge, these tech names can still be positioned to do well. But then I think you also do want some cyclical names. You know, I think industrials where you have this transition from the federal government was doing direct checks, and now that fiscal stimulus is going to be in the form of infrastructure, you know, going towards projects. so I think there's some tailwinds there because it is kind of tied to the cyclical nature of the recovery.

And then on the financial side as well, another cyclical where you have a steepening yield curve. You have M&A and IPO activity, which is still good for the banks. Asset managers are in a very good position. You have loan loss reserves, which are actually kind of decreasing at this point.

So I think you can still do that barbell approach where you want to have some exposure to the cyclical nature, thinking that, hey, the market's eventually going to start looking past this surge, the same way you did it in the spring of 2020 when we had some of the worst data around the pandemic. The markets were already looking out, you know, three, six, nine months. I think they're going to start doing that over the next few weeks here in September. So I think it could be a fairly good backdrop into the end of the year.

ZACK GUZMAN: All right, Homroch Berg CFA Principal Ross Bramwell, appreciate you coming on here to lay all that out for us. Also, I love the look. The backdrop, the tie, everything's working there. Very good stuff.