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The Fed is unlikely to make taper announcement in September: Strategist

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Shawn Cruz, TD Ameritrade Senior Market Strategist, joins Yahoo Finance to discuss the outlook on the overall market and Fed expectations.

Video Transcript

- --continue our markets conversation now with Shawn Cruz. He is senior market strategist at TD Ameritrade. Happy Friday there to you, Shawn. And boy, what a nice rally we've got underway at the moment. What do you think is the catalyst for today? Or did investors just feel comfortable getting in at this point, at these valuations ahead of the weekend?

SHAWN CRUZ: I think investors were comfortable getting in at this point. And I think there is something to be said about whether it's evaluation. But also, I always say, just think about the gigantic pile of money out there in the world. It really wants to find somewhere to go. It doesn't want to just sit there in cash. And there just aren't really many alternatives out there to equities.

I think markets got a little bit spooked coming into the week. There was discussions of the Fed taper, we had the Delta variant still looming over the market. Then you also had China coming out and sort of shaking things up for private businesses. And that's been a story that's actually been developing over the past weeks. So I think the market had that driving some of the volatility all week, but it is feeling a little bit more comfortable coming back into some of these large cap names.

The one area I am watching, though, and this is one that is sort of a good metric or barometer of how investors are feeling about just the US economy here at home, and that is the Russell 2000 of small cap stocks, which tend to be a little bit more oriented towards activity, or expectations for the US economy. Those are coming down there. They're kind of flirting with correction territory here. And they are at what I think is a very significant support level.

So I am watching the Russell 2000 now to see what it does, as we start to go into next week, where we're going to hear from the Federal Reserve and a lot of other central bankers at Jackson Hole.

- For sure, yeah, that will certainly be a catalyst for next. Week and our Fed correspondent Brian Cheung is going to be there on both the 26th and 27th, bringing us all the highlights from Jackson Hole. What are you looking for next week? I mean, we're in the dog days of summer now. While volatility is here, volume has been quite low. So what are you looking at for the next two weeks here in August?

SHAWN CRUZ: I'm going to really be keeping an eye on what happens with the Delta variant. And the reason why is not only just the potential for more restrictions put back in place. I'm here in Chicago, they just reinstated the indoor mask mandates. Looking at how you see officials, elected officials, respond to this rise in the Delta variant, I think, has a lot of important implications. That's going to be the big thing I watch next week.

Also getting some of these hints from the Fed. Anything we hear from them about tapering timeline next week is going to be key. Because I think it's really important to keep in mind, the minutes everyone was referring to, talking about, that we got this week from the Fed July meeting. If you take a look at measures of economic surprises, I was looking at the Citi Economic Surprise index, those are still more or less in positive territory. And almost immediately, almost the day after that meeting ended, that started coming in negative, and it's been getting more and more negative ever since then.

So the economic data right now is really undershooting us. Goldman Sachs come out and dialed down their GDP expectations as a result of the Delta variant being a headwind for the economy.

So I think, although there was a little bit of fear around this tapering, or the potential for an announcement of taper in September, I'm happy to go on the record and say I don't think they would make that announcement in September, the way we're going right now, the Delta variant and how it's starting to impact some of that economic activity.

But you're going to get a fresh sort of a fresh take on that from the Fed next week at Jackson Hole. And that is going to be much more up to date with the impacts of the Delta variant, and what it's been doing to some of the economic data. You'll get a little bit more of a fresh take, and I think there's going to be an indication that they're willing to hold off.

And we even heard that from the Fed's Kaplan that if the Delta variant really does become more of an issue, then he would even be willing to maybe hold off on tapering, and he's one of the more hawkish members of that committee.

- All right. Shawn Cruz, senior market strategist there at TD Ameritrade. Thanks so much for being with us. Have a great weekend.