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Investors can expect 'fits and starts' on the path to recovery: Strategist

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Key Private Bank Chief Investment Officer George Mateyo joins Yahoo Finance Live to discuss the latest market action.

Video Transcript

- We want to shift over to what it all means, of course, for the market with our first market guest here in the back half of our show today. With George Mateyo, Key Private Bank chief investment officer joins us right now.

And George, I mean, when we look at what's going on right now on the 10 year. Yields dipping down. Some people are making, you know, a bit more of that move and what it means for growth. As Emily was just talking about, earnings continue to be strong here. But what's your takeaway as where we sit is moving farther and farther along in the cycle right now?

- Yeah, good afternoon, Zack. Thanks for having me. And I think it's important to recognize that we're probably going through a couple of transitions right now at the same time. And investors always kind of shun these things and they are a little fearful. But overall, I think we got through them OK.

I mean, the first one, of course, is this deceleration in growth, right. We've seen this massive lift off and growth since the pandemic. As you mentioned, yields are kind of stalled here a little bit and kind of gone negative. And start to decline a bit, sort of causing some concern. But really, the overall growth is still pretty strong.

So I think there's some technical factors that are causing the yields to be as low as they are. And once those alleviate, I think we're likely to see yields move up again in the second half of this year. So secondly, we have to contend with the Fed and with their transition as well both on the leadership side and also with respect to policy. And then third, as you mentioned earlier, we've got the Delta variant as well to consider in terms of transition potentially to a new wave of cases in the COVID-19 situation.

- No question, the concerns around the Delta variant seem to be weighing on a lot of investors. Although, we haven't seen the kind of solve that we saw a few weeks ago. We got those comments from Neel Kashkari saying that he does expect that to sort of limit the recovery in the labor market. How are you looking at some of these headlines we're getting day to day in the context of the overall recovery?

GEORGE MATEYO: Well, sure, right. I think he's probably got a different point of view there. Although, we disagree slightly in the sense that we think some of these headline stories around the variant actually will be a little less severe than what's advertised right now. We start to see, for example, cases start to moderate in other parts of world, such as India and the United Kingdom, where they were actually seeing some significant peaks earlier this summer.

As they've receded, we kind of think the same thing might happen here in states, where probably about 30 days from now or so, we went to the peak of cases. But afterwards, they might start to descend a bit further from that point going forward. At the same time, fatalities, most importantly, fatalities are still very, very low. And that for us suggests that the lockdowns that were promised earlier last year might actually be avoided this time going forward.

- Now, the trickiest thing for me seems to be, you know, if you listen to the experts on the public side, they're talking about-- on the public health side, they're talking about, you know, this obviously is a better positioning for us relative to what we saw in prior spikes in cases. You know, you got hospitalizations and deaths still down quite a bit. Obviously, the vaccine is still doing its workload here to keep people out of the hospital.

But when you think about how it impacts the market, you know, we saw that earlier, it bottomed before-- you know, cases bottomed when the worst was over. But there is still a bit of an overhang in really how investors might react to the idea of masks coming back. We saw, you know, the cruise lines get hit off of the news. I mean, how do you look at, maybe, how investors should be rebalancing here if this is a time to be doing so?

GEORGE MATEYO: Yeah, well, in general, we still like risk assets. So we still kind of favor stocks over bonds and a balanced portfolio. We still think there's some good upside there from here in the next 12 months or so as we continue this reopening scenario. So surely, there'll be some fits and starts along the way. And hopefully, we can avoid some of the more draconian measures you talked about. Masks might be something we have to contend with.

I don't think the vaccine-- I'm sorry, I don't think the virus is ever going to go away completely. And I think investors might have to come to grips with the fact that we could be talking about this for quite some time. On the other hand, alternatively, we do not see massive restrictions and positions that we impose that could cause the economic activity to completely stop like it stopped-- like it happened last year.

So at the same time, we've got stimulus working through the economy. And we mentioned during the break, we talked about the fact that earnings growth has been remarkable. Earnings is likely to trend even higher from here. So we still think that there's some upside potential for further earnings growth. We've also seen topline revenue growth accelerate as well. And margins continue to be quite strong despite the fact that we start to see wages move up so slightly from here.

So overall, again, we continue to have a risk assets. We would be positioned a little bit for a rise in bond yields from the current levels. And then thirdly, we'd also re-emphasize quality assets and these quality securities in this time of uncertainty as we go forward also.

- George, what does that mean, I mean, from a strategy standpoint? You think about August, traditionally, it's sort of lighter trading. And so we've seen sort of a, you know, any type of data that can really move the market in some way. But if you're thinking about what's to come here in the fall, the potential for inflation to stick around a little longer, do you sort of stay the course or is this kind of a time to increase exposure in certain areas that you think are really good opportunities?

GEORGE MATEYO: I think it's always a good time to take stock of what you own and know why you own it. So it's always a good thing to do that irrespective of where we are in the cycle. But considering our view and the fact that we're more constructive on the economy going forward, we're still some constructive also on the strength and the future direction of this virus. We still think that risk assets are preferred.

We also like quality assets in general. So some high quality companies that really can shine through in this environment is really what we prefer to invest in. At the same time, we also think that yields are likely to move higher. Again, there are some technical factors that are probably suppressing rates. Most notably is the fact that the Federal Reserve, the ECB in Europe and other central banks of the world are really buying tremendous amounts of paper right now and really keeping a lid on yields.

As some of those pressures start to wane, and as maybe we start talking about tapering Fed balance sheets and so forth, we might start to see rates move up. So in that environment, we might see more of a rally in the economy, if you will. And again, that supports our overall view that risk assets are still preferred and a place to be in the second half of this year.

- Yeah, all eyes still on when that timeline will get updated here, when we look to tapering there at the Fed and what could change. But Key Private Bank CIO George Mateyo, appreciate you coming on here to chat with us today. Be well.