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'We’re just still in... the early parts of the expansionary cycle': Charles Schwab Investment's Aguilar

Charles Schwab Investment Management SVP and CIO, Passive Equities & Multi-asset Strategies, Omar Aguilar, joined Yahoo FInance Live to break down his thoughts on the current market outlook and his thoughts on what investors should look for.

Video Transcript

SEANA SMITH: Take a look here at the market with just around 15 minutes to go in the trading day. We're not seeing a heck of a lot of action here, at least when you look at the major averages as a whole. The Dow not too far from the flatline, off just around 19 points. S&P barely holding on to gains. NASDAQ under a bit of pressure, off just around a tenth of a percent.

Earlier today, we got the Fed minutes from the March meeting showing that the central bank is just not in a hurry here to tighten its policy. And of course, you would think that that would be good news for the markets. We saw an initial bump after that was released, but the market coming back just a bit.

Let's bring in Omar Aguilar. He's Charles Schwab's Investment Management Senior Vice President and Chief Investment Officer of Passive Equities and Multi-Asset Strategies. Omar, it's great to see you again. We're seeing small losses in the Dow and the NASDAQ today, not too far from those record highs, though, that we saw earlier this week. What do you think of the market at these current levels that we're seeing today?

OMAR AGUILAR: Hi. Good to see you, too. Well, you know, today, just like yesterday, just a little bit of a breather after a very strong rally that we saw towards the end of the first quarter and a very strong first quarter. Not surprising to see that investors are starting to go back to fundamentals, which is good news for the market, where a lot of the debate right now among investors is, what comes next? And what are the catalysts that will propel us to the next leg of the bull market?

All indications, whether it's macroeconomic data or microdata on expectations about earnings starting next week, are all pointing out to the next leg of the bull market. And I think at this moment, it's just about the catalyst and how you position that. The good news is that investors are looking for data to support the decision to come into the market or leaving the market.

BRIAN CHEUNG: Now Omar, I want to ask-- it's Brian Cheung. I want to ask what types- what types of other trends you expect to happen as a result in maybe that shift to fundamentals. I mean, should we expect to continue to see bond yields rise higher, a US dollar get stronger? Or are those dynamics separate from what you're trying to talk about right here?

OMAR AGUILAR: Yeah, so the-- we're just still in the-- probably the early parts of the expansionary cycle after recovering from that recession. So that first part after the recession is over or the recession passed and we started healing, a lot of that is just a result of the vaccine rollout. We started to see that cyclical trade playing a big role in the early part of the cycle.

You know, normally what happens at this stage is that you continue to see maybe not as strong, but it's still the cyclical component will continue to drive leadership into the second part of this year into next year. A lot of that what we'll do is we'll see the trends into risky assets. You will see risk premiums are still looking pretty attractive. You will see the value trade continue to work.

You will see, you know, the rotation into small caps, into areas that benefit from that cyclical trade when you have low interest rate, you know, very tame inflation, and then you see the extra stimulus, you know, we'll continue to have. I would probably say that the biggest part of what we're watching at is how much the market has been pricing the potential for record level of consumer spending in the second part of this year. I think that's probably the part that will trigger a little bit more volatility for the second part of the year, but also could actually make the bull market even stronger.

SEANA SMITH: And Omar, what about the prospect of higher taxes, how is the market looking at that?

OMAR AGUILAR: Well, you know, so far, you know, the-- the discussion related to infrastructure spending, as well as the combination with a tax increase, a corporate tax increase, you know, it is something that the market is still not pricing in. I certainly think that the timing of when these will go seems to be at least put toward the third quarter of the year, as opposed to any time now. You know, depending on how these play out, and there's still a lot of uncertainty on how politically these will play out between the size of the infrastructure spending as well as the potential for corporate taxes, those two will play each other out.

Historically, they could be cancelling each other out. It doesn't necessarily mean that, you know, certain companies will not be affected. But in general, the general economy as well as the general stock market, it will actually be a function on how big is the spending on infrastructure relative to the size of the corporate tax bill.

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