Market Recap: Monday, August 9

Stocks fell Monday, losing some steam after rising to all-time highs late last week. Elyse Ausenbaugh, JP Morgan Private Bank global market strategist and Sameer Samana, Wells Fargo Invest. Institute Senior Global Market Strategist joined Yahoo Finance Live to discuss.

Video Transcript

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- All right, we have got roughly 2 minutes till the closing bell. And helping us to go there are Elyse Ausenbaugh, she is JPM Private Bank global market strategist, as well as Sameer Samana, Wells Fargo Investment Institute senior global market strategist.

Sameer, let's start with you. We're past the jobs report on Friday. And it helps reinforce your belief that the labor market's going to do pretty well. 4.7% unemployment rate by 2021. Is this going to be one of the things that drives these markets, perhaps, higher, the labor, the tight labor market and the fact that companies are still positive to earnings when we talk what, is it 80% hosting beats on the S&P 500?

- Yeah, I mean, if you think back to pre-COVID, you know, really it was a consumer that was powering us higher year after year. And at least right now, you know, with earnings continuing to be, you know, coming ahead of expectations, we thought we were ahead of the consensus at 200 for this year. And that consensus got all the way up to us. And we're thinking about possibly raising our numbers.

So, you know, with earnings continuing to be such a strong driver, with interest rates probably at levels that are still too low, given where economic growth is. And, you know, how much that can probably be attributed to kind of a smoke screen that you see due to Delta cases starting to rise. We think that's a pretty powerful potent mix for equity markets to go higher from here.

- And we're going to keep an eye on that. We're going to take a quick pause as we get ready for that closing bell. Because where we stand right now, you can see the Dow is probably going to end the day down a 104 points with the S&P 500 off by about three points.

Some of the laggards, by the way, in the Dow today include McDonald's corporation off by about a percent, Visa is down by about a percent. Chevron, the big laggard, as Shauna pointed out not too long ago, down almost 1.5%. Here is the closing bell.

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- That does it for the trading day today. Let's take a look at where things closed. Dow in the ride along with the S&P. You see the DOW closing off just over 100 points. S&P off around a tenth of a percent. And NASDAQ though, holding on to gains up just around 24 points in terms of the sector action that we were closely watching today.

Energy by far the underperformer here. The XLE closing off just over 1%. And the other laggards today, industrials, real estate, technology among the hardest hit sectors. In terms of what was working in today's action, consumer staples closing up just around 3/10 of a percent. Financials and health care, those three sectors closing in the green today.

But we want to bring back in our panel. We have Elyse Ausenbaugh. We also have Sameer joining the conversation. Elyse, I guess, what's your big takeaway from the action that we saw today. Because clearly investors are a little bit spooked about the numbers that we're seeing from the Delta variant, what the rising cases could mean for the market going forward. How big of a headwind is it in your view?

ELYSE AUSENBAUGH: So I think a lot of the fears around the Delta variant in particular are a bit overblown to be quite frank. I mean, let's look at the United Kingdom as a case study. Even as we saw cases spike throughout the United Kingdom over the past couple of months, you saw hospitalizations and deaths remain relatively low. And that's going to be really important for the reopening narrative.

In the United States, even hotspots like Florida and New Orleans, if we look at indicators like restaurant reservations, for example, we've barely seen those budge. So although I think investors are kind of grappling with the Delta variant and treating that as perhaps a primary brick in the so-called wall of worry,

I don't think it's something that derails the longer term view. Because ultimately, investors are going to stay focused on those super strong fundamentals like easy financial conditions, robust consumer demand, and also that labor market recovery that Sameer was talking about before.

- Elyse, I don't want you to pick any one particular airline stock. But we had over 2.1 million people go through TSA yesterday. I mean, COVID-19 and this Delta variant have not put a damper on domestic demand. But they can get back the airline stocks to the kind of profitability they had before the pandemic till international reopens.

And Europe's considering perhaps new restrictions on American travelers. So what does this say for, I mean, travel industry as a whole on a trajectory of recovery? Are we going to push this back another year or two years?

ELYSE AUSENBAUGH: I mean, whether we push it back a year or two years is anyone's guess. I am not an epidemiologist so I don't want to make any, I guess, broad conjecture about the path of the virus. But, you know, it might take some time for these airline stocks to recover, especially when you consider that businesses may be slower to return to, you know, travel, in particular, which is a big source of demand for these airlines.

So this could potentially be, you know, a longer stall than we anticipated. But ultimately, regardless if it takes a year or two years, we do think that that recovery is going to come back as life eventually returns to normal.

- Sameer, we have also seen some runway here to the upside for the markets. What are you favoring in this environment?

SAMEER SAMANA: You know, one of the things that's interesting is, you know, markets tend to kind of focus on the disparity-- you know, the disparity between expectations versus reality. And what's fascinating is if you look at a lot of cyclical sectors, the reopening trade, so to speak, it's really back to levels on a relative price basis versus the S&P, back to where it was in November of last year.

So when you ask yourself, what's discounted? At least right now, the market's almost acting as if the vaccine was never invented. And so from our standpoint, this is a Mulligan. This is what we've been telling investors, that this is another opportunity to position in financials, industrials, materials, and energy. We think those are the sectors that carry us forward. To Elyse's point, you know, maybe it's not right away. But if you're an intermediate to long term investor thinking 1, 2, 3 years out, that's where the opportunity is.

- Also oil. We had a guest on last hour, who said, look, it was at-- $75 was looking a bit pricey. Now, it's down around $66-- Middle East WTI, $66 a barrel. Is now the time, Sameer, to be looking at oil as, you know, maybe there was a Mulligan and people should not discount the fact it's going to go higher?

SAMEER SAMANA: Yeah, absolutely. I mean, one of the most, you know, interesting things right now is if you look at producers, if you look at rig counts, which come out every Friday, you're just not seeing US producers go back to drilling the way they were. And you've got such discipline on the part of OPEC who was able to reach a deal out till the end of next year.

So if you got all the producers showing discipline, focusing on returning capital to shareholders, we think that's a very powerful mix that could really be, you know, good for the energy sector, which has been underperforming for close to a decade now.

- One trade that is getting a bump today is Bitcoin. We want to head back to Jared on the floor of the New York Stock Exchange. And Jared, we broke about 46,000, an area I know that you were closely watching. Just what's your big takeaway? And I guess, what does this mean for Bitcoin going forward, do you think?

- Very constructive price action over the weekend. It's been going up the last two weekends instead of going the wrong way. It had a little bit of a shake-up by 29,500. Not too worried about that. But 45 to 47, really a big level here. It's looking good so far. But if we were to get a strong sell off from these numbers, that would be a Big Short signal. Probably heading back down to test 30,000.

But in the meantime, as long as 40,000, maybe even 35,000 holds that support, really want 40,000 to hold that support, has the opportunity to head higher. It looks like all the bad news kind of priced out. I'm not sure what could actually push it down again, in terms of a catalyst. Most of those factors looking bullish.

But you never know, the governments anywhere around the world could restart their attack. And we'll have to see what that has an effect-- if that has an effect on price action. But in the short term, in an uptrend. Nice to see.

- Jared, thank you. Elyse, I want to go back to the discussion about where these markets are headed because I know a lot of people are going to pay attention to the Fed and to Jackson Hall and just getting through August. I mean it isn't-- I was going to say an August slowdown, but we really haven't had-- we had analysts going into the summer saying, get ready for a 10% pullback. We always pull back 10%, then we come back. It just hasn't materialized. Doesn't look like it will either.

ELYSE AUSENBAUGH: Well, we'll see, right. It is not unheard of, obviously, for the S&P 500 to experience these intra-year drawdowns even in the midst of a bull market. You look at data since 1981. The average entry year drawdown has been over 14%. But the average calendar year return has still been positive 75% of the time.

I think going forward, what investors really need to be prepared for is to kind of shift this mentality. Because we've been spoiled by the past year of, you know, having the advantage of so long as you were taking risk in markets and you were invested, you've enjoyed really strong gains.

But when you consider all of the progress that the economic recovery has made, we are moving more, you know, into mid cycle. And although, returns do still tend to be strong in mid-cycle, it calls for a more selective approach. And you've got to be more intentional about portfolio positioning.

- Sameer, I want to call to attention just the action that we saw in some of those reopening plays today and specifically the airlines. Because American was off just around 2%, Delta was off 2%, United Airlines also off just around 2.5%. Are you seeing any reason to buy some of these names that are off pretty significantly from their 52 week highs? And I guess, if so, what are you looking for just to determine which ones are attractive versus some of the others?

SAMEER SAMANA: Sure. So we don't go to the stock level. But we do like industrials. That's where a lot of the airlines kind of live. And we like consumer discretionary too. We recommend kind of full weightings there. That's where a lot of the booking companies and travel companies are.

We think, you know, as you get past some of the initial shock of Delta being a newer variant and kind of having cases spike, once you get past the peak, what we think is, you know, going into the seasonally strong kind of November, December and so on type of time frame. We think a lot of those trades will probably come back faster than investors can jump on them.

So if there is weakness in August, September, October, which historically have been weak, we would encourage investors to continue to focus on those cyclical sectors, where you kind of lost catalysts is with rates being as low as they are, it's much more difficult for technology to do well going forward. So we would say, you know, at this point, Creme growth and add to value and cyclicals.

- And we appreciate the insight. Sameer Samana is Wells Fargo Investment Institute senior global market strategist. Elyse Ausenbaugh is JPM Private Bank Global market strategist. Good to have both of you back here on Yahoo Finance.