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Market Recap: Monday, September 20

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Stocks plunged on Monday, with major indices tumbling by over 2% during the afternoon session. Brad McMillan, Commonwealth Financial Network CIO and Jason Ware, Albion Financial Group CIO joined Yahoo Finance Live to discuss.

Video Transcript

ADAM SHAPIRO: All right, we've got one minute to the closing bell. Here's where we stand. And I want to let you know we're going to be talking about the closing bell with Brad McMillan, Commonwealth Financial Network CIO, and Jason Ware, Albion Financial Group CIO. Do you ever hear that expression, it could have been worse? Well, it could have been worse.

The Dow at one point was off more than 914, 915 points. Right now, it's off 592 points-- looks like it's going to close down about 1.75%. You got the S&P 500 also down by 72 points, but it pulled off its session lows. And the NASDAQ is off by 323 points. It's down more than 2%.

On the Dow today, just want to let you know that there are some gainers. You've got Verizon Communications, our former owner, essentially flat-- but, hey, on a day like this when anyone's in the green, you'll take it. Merck and Company also up today by about half a percent. We're going to hit all of the action in the markets and what drove them down today in just a second. But first, let's ring that closing bell.

[BELL RINGING]

SEANA SMITH: And that ends what has been a very ugly day on Wall Street as we start the new trading week-- the Dow closing off 614 points. As Adam noted, we were off more than 900 points at the top of the hour. So we certainly did see some buying action coming in in the final few minutes of trading-- the S&P off just around 1.7%. You're also looking at losses in the NASDAQ of just around a 2%.

Of course, the sector action, energy by far the worst performer-- financials, consumer discretionary, and communication services are also among today's laggards. We want to bring in Brad McMillan and Jason Ware to help us make sense of the action that we did see today. And, Brad, I guess just to start with you-- investors clearly worried about the developments out of China over the weekend, what exactly that could potentially mean for the US market. What's your view on this and how worried we should be?

BRAD MCMILLAN: I think we need to pay attention, because, certainly, it's a big deal financially. But is it a big deal for us as US investors? I don't think so for a couple of reasons. First of all, we don't know that this is going to turn into something other than a big bankruptcy in China. Second of all, even if it does, the Chinese government is able and almost certainly willing to do something about it.

And even if they don't or can't, the links between US markets and Chinese markets are still fairly tenuous. So from a US perspective, I'm going to pay attention but I'm not worried about it.

ADAM SHAPIRO: Jason, always good to see both of you, but, Jason, I wanted to point out you say your expectations for US economic growth remain healthy. And when we get this kind of run for the exits moment, it's very shortsighted, because there's so much pent-up demand still in this economy-- Jason, what are people missing who sold today?

JASON WARE: Good to be with you guys, as always. You know, always hard to say what the individual decision making process looks like for people who are selling today. I think, typically, it's just going to be a function of seeing so much red on the tape. Any time you get what was almost 1,000-point decline at one point, it's going to grab attention.

But I think what people are missing if you're leaning into this with the sell button is the fact that the economy is still expanding. Yes, it's slowed down from the late spring, early summer peak, but we still have an economic expansion that's likely to take hold here, save for any kind of mutation in the virus that evades vaccines-- probably mid-cycle at latest.

So we have an economy that's working. We have record earnings that we're going to hit this year. We have a Fed that's still very much in full accommodation mode. And by the way, they're meeting this week and are probably going to be discussing what's happening in China-- just another reason for them to not taper this month.

And then finally, we have a fiscal authority that's still in full-on wanting to stimulate and grow the economy through spending. So those are the full forces at play. I don't think anyone selling into today's developments out of China are missing those fundamental factors that we're still bullish on.

SEANA SMITH: Brad, we just heard Jason bring up the Fed meeting this week. Do you think the developments out of China-- is it enough for the Fed to potentially delay its taper timeline?

BRAD MCMILLAN: I think the Fed is cautious anyway. When they look at some of the recent employment data, when they look at some of the recent layoffs data, they're looking for an excuse not to pull the trigger just yet. And I think China-- what we've seen in China and what we've seen in the markets is a great excuse for them to say, OK, we need to wait another month. So I think we get another month out of it.

ADAM SHAPIRO: Jason, what do you think? I mean, we're going to be talking about this on Wednesday. Do we get another month out of it? Or do they start talking about the taper in the statement that we get Wednesday?

JASON WARE: So I think they've already pretty much set up a taper for year-end. I mean, that's what the market's expecting. I think Jerome Powell has done a good job communicating that. He did so at Jackson Hole just last month. So I think a November set up looks most likely in our view-- September was probably not going to happen even prior to today's developments.

But to Brad's point, I think this adds additional latitude for them to wait and not do it this month. I think there's going to be some nod to this in the FOMC-- maybe the press conference. Jerome Powell is likely to get asked about this, so they will be talking about the global risks involved here. But if anything, it's just another excuse to not have to do anything and probably pushes it out until later this year.

SEANA SMITH: So, Brad, we just saw the Dow have its worst day since July 19, the S&P having its worst day since May 12. If you are one of these investors that are looking to put money to work today or over the next couple of days, what should they be buying?

BRAD MCMILLAN: They should be looking at US-focused assets. Because I agree with Jason, the US right now is the best place to be in terms of economic growth. And particularly in a fear-ridden environment, you've got the flight to safety, you've got growth-- consumer discretionary got hit hard today. Well, no one ever went broke betting on the American consumer. Maybe that's a good place to take a look.

Financials can be a good place to take a look. They got hit hard. But as businesses continue to expand, you're going to see businesses continue to borrow, especially at the smaller level. So I think those are two areas that maybe there's a chance to buy on the dip-- it's a play on future US growth.

ADAM SHAPIRO: And, Brad, when you talk about buying on the dip, I want to follow up on that, because earlier we talked about the fact, there was an article last week that pointed out that, depending on what part of the S&P 500 you look at-- for instance, S&P 500 small cap stocks-- are off their peak 48% by about off 20%. And yet when you look at the phenomenal year we've had, those people are still in the money. So this is-- people are going to miss out on the potential to buy, especially on a day like today when we've had this fall, right?

BRAD MCMILLAN: Yeah, I think that's exactly right. I mean, people are looking at this and saying, well, the world's going to come to an end. Well, no, the world's not going to come to an end. And as I said initially, you know, even if there are problems in China, the US is still in pretty good shape. Jason pointed that out. So from our perspective looking at US earnings, you want to trade on the fundamentals. You don't want to trade on fear. And right now, there's a chance to do just that.

SEANA SMITH: Jason, we also got the concerns out of DC just in terms of what we could see on the budget reconciliation-- how big that bill could potentially be. Then we have the debt ceiling. How big of a risk do you think the market is viewing these two events-- more specifically the debt ceiling?

JASON WARE: Yeah, it's a great question. You know, I think some of the dysfunction or at least growing inertia in DC was certainly part of the reason that the markets began to show some exhaustion early in September. So this news doesn't help. I think this is just another reason-- what's coming out of China here is another reason to say, look, you know what? There's a growing risk with the debt ceiling next month. Janet Yellen has talked about it ad nauseum, now with another op-ed discussing how important it is.

I think if you look at the political optics, it's probably the biggest stalemate we've seen on the debt ceiling since 2011. So that takes us back a decade. And that one got pretty hairy as well. So I think we're probably going to run this up to the 11th hour. It's going to be some brinksmanship that will be part of any kind of solution here. And it may be up to the Democrats where they have to push something through with budget reconciliation.

It looks like McConnell is pretty steadfast on not having any of [INAUDIBLE] folks break ranks here. So it's definitely a risk, one worth watching, but it's not something that long-term investors should be terribly concerned about.

ADAM SHAPIRO: Jason, I want to follow up on what you just said, especially because you've pointed out that US demand growth has slowed since the surge we saw last spring. Is it possible, Jason, that we've psyched ourselves out into today's sell-off in so many ways, and yet we've got a Christmas holiday shopping season that's about to hit us, we've still got incredibly low interest rates, we still have incredibly high savings, we have consumers who want to spend money, and we're peaking from the Delta variant-- those cases are dropping. We're really setting up to relaunch, aren't we?

JASON WARE: I would agree with that. I think that is the setup. And I think short of today's news, you know, the mild dip we had in markets over the past couple of weeks was a great entry point for investors that are looking to get tactical. Now, I think today just makes it even more attractive. But to your point, I think those forces that have not been broken, the trend is still very much in play both in terms of price in the market but in terms of the economic and market fundamentals that are driving stocks higher.

We think profits in the second half of the year are going to be good. And I think if we can get through this Delta surge here, which I think, you know, vaccination rates continue to go up and there's no reason to believe that we won't get on the other side of this, then, yeah, I think owning high quality US stocks, well-diversified in anyone's portfolio, is the right move and the right decision.