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Market Recap: Thursday, July 8

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Stocks dipped on Thursday to give back gains after a record-setting session, with investors nervously eyeing signs that the economic recovery might get derailed. Matt Brill, Invesco Head of North America Investment Grade and Senior Portfolio Manager and Victoria Fernandez, Crossmark Global Investments Chief Market Strategist joined Yahoo Finance Live.

Video Transcript

- We are gearing up for the closing bell in about a minute. Matt Brill, Invesco's head of North American investment grade, and senior portfolio manager, is going to join us to do that, as is Victoria Fernandez, Crossmark Global Investments chief market strategist. As we head to the closing bell and we welcome them into this train. Taking a look at where the markets stand right now, we were watching a sell off that built up before. The trading futures were off quite a bit before the opening bell.

We are off of the session lows, the Dow now off about 287 points with the S&P 500 off, about 40 points NASDAQ is off about 112 points. S&P 500 though, you should know, was off almost 1.6%, 1 and 1/2% earlier this morning. So we are definitely off session lows. And some of the winners, some of the gainers today in the Dow as we get ready for the bell, Boeing. Possible good news out of China regarding the 737 MAX. But here it is. The closing bell.

SEANA SMITH: And that does it for the trading action today. Let's take a look at where things ended today. Again, losses across the board, what Adam was just talking about, the Dow closing off 263 points. So well off its lows of the day. And we actually saw a bit of a bounce here into the close if we want to call it that, the S&P closing off just around 8/10 of a percent. The NASDAQ off 7/10 of a percent. The Russell 2000 also closing off just around 1%, but it briefly turned positive in earlier afternoon trading. The 10 year yield right around 1.29% hitting a low of 1.25% earlier today.

All 11 of the S&P sectors are in the red, financials, industrials, materials. The biggest laggards today, we're seeing losses really led by some of those big bank names, JP Morgan, Bank of America, Goldman Sachs, Morgan Stanley, all of those names off just around 2% or more. And then of course, the Chinese stocks that we've been closely following have been under pressure on news of the crackdown over in China. So Alibaba, DiDi, jd.com, and Baidu are amongst the biggest laggards in the market today.

But we want to bring back in Matt Brill and Victoria Fernandez to help us make sense of all the action that we're seeing today and what we could expect going forward. And Victoria, I guess first to you because we saw this massive sell off, or a large sell off to start the day. We are closing well off the lows of the day. But the Dow is still off just around 260 or so points. I guess what do you make of the action that we saw today?

VICTORIA FERNANDEZ: Yeah, I think a lot of the early action we saw this morning, and in the futures before the market actually opened, a lot of it came from China coming out and talking about the growth expectations there. And so you had a little bit of a let down on what people might have been anticipating coming out of China. We have news out of Tokyo that you're not going to have spectators at the majority of the Olympic games. And so this Delta variant that a lot of people were worried about is starting to grow as a larger concern.

And I think it all comes back into growth for the economy. If the Delta variant continues to gain in the severity that it is right now, then are businesses going to close again? What does that mean for consumer spending on services, which has been what everyone's been watching to try to get this economy back in gear? So you're going to have some issues with growth. You have a Federal Reserve where you have to wonder if they start to pull liquidity out of the market, what does that mean for the consumer and for growth there?

And then I think the third kind of leg of this stool is the infrastructure deal. You had anticipation of two large deals that were going to be coming, that again would provide some stimulus and some growth. And it looks like maybe that's not going to be as easy of a road as many people anticipated. So you look at all of these things that I think are bringing growth expectations lower. And that's why you saw what you did in the markets.

- Matt, what is the yield on the 10 year? If it's telling us anything, what is it telling investors as they try to find yield somewhere, whether it be high yield bonds, or investment grade bonds? What are we seeing? Because 10 years at 1.28.

MATT BRILL: Yeah, good afternoon. It's telling you you're going to have to look a lot harder to find yield. That's what it's been telling you for a few weeks. And you've been seeing inflows into the investment grade market as the 10 year treasury is kind of ticked lower and lower. And then today was a little bit more of a risk off trade. Today wasn't what we've been seeing for the last two weeks. Today was actually bigger concerns around the virus, bigger concerns around the hawkish fed.

But I also just point out at the end of the day, you still have roughly $15 trillion of negative yielding debt around the globe. So the US still is an attractive place to find yield. And you're seeing that continue on in this market.

SEANA SMITH: We're going to get back to Jared Blikre on the floor of the New York Stock Exchange. And Jared, I guess just help us wrap up this day as we see all three of the major averages clearly ending in the red but bouncing well off the lows.

JARED BLIKRE: Yeah, well off the lows is key I think. We saw a lot of markets bounce back rather sharply including the Russell 2000, which briefly turned green as we were talking about earlier [INAUDIBLE] I mentioned a couple of times. You look at the Y-Fi Interactive, the Russell 2000 a little bit weaker than most of the others over the last, let's say, five to 10 trilling days here. But is this a one off? Or is it going to continue? That's what everybody wants to know. I still think the 10 year treasury note has a little bit lower to go. And that's why I don't think this is quite over just yet.

1.3 is a big level. But 1.25, even bigger. I think we touched that first before we see the bottom in stocks. And then you go to the 30 year. That may have to come down all the way to 1.75%. Bottom line, we still see money moving into bonds. I don't think it's quite over. We got two weeks until earnings season. Just about anything can happen. So we take it on a day to day basis.

- Victoria, I had talked about before the closing bell actually rang that China might make a decision on the 737 MAX. That's good for Boeing. What is China also telling us in regards to their economic growth and what that means for the entire global GDP? Are you optimistic about what we're seeing out of China?

VICTORIA FERNANDEZ: Well, I do think it's a little bit concerning that China themselves are actually talking about some decreased growth potential. Normally they're not the ones to say that. It's usually the opposite way. So you look at China. And you can see when the growth there is trouble in some of the housing industries. We've seen them release some of their reserves on commodities in order to help support some price issues in that market. They're struggling to get things back on track after a pretty successful reopening.

And I think what that does is you looked at China as being maybe what, four, five, six months ahead of the rest of the world in the timeline of going through the pandemic. And people anticipated they would continue to see growth there. So the fact that it's pulling back in China leads us to believe that you're going to see perhaps some pullback in the US. Europe is actually behind us. We were waiting for them to actually start to really benefit from the reopening trade.

So I think it leads to growth concerns over the coming quarters for the rest of the world, especially when you're looking at emerging markets as well that rely so much on China and the US. So I think it's just a little bit of a warning signal along with some of the other things we're seeing in the market that we could have some pullbacks. We could have some choppiness in the markets in the second half of the year. But we don't think there's going to be a tremendous fallout in the markets, probably just a little choppiness.

SEANA SMITH: Matt, a big focus for investors here going forward is going to be the fed meeting later this month. And then of course, we have Jackson Hole in August. I guess, what do you think the message, or what do you think the fed should say just in terms of its next couple of meetings of what you think the market's hoping to hear?

MATT BRILL: Yeah, so we had the fed minutes yesterday. And the fed basically told you that they are still not at the point where they're going to remove accommodation. So they're not ready to taper yet. But there was some dissent or some differing opinions, if you will, within the feds. That's the first time we've seen that in a while. Going forward, the fed has really told you that they need to see job creation. They're not really concerned about inflation over the near term because they are convinced that it's transitory.

We saw yesterday in the notes that a few fed members are not 100% convinced it's transitory. But overall, the fed is convinced that inflation is transitory. But what they're worried about is job creation. So in order to be concerned about tapering, you have to see big job prints for multiple months in a row. So we're talking about August, September, and October. We don't think the Fed is going to pull back accommodation anytime soon. They'll lay the groundwork at Jackson Hole to start talking about tapering. But they won't likely taper until early 2022. So we're still a ways off from that.