Stocks retreated from record levels on Tuesday as investors considered a spate of new economic data. Jeff Klingelhofer, Thornburg Investment Mgmt. Co-head of Investments and Josh Wein, Hennessy Funds Portfolio Manager joined Yahoo Finance Live to discuss.
- We are going to get to the closing bell with Jeff Klingelhofer from Thornburg Investment Management, the co-head of investments, along with Josh Wein from Hennessy Funds, the portfolio manager. Before we get there, just want to let you all know where we stand in the markets right now. If we can pull up the boards, we see that the Dow is off by 104 points, S&P 500 off by about 10 points, and the NASDAQ down by 107 points. Let me start with you guys before we get to that bell in roughly one minute. And we're going to have to interrupt you, but my first question would go to you, Jeff, because we have an FOMC meeting that started today. Is the world going to get rocked by the presser tomorrow from Jay Powell? Or is it going to be much ado about nothing?
JEFF KLINGELHOFER: My expectation is it should absolutely be much to do about nothing, right? I think we've seen a number of press conferences. There will be maybe something the market could take out of context, which is the Fed is going to introduce that they are talking about tapering. But what they're also going to say is it's far too early to actually enact that. Yes, we need to be thinking about it. Yes, we've seen some rather hot inflation prints. But really when you unpack those inflation prints, most of it is transitory in nature, and what we haven't seen is a continued rise in wages to what may translate into potential sustainable inflation. So I think they'll be very clear. I think they'll walk back that the market expectations that it's still a long ways till we are fully recovered, but that would be the one hiccup that I'll throw out there that the market could potentially misinterpret.
- All right, we're going to go to the closing bell as we keep an eye on where these markets are going to settle as we get ready to push the button and hit the gavel from nicely.
- And that wraps up the trading day. Let's take a look at where we ended the day. We are off the lows with the Dow closing off at 91 point. The worst performers in the Dow today, Salesforce, and JPMorgan, and Disney were the biggest laggards there. The S&P closing off just around 2/10 of a percent. The NASDAQ was the biggest decliner of the three major averages, closing off just over 100 points. Taking a look at the sector action, real estate, technology, and consumer discretionary amongst the worst performers today.
On the flip side, energy, XLE up nearly 2%. Financials, XLF, and industrials leading the way today. We want to bring back in our panel. We have Jeff and Josh standing by to help us break down the recent action. We also are going to head back down to the floor of the New York Stock Exchange with Jared Blikre in just a few minutes. But, Josh, let me get your take on the recent action that we've seen. We've seen a bit of a reversal today it looks like in some of those big tech names. We had seen the NASDAQ leading the way over the last couple of trading days. What do you make of today's action ahead of the Fed announcement tomorrow?
JOSH WEIN: Yeah, today was a tough day. Yeah, it was a lack of volatility, and we're doing this very orderly march toward record highs in the last couple of days with the occasional pullback. So yeah, I think everyone is resting up to read the Fed statement tomorrow and to listen as carefully as possible. And I think, as Jeff said, it's going to be much ado about nothing. I think that that is the consensus. That's my expectation.
- Jeff, you pointed out that in fixed income quote, you're focusing on shorter duration debt. Don't you risk getting burned big time, especially in this bond environment that we're witnessing? High interest rate environment, rather?
JEFF KLINGELHOFER: Well, right now, the big question on every investor's mind is where are interest rates going to head. My expectation absolutely is that the Fed is on hold for quite some time. We'll get a real time read tomorrow on their views. But the big risk is that I'm wrong, and every fixed income investor and every investor for that matter needs to recognize that we don't have a crystal ball. And we need to look at both sides of the potential outcomes. And right now, risk, return, and fixed income I think is skewed towards staying a very short duration, avoiding broad interest rate bets, and simply playing defense given that asymmetric return that's always inherent in a fixed income. And topping on top of that, basically record tight overall yields in the face of potential future inflation and eventually a normalized economy and a return to normalized interest rates.
- Jeff, how about the retail sales number that we got out this morning, a decline of 1.3%? Still, year over year was a very strong number. We were talking to Jerry Storch about that in the last hour, but how are you looking at this just from the strength of the consumer, the perspective there, and what this means for the rebound going forward?
JEFF KLINGELHOFER: Yeah, we at Thornburg continue to like the US consumer. There's a lot of stimulus behind the US consumer, but by and large, the biggest reason is that consumers have spent the last decade deleveraging their balance sheets. Today, they have excess high savings, and in the face of a beginning to normalize economy, we think the consumer has a lot of potential spent up spending power. Again, we'll be watching wages incredibly closely, and the big, broader macro theme really is going to be how capital and labor plays out over the coming decade. We've been on a one way train for multiple decades, and I think that we may be seeing a shifting inflection point in that equation. And labor will continue to gain some bounce and some force, so that should continue to support the US consumer. And by and large, we really like them on our fixed income strategies.
- Josh, we were talking about retail. One of your picks is Big Lots, and I'm curious why you're so favorable on this retailer.
JOSH WEIN: Sure, yeah. So Big Lots is in our Mid Cap 30 Fund, and we're looking at valuation and stock price momentum, as well as earnings growth. And so they've been a huge beneficiary of stimulus, people working from home, staying at home. And I think the idea would be, oh, well, this isn't the time for that, because we've already seen this play out. And I would argue that we still have unemployment well above its lows about 18 months ago. So there's still room in the near term and certainly in the long term for that idea to play out of people getting back to work, repairing-- this is kind of the lower income end of the spectrum-- repairing their balance sheets when they go back to work, and going out and buying. So I think a company like Big Lots fits squarely in that theme.
- Jared, what are the traders saying down on the floor of the New York Stock Exchange today? Because we got some conflicting signals when it comes to inflation. We got the retail sales falling a little bit short of what the Street was expecting. How are they looking at this?
JARED BLIKRE: Well, there are some whispers. There's always this lead up to the FOMC day, and usually nothing happens. I'm not going to put myself in the much ado camp or the much more ado camp. I will say this. I was looking at the financials, because I saw a header of Citigroup. They had an investor conference, and the CFO made a presentation. Their earnings for the second quarter not, I guess, going to be expected to be as strong as investors thought. Stock went down about 1.77%, but just reminds me that we're kind of in an earnings vacuum here. After the big day tomorrow, what are we going to be talking about? Well, there will be some economic reports. But the second half of June is usually the worst month or at least one of the worst periods during the year, and that's because there is no news. There's a vacuum, and so you have low liquidity, and the market's trying to figure out what it's going to do next.
I'll tell you what. We've seen a stealth rotation over the last month back into the growth names at the expense of the value and cyclical names. Energy has taken a back seat. Banks have taken a back seat, and we've seen a resurrection of the leaders of last year. So I think going forward, until we get the new narrative or the new catalysts, and maybe we have to wait for earnings season, probably going to be more of the same.
- Oh, sorry. I thought I was-- OK. Jeff, let me go to you then I guess. When we turn our focus to tomorrow and then of course beyond that, the other big story this week is President Biden, what's happening overseas there. How much of the-- I guess the fiscal policy, the response there, the conversations that are happening overseas when it comes to trade. How much of that has already been priced into the market? And how is the market looking at these discussions?
JEFF KLINGELHOFER: My honest fear is the market's not looking at these actions. My biggest fear is that really the market is priced in this continued Goldilocks environment. And the biggest challenge I see, the markets will have to digest, because eventually, central banks around the world are not going to be in the business of propping up markets. My belief is they've signaled to us very, very clearly they're in the business of continuing to fight towards equality and a continued recovery to benefit not necessarily just the top 1% but the bottom 99 as well. And I think fiscal stimulus is heart and front and center of this. And the reality is for markets-- again, it goes back to that potentially shifting dynamic but my belief what will be a shifting dynamic between labor and capital, where capital has taken significant gains. And it's been great for shareholders and bondholders, but we're going to have to digest that over the coming decades that stimulus, that shift will happen.
Now, I don't think it'll be a jump event, but I do think it's something that investors are going to have to wrap their heads around. So I think that they potentially were priced to perfection, and if anything, I think investors should be playing more defense than offense. And that's what we're doing in many of our portfolios out here at Thornburg, protecting client assets.
- And one of the things we're going to be digesting tomorrow is the infamous dot plot, because we get the summary of economic projections from the FOMC. Jeff is Thornburg's Investment Management co-head of investments, and Josh is Hennessy Funds' portfolio manager. Gentlemen, thank you both for joining us.