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Market Recap: Wednesday, June 2

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Stocks hugged the flat line Wednesday afternoon on the heels of a mixed session a day earlier, with the three major indexes struggling for direction ahead of key economic data reports later this week. Michael Hans, Chief Investment Officer at Clarfeld Citizens Private Wealth and Steven Blitz, US Economist at TS Lombard joined Yahoo Finance Live to discuss.

Video Transcript

[MUSIC PLAYING]

SEANA SMITH: Just around three minutes here until the closing bell. All three major averages barely holding on to gains. We have Michael Hans, Chief Investment Officer at Clarfield Citizens Private Wealth. And we're also joined by Steven Blitz, US economist at TS Lombard. Michael, let me start with you. Taking a look at the action today, not a heck of a lot of movement in the major indices. When you take a look at the sector action though, energy once again the big leader. What do you make of the gains that we're seeing today?

MICHAEL HANS: I think what you're seeing, and it's not just today, it's been the last several trading sessions, the indices themselves, as you mentioned correctly, haven't moved a tremendous amount. And I think the focus now is on what's that next catalyst and direction of the marketplace. And I think the overall focus is going to be for more resumption of what worked in Q4 and earlier on in Q1, namely the value cyclicality and smaller capitalization. And that's seen maybe broadening out. But catalyst is ultimately going to be what direction the Fed moves in and when.

ADAM SHAPIRO: Michael, very, very quick follow on that, and Steven, we're going to get to you, but we got the bell coming up. When you talk about the Fed moving, I mean, the minutes we saw that there's ramped up, perhaps we need to start talking about talking about tapering, right?

MICHAEL HANS: Yeah, absolutely, and we talk to our clients all the time. We don't anticipate the Fed raising rates anytime soon. But a tremendous amount happens between buying over $100 billion of securities a month and ultimately raising rates. And ultimately from the perspective of overall stimulus, at the margin we are going to downshift. It's probably not going to happen in the upcoming meeting. I think they're going to really need to see multiple labor reports, as Chair Powell has indicated. But that's really going to be a substantive driver of the back end of this year.

SEANA SMITH: All right, we're going to take a look at where things stand here with just around a minute to go. And you're looking at slight gains here across the board. The Dow up just around 29 points, so adding slightly to the earlier gains. S&P up just around a tenth of a percent, as well as the NASDAQ. Drilling down into that sector action that we're seeing today, energy is by far the leader once again, up nearly 2%. With the XLE, we're seeing consumer staples, real estate, technology, utilities here also among the performers.

On the flip side, materials the big under-performer today, with the XLB off nearly 1%. Consumer discretionary, communication services, industrials and health care there also continuing to lag the broader market. Taking a look within the major indices here, Walgreen's, Chevron and Visa are the top performers in the Dow today. We have Walgreens up nearly 2%. IBM and Intel, they're rounding out the top five performers. On the flip side, Dow Inc. underperforming today, Disney and Honeywell. Those three names are the worst performers in the Dow.

ADAM SHAPIRO: All right, we have a closing bell.

[RINGING BELL]

And when we get the gavel, we will begin to see where these markets are going to wind up closing. We don't have it yet. There we go. So let's see where we will wind up settling on this day. The Dow possibly up 25 points, S&P 500 looks like it'll settle around six, up six, and the NASDAQ also getting back into positive territory, up about 20 points. One thing, as we just heard from Seana, when you're looking at the Dow components, Walgreens, Boots Alliance, it was up. It was the big winner in the Dow today, up almost 2%. Chevron up 1.5%. Energy sector, by the way, was a big gainer. It was up almost 2% today. And oil, WTI was above $68 a barrel.

Let's go back to our guests. And we want to bring in Steven Blitz. We've been told, Steven, that we're going to see a back and forth all summer long with these markets. Do you think that there's any one thing that could help us break out, whether it be to the upside or the downside?

STEVEN BLITZ: Well, you know, I leave that to some of the market people. But I think that the economic news is obviously critical, and it starts tomorrow. I mean, I'm not so sure that it was such a surprise they've had a quiet session today, at least in terms of prices. The May employment numbers are really very important. Do we see something like March or do we see something like April? And that's really going to set in the market's mind whether or not the Fed announces taper at the end of July or whether it's some later date.

Because the risk to the markets and the risk to the economy is not really markets and asset, it's not the economy. I'm sorry, it's not inflation, it's whether growth, it comes in below expectations. Now I think it's going to grow to 9% this quarter pretty much everyone else. But if growth instead comes in at 5%, 6%, that's a pretty good number, but it's a lot less than people are thinking. And then suddenly there's a reassessment in terms of earnings growth, assessment in terms of the timeline of Fed policy and all that stuff. And so it really starts tomorrow morning at 8:30 when we see what the May employment numbers look like.

SEANA SMITH: And Mike, when we get that report, I mean, what is the market anticipating that we'll see? We got the disappointing report last month, but it didn't seem to shake investors enthusiasm too much.

MICHAEL HANS: If we think back a few years ago, we may be getting into that dynamic where is good news good news or is it really becoming bad news? And I think that, so the important element, as the prior guest mentioned, is really going to be predicated on Fed activity more so as it relates to dampening the economic expectations, maybe not even for this year, but coming into 2022.

And so I think the market wants a solid report. But the conditioning from the Fed has been that one report is not ultimately going to dictate policy. So we're going to need to see consistency there. And there's always a ton of volatility in the data. And we also have a lot of seasonal adjustments, which very well could have had an impact last month, in addition to policy and demand.

ADAM SHAPIRO: Steven, when in your note to your clients you talked about what's going on at the Fed, and you also pointed out what we saw in the minutes that there is this ramped up discussion about the need to start talking about talking about the taper, can you help us understand though what's forcing the Fed to maybe go faster? Because there's this all this action with the repo market and what the banks are doing at the same time, and we don't see that as regular people front and center.

STEVEN BLITZ: Well, you could look at the numbers. It's not hidden. But the point is, that yeah, $80 billion a month. Understand that the $80 billion a month is an increasingly large amount of Treasuries for them to be purchasing because on a monthly basis, the deficit's actually shrinking. And at the same time, you have $90 billion a month coming in from foreign buyers in round numbers, because that's the size of the trade deficit.

And so you've got a tremendous amount of capital coming in here right now. And for the Fed to continue to do $80 billion, you know, they have to basically buy reserves from the Fed, buy assets from the Fed and hold in there, which just adds to, and we don't really have time to get into all this, but adds to distortionary policy. I think though, for your listeners, because this is very equity focused, which is great, and I think that people should understand that taper will actually end up being a positive for the markets, not a negative.

I know everyone has the knee jerk reaction that it's a negative. But understand, next year the deficit's going to be about a trillion dollars less than it is now. They're not going to taper by a trillion. But by tapering, they're going to be releasing reserves in effect, back to the banks for the banks to lend if that's what they want to do with it, and at the same time, the private markets are not going to have to finance as much Treasuries as they're financing this year. So the rise in real rates that normally accompanies taper is not going to occur. So once everyone actually figures out the math of this, as opposed to the knee jerk reaction, they'll realize that it's not a negative for the equity market.

Now there may be other things that may affect the market, but a taper in and of itself is not going to be. Now just to go back one second on this May employment number, you had a really good March, people are looking for a string of good numbers. If May comes in, of course, that raises the expectation if June comes in strong. So now if you have April looks like the outlier that does set up the Fed at the end of July to announce, you know, their version of announcing tapering, which is, we think and if, it looks this way, and probably, and we'll guide you by December, January, we'll be getting instead of buying $80 billion, we'll buy $60 billion, something like that.

SEANA SMITH: All right, we need to get back over to Jared Blikre, who's standing by on the floor of the New York Stock Exchange. And Jared, speaking of the May jobs report here, the number that we're expecting out Friday, I mean, how closely are you thinking that the market's watching this?

JARED BLIKRE: Oh, very closely, and I agree with the comments of the prior guest here, it's going to be heavily watched. It could be a good news is bad news situation and vise versa. I'm going to be focusing on those hourly average wages, because if those come in hot, that's really going to change the calculus, at least among market participants. I just want to point something out on a Wi-Fi Interactive here.

[BEEPS]

I have a chart of the NASDAQ and actually this is NASDAQ 100, but same for it. NASDAQ 100, 13,900, 13,800, big level that we're watching here. Haven't been able to crack through it. We got the S&P 500 knocking on its record highs as well, as you can see here, this level here. Friday could be a big day. Either we punch through or we sell off. So that's what I'm looking for.

SEANA SMITH: All right, Jared Blikre, thanks so much. And of course, our thanks to our panel today, Michael Han and Steven Blitz.