Markets could see a ‘choppy summer’ over supply chain challenges: Strategist

Rebecca Felton, RiverFront Investment Group Senior Market Strategist, joins Yahoo Finance's Myles Udland, Julie Hyman, and Brian Sozzi to discuss supply chain challenges, rising inflation concerns, and tech stocks as the economy reopens.

Video Transcript

JULIE HYMAN: Let's talk about where we go from here, because I think after the volatile week that was, investors asking all the big questions about inflation, where the Fed goes from here. To help us answer some of those questions, let's bring in Rebecca Felton, RiverFront Investment Group senior market strategist. Rebecca, it's nice to see you, and your team wrote a note, recently, about the supply chain and sort of the demand-- supply demand equation that we are watching so closely now. And you guys basically come to the conclusion that it could be-- continue to be sort of a choppy summer as we continue to see supply chain disruptions and tight supply. Walk us through your thinking on all of this.

REBECCA FELTON: Well, good morning, Julie. Thank you for having me. Absolutely, the supply chain dynamics are of concern, and it is, you know, making headlines at this point. But there are other reasons that we believe that investors could get a little nervous over the next few months, in addition to the supply chain dynamics it includes. The fact that we are having the headlines about inflation and the fact that everyone's waiting for the Fed to blink, the expectations for earnings to not grow as much in 2022 as they've grown in 2021.

Obviously, we had a V shaped recovery in earnings but you've also got the potential headway-- headwinds with tax policy changes. And those-- all those are going to factor into growth expectations as we look forward into 2022, even against the backdrop of the strong economy.

MYLES UDLAND: And on that strong economy, how are you guys thinking about inflation right now because, certainly, the supply chain is impacting what we're going to see on pricing, I think, they-- what we have seen and what we are expecting to see. Does the current backdrop make you guys nervous at all? Which seems to be the concern we hear from a lot of folks on the program.

REBECCA FELTON: Well, it is concerning miles, but, you know, we do believe it's transitory. But just because it's transitory doesn't mean it will be painful. And I think that's what we are all experiencing now in terms of seeing higher prices, the fact that there are shortages of things. Then, of course, then you've also got the issues on the employment side with companies having difficulty attracting workers. So there are a lot of things to be concerned about, but we do think that we will work through this bottleneck, if you will.

BRIAN SOZZI: Rebecca, do you-- do you and your team view cryptocurrency as a good inflation hedge? And then even inside the firm, do you view Crypto as an investable asset?

REBECCA FELTON: Well at this time, Brian, not yet. We have, obviously, been watching it, watching companies that have exposure to it needs to be their own investments in it. But when you have something where there are still more unanswered questions than there are known facts, I think that that's going to continue to make it more volatile than we are probably willing to take on at this time.

JULIE HYMAN: Rebecca, when it does come to your portfolio construction, you guys are, I know you're overweight equities, generally. And on the question of tech, which I know has been a big one lately, you guys are sort of neutral on that front. What would cause you to maybe get interested in that-- in that sector again?

REBECCA FELTON: Well, we-- we are neutral-ish, if you will, in our shorter horizon portfolios, and then in our longer horizon portfolios. We were- we would still consider ourselves overweight. You have to be careful with the sector that's 26% of the S&P 500 in terms of how negative you're willing to get, because just as we've seen in the past week, the whole dynamic between what's worked and what hasn't in terms of the sectors in the S&P 500 with tech leading the way.

So we've been focusing on software and services within the space, but we are content to-- to stay with that growth component. And we have added back some value but we are still what I would call neutral to overweight tech.

MYLES UDLAND: And so on that the value and growth question, Rebecca, do you think- where do you think we are within that rotational cycle? You know, we've certainly seen a good six or seven months here. Or value, does it-- does it feel to you guys, like, maybe that stalling out?

REBECCA FELTON: It's really hard to say and we have absolutely added back, you know. We have gone overweight in financials, we have shored up our industrial's exposure, we have neutralized energy and materials. So we have been, sort of, believing that there is value in diversification across both growth and value. So we are balanced there as well.

[APPLAUSE]

MYLES UDLAND: All right, Rebecca, Felton with RiverFront Investment Group. Rebecca, really appreciate your time this morning. Thanks so much.