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Stocks on pace for third straight day of gains

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Envestnet PMC Co-Chief Investment Officer Dana D’Auria joins Yahoo Finance Live to discuss the latest market action.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Dana D'Auria, Envestnet PMC co-chief investment officer. Dana, it's good to talk to you today. You've been listening to Brian walk us through that data. How do you interpret the numbers we got today? And what does that do in terms of your outlook?

DANA D'AURIA: Yeah, Akiko, thank you for having me. So it's certainly-- I don't think there's anyone at this point who hasn't focused on inflation and what it means for markets. You know, the Fed, obviously, sticking with the transitory assumption. You do see differences in assumptions about what inflation will be in 2021 versus 2022. Still seeing kind of survey say, OK, economists are looking at 2022 to kind of back down on inflation, which does support the transitory view that the Fed is putting out there.

But at the same time, we're seeing huge demand for tips. We're seeing more increased demand for assets that are known to be inflation hedges. So certainly, it's impacting markets. And it's difficult to say that we would not expect that to continue because we don't see the Fed kind of reacting on it as yet, although some talk, of course, in tapering, a little bit of talk on that.

ZACK GUZMAN: Yeah, and obviously, a lot of people are going to be looking forward to some of the next meetings to see if they act on some of that talk. But when you look at what the expectations are among consumers, we also got the University of Michigan's sentiment reading dropping a bit. In the latest reading, 82.9 versus 88.3 in April. And a lot of that comes from respondents' expectations for inflation. When we look at that, it's the highest that we've seen in a decade-- 4.6% as far as what they're expecting over the next 12 months. So what does that do if maybe the consumers themselves aren't in the camp of maybe this is just transitory, but something that's going to be here for a bit?

DANA D'AURIA: Yeah, that's a really great question. And one of the sectors that a lot of the economic information that comes to me is kind of focused on now is consumer discretionary. So, you know, absolutely that that consumer confidence did take a hit. And inflation concerns are a good part of the reason. But on the other side, you're still seeing pretty good consumer discretionary revenue growth and expectation on revenue growth.

So, you know, we're seeing consumers are out there, buying. They're transitioning a little bit from buying things to buying services, right, where we're now getting to that point where you've got so many vaccinated people. The US is really the global leader in vaccination, so people are now moving into travel and getting out there, restaurants, et cetera. So it's going to be interesting. I think some conflicting messages on that, frankly.

AKIKO FUJITA: And Dana, over in Washington, we're, of course, going to be looking for those specifics out of President Biden's budget. We've heard a lot of talk about higher taxes for the wealthiest Americans. And obviously, that $6 trillion price tag is certainly a pretty big one. How significant a risk does that present from a market perspective? How are you processing all of that?

DANA D'AURIA: Yeah, I would say, if there's anything that can put a damper, it's got to be that, right? It's got to be the concern. Well, perhaps the debt ceiling as well, which is also looming. But the specter of the tax increase, I think, definitely is a focus. You know, we-- in my industry, we're advisor-based, so we're looking at what are advisors and clients are doing in this. There's a massive focus on tax planning right now.

Our tax overlay service that we offer has added a billion in assets just year to date. So advisors are focused on this. People-- clients, investors are focused on this 100%. They're looking for how should they react. We obviously saw now, to the possibility of retroactive, that hasn't happened. So I don't know how likely it is that we get retroactive. But it certainly, I think, will continue to move people to react to this.

ZACK GUZMAN: Yeah, and as you think about kind of your first point there, as we're awaiting maybe talks of tapering at the Fed, I mean, we saw jitters of that play out earlier this year really hit growth stocks. I mean, when you're talking about how people should be allocated here, if that talk is going to really start to heat up, how are you advising clients to be positioned now?

DANA D'AURIA: Honestly, it's diversification from my perspective, you know, so we have such a diverse book of business that kind of runs the gamut. But my response to these kinds of concerns and others as well that we're seeing, you know, so concerns about the dollar is, are you diversified? If you're diversified internationally, kind of stay that way. You know, you shouldn't be in just certain sectors. We've had a long run, where large cap did very well. And obviously, this year, we've had a reversal from growth to value. I think, really, the name of the game is to stay diversified in your posture.

AKIKO FUJITA: Dana D'Auria, Envestnet PMC co-chief investment officer, it's good to talk to you today. Thanks so much for your time.