U.S. CPI climbs 0.8% in April

Keith Lerner, Chief Market Strategist at Truist Advisory Services, joins Yahoo Finance Live to break down the latest inflation concerns and outlook for economic growth in 2021.

Video Transcript

JULIE HYMAN: This is Yahoo Finance's Live. We are looking at a lower open here this morning after that inflation data came out, higher than estimated. To talk more about how markets are setting up this morning in this continuing sell off in technology, we bring in Keith Lerner, Truist Advisory Services. He's the wealth chief market-- Truist Wealth chief market strategist and managing director of portfolio and market strategy.

Keith, it's good to see you. I know you already have been recommending sort of a rotation out of growth, like technology, and into value. Does a number like the one this morning sort of cement that view? Do you buy the Fed's view that it's transitory and that we're going to get coming turmoil in the market as people digest all this stuff?

KEITH LERNER: Well, firstly, great to be back with you. And I guess the first question regarding positioning, we were much more into the growth sectors last year. In January, we took that growth tilt out, off, and then and actually went to a value tilt earlier this year. We still think that there's more upside in the value trade. This number today does provide more support for that. But it's just one number, to be candid.

The bigger picture to us is that you had a 14-year cycle of growth outperformance. And most of that happened when the economy was growing very slowly. And that's why investors were paying a premium for growth. For this year and next year, we think we're going to continue to see above-trend economic growth and higher inflation trends. So that should continue to support things like financials, materials, industrials, energy, those type of names in general.

So I only answered one part of the question. But let me wait for you, for the follow, which one you want to hit on next.

- Well, Keith, I'm staying on inflation here. In your view, does-- and we've seen big increases in inflation here, just based on this report this morning, the CPI report. Do you think that impacts consumer demand for a prolonged period of time? And if so, when does that start showing up in the stock market?

KEITH LERNER: Yeah, Brian, I would say, normally, the answer would be yes. But we have to remember this isn't normal times. We have $2 trillion in excess savings right now today. So, maybe, on the margin, you see some tweaks. But there's still a lot of pent-up demand.

And I think, as the economy reopens, people are going to want to get out. They're going to still want to travel. Even if gasoline prices are moving up, they're going to still want to hop on an airplane and see relatives or friends, even if prices are moving up a bit.

And they have the [? wherewithal ?] to do so because of all this stimulus that's still-- again, a lot of these checks are just sitting in bank accounts right now as a whole.

JULIE HYMAN: Keith, I'm going to get a little wonky for a second. Because you got wonky in your note to us. You were talking about velocity of money in your note, right? You were talking about that we have seen declining velocity of money. That's basically the turnover of a single dollar, right, or of money in the system. How do you think that that plays out over-- why is it important, first of all, for our viewers? And then what do you think the trajectory of that is going forward as we see these inflation numbers tick up?

KEITH LERNER: Well, it does kind of tells you-- it tells you an idea about inflation demand out there. And I think the way to think about it is, right now, going back to the [INAUDIBLE], savings, you know, the Fed did a study. And they said, where is the stimulus money going towards? And a third was being spent, a third was going to pay down debt, and the rest was being saved.

So I think it tells you that all this money, even though there's a lot of money out there, is not all moving into the market at once. I think a lot of what we're seeing is a combination of these supply shortages, which we're all aware of. Because, I mean, let's face it, this economy just came back much faster than almost anyone anticipated. And companies weren't prepared as a whole.

So I think the way to think about the velocity of money is just telling you there are some offsets to some of the supply disruptions we're seeing more general, more broad based right now.

- Keith, markets are taking a hit. Pre-market tech stocks still under pressure here. Do you buy the dip on tech?

KEITH LERNER: No, we are not buying the dip on tech, Brian. I will say, they're getting pretty oversold on a short-term basis. So the way I would think about it is I would use any bounce to fade tech, to move into some of these other areas, which have been hot, like, as far as financials, and materials, and energy. And maybe you see a little bit of a short-term rotation back to tech. Because it's so oversold after this down 5%, 6%, semiconductors are down 10%.

But if you think about it, tech has not been leadership since last September. That leadership peaked last September. And that's when the earnings momentum or advantage of technologies also peaked relative to the general market. If we have a stronger economy, we think the shorter-duration assets like energy and materials should benefit more.

Again, I mean, there's pockets of strength in technology. If you're still looking for growth, we would focus more on the communications area as a whole. But we just don't think the technology is going to be leadership this year.

JULIE HYMAN: And then taking a broader view of the market, I know you're looking at pretty rapid earnings growth this year, as are most of your colleagues, and then a slowdown into sort of the low double digits going into next year. At what point does-- I mean, we're seeing a little bit of a rollover in the market now. At what point are we at risk of a larger rollover when people start to focus on that slowing growth rate going into next year?

KEITH LERNER: Well, the first thing I will say, there's a lot of discussion about peak, you know, ISM numbers and peak growth numbers. The levels will go much higher. It's just that when you come off such a low base, you can't keep up these growth numbers so much. And this is very reminiscent of what we see coming out of bear markets or recessions. Like, the first year a snapback. And the second, you moderate.

And this reminds us of 2004 and 2010 as a whole. I would say, you know, we've been on this earnings story really since last May, saying that earnings would be stronger, stronger than anyone had really expected because of how lean companies would be. But I think there's going to be this kind of ongoing battle in the interim between stronger earnings, stronger economy [INAUDIBLE] concerns about the Fed tax-based deflation.

- Yeah, that makes sense. All right, we've got the opening bell there. Similarweb, the web analytics company ringing the bell in very enthusiastic fashion as they go public. Keith Lerner, thank you so much for being here, of Truist. Appreciate your time here this morning. Take care.