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We’ve gone from a disastrous recession to a fast recovery to an expansion to a slowdown and call it a stabilization of growth: Strategist

Brian Levitt, Invesco Global Market Strategist joined Yahoo Finance Live to break down the progression of the market recovery from COVID-19 and what the next phase will be.

Video Transcript

SEANA SMITH: About 14 minutes to go in the trading day, you're looking at gains across the board. The Dow up 257 points, the S&P holding on to gains, as well as the NASDAQ up just over 100 points. We want to talk more about this with Brian Levitt, he's Invesco's Global Market Strategist. And, Brian, it's good to see you again.

We've had quite a bit of volatility, I guess you can say, over the last couple of days. But today as well yesterday, we're looking at some gains across the board. What do you make of the recent action that we've seen in the market?

BRIAN LEVITT: So the market has been assessing what was going to be a slowdown as we start to move out into 2022. And that's why you saw interest rates come down as significantly as they did. I know that when you started to get into the one point teens on the 10-year rate, it had some concern that something more ominous was brewing.

You know, I found that when the 10-year moves towards the 2, the 10-year comes down, that tends to be less of an ominous sign than when the 2-year's moving up towards the 10, which tends to pre-sage recession. So I think it's mostly just the market that is assessing a slowdown for a variety of different reasons, but we probably overdid it, particularly with regards to where the 10-year rate went earlier in the week.

ADAM SHAPIRO: Well, but the 10-year right now hasn't really recovered much from where it went earlier in the week. And what is that telling us? Because we keep getting told inflation, inflation, inflation-- yet the 10-year yield's at, what, 1.28. I mean, this is a mixed message.

BRIAN LEVITT: Yeah, I've never been in the inflation camp. And I've always believed that of all the indicators, the bond market gets it right most often. So we certainly have to pay attention. So yeah, when I say the bond market's come up a bit-- it's 1.15 to 1.28, but still a very, very low rate. And you know, that's telling us that growth is likely to be pretty modest over the next number of years, and inflation's likely to be pretty modest.

It suggests to me that we're likely to move from what had been a disastrous recession, to a very fast recovery, to an expansion of the economy that's played out relatively quickly, to a slowdown and call it a stabilization of growth where you get back into a more normal environment, something that we got used to from, call it, June 2011 through 2019 which was a more modest growth environment. And you know, I think we'll get back there.

This is pent-up demand that had gotten unleashed on the economy. There was a lot of fiscal support unleashed on the economy. The fiscal support starts to fade, the pent-up demand is unlikely to be sustainable. And in my opinion, nothing structural has really changed. And that's what the 10-year rate is telling us.

SEANA SMITH: Brian, when we take a look at some of the leadership, though, I guess that that's changed in recent days, just with this concern about the Delta variant. Some of those reopening plays had been catching a bid over the last several weeks. We saw some selling action in those, especially on Monday. Are you expecting to see some leadership rotation as a result of the fact that investors are getting more worried about the Delta variant?

BRIAN LEVITT: Yeah. I mean, to the extent that the Delta variant raises concerns, then you would think some of those names that are more tied to what we'd call the reopening would be under some pressure. But I think, importantly, I don't think that the Delta variant-- let's hope that the Delta variant is not the event that leads to huge shutdowns again of the economy.

I mean, 65% of American adults are vaccinated. So that is a positive sign, particularly when you see that most of the hospitalizations or serious illness are coming from people who have not been vaccinated. So I don't-- what I would say about market leadership is, you know, we had a recovery phase. That's really economically sensitive parts of the market do well, that is the deep value.

We're moving into more of an expansion. Expansion, you tend to see returns sort of level off whether you're talking about growth versus value, high quality versus low quality. You tend to see a broadening of that market. And we're seeing more of the tech names participate. And as you start to move into a slowdown, which I would say is next year, you're probably likely back to the more growth-oriented parts of the market outperforming anyway.

And so a lot of those reopenings caught a bid, and there may be some more room for that to play out, particularly if the Delta variant does not cause rolling shutdowns of the economy. But I would suggest that investors start to position themselves for a slowdown in economic activity anyway, which would take us back to the more structural growth businesses outperforming.

SEANA SMITH: Brian Levitt, always great to speak with you-- a Global Market Strategist with Invesco. We will talk with you again soon.