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Declining utilities are 'not really a vote of confidence' for the market: Strategist

CapWealth CIO Tim Pagliara and Comerica Wealth Management CIO John Lynch join Yahoo Finance Live to discuss the volatility in utilities experienced by consumers, in addition to market bottoms.

Video Transcript

INES FERRE: Here's the closing bell for today, Thursday, September 29.


DAVE BRIGGS: All right there, now your closing bell for Thursday. Really, the only good news to search for, it's Friday tomorrow? Because there is a lot of red on the board. The Dow just about down 20% year to date after a 1 and 1/2% loss on this Thursday. And you can see rough outing for the S&P and NASDAQ, both down more than 2%, as the NASDAQ's down about 31% year to date. Ines Ferre told us there about the suffering from Apple dragging the markets down, down 5% on the lowering demand report.

For a closer look at the broader markets, let's bring in Tim Pagliara, CapWealth CIO, and John Lynch, Comerica Wealth Management CIO. John, let's start with you. Are there more days like this ahead?

JOHN LYNCH: I'm afraid if you have a market down 2% and 3%, and utilities are leading, down 4%, that's not really a vote of confidence that we're seeing from investors. And we've seen this repeatedly in midterm election years. You get the heightened volatility going into September, October. And I would just encourage investors that while that volatility may, indeed, continue, I think third quarter earnings, we're going to hear a lot about reduced profit forecasts for next year's.

But there is a history of resilience in the markets. We typically see about a 17% decline during the midterm election year, followed by from that trough, the subsequent 12-month period, see a gain in excess of 30%. So the message to investors is, try and endure the difficult short-term because we do believe the longer-term, there is opportunity.

SEANA SMITH: Tim, what do you think? Do you think a bear market rally is in the cards soon?

TIM PAGLIARA: Yes, I wouldn't put a high probability on it, but typically, you have four bear market rallies. Each one of them tests the bottom. And I think that will come in at some point early next week.

RACHELLE AKUFFO: And John, you're predicting that we could see a double bottom looming. What are you keeping an eye on? What are you tracking right now?

JOHN LYNCH: Well, that was my prediction last week. Unfortunately, today, if closing below 3,640, well, we're holding it right now. So if we close at that number, that would suggest we're still within the range of a double bottom. We were below that today. So I got a little concerned about that. But investors-- I talk to investors all the time. And the constant question I receive is, is the bottom in for the year?

And we won't know that until we test it. And we're clearly testing it today. If we do close above that 3,640 number, which it looks like we're holding, that could be good enough for government work, if you will, from a technical support area. But it will be really important to hold that 3640 level during third quarter earnings season. So I don't think we're out of the woods yet, but the double bottom will be very important for investors to gain confidence going into next year.

DAVE BRIGGS: Tim, the S&P a new 2022 low. What are the technical levels you're watching in the months ahead?

TIM PAGLIARA: Well, we're focused on individual companies. We're telling our clients and investors to ignore the indexes and the technicals. There are a number of good buys out there, all weather type companies that will do well, we think, in a recession with high dividend yields and strong balance sheets to compete and provide good total return over the next 12 months.

SEANA SMITH: Tim, what are some of those companies? Can you give us some names?

TIM PAGLIARA: First one would be Williams. It's a big pipeline concern. It's in-- they've reaffirmed their guidance. It has a 5 plus percent dividend yield. And it's in that space. You guys have talked about the Nord Stream pipeline all day. Natural gas is going to be a big component. There's going to be upward pressure on that all through next year. And so we think that's a great company to own.

Lumen Technologies is another one. It's in the internet space. It will benefit from the infrastructure spending bill. And it has actually a 10% dividend yield. And this past week, they put out a tender offer to redeem a lot of their debt. So we think they have high cash flow, strong balance sheet, compelling story for what investors should be looking for right now.

RACHELLE AKUFFO: And John, when you look at some of these indexes and ETFs, do they look attractive to you at all, or where do you see the opportunities right now?

JOHN LYNCH: Sure, well, again, the double bottom will be important, but we think-- we're employing a barbell strategy, if you will, overweighting energy and healthcare in the current environment. And I do think that if we're able to hold this 3,640 area, you know, 3,900 looks to be pretty good resistance, followed by 4,000, which is the 50-day moving average. And then the 200-day is probably 4,200, 4,250.

But definitely, we're overweight value relative to growth. And when I see days like yesterday, I get troubled when investors still get pulled into that mindset that the Bank of England or the Bank of Japan are going to intervene. And then we can discount long duration assets at next to nothing. And that's disappointing because that's a mindset, I think, investors need to break. And until we break that mindset, I don't think the bottom is in. And hopefully, we're close, and then investors can start thinking about earnings and income compounded annually for their longer term returns.

SEANA SMITH: All right, John Lynch, always great to have you. Tim Pagliara, thanks so much for joining us as well.