Market Recap: Friday, November 19

Stocks ended Friday's session weighed by growing concerns over nationwide COVID-19 lockdowns in Europe. Sylvia Jablonski, Defiance ETFs Co-Founder & CIO and John McClain from Brandywine Global joined Yahoo Finance Live to discuss.

Video Transcript

[MUSIC PLAYING]

- OK, we are a minute and 20 seconds to the closing bell. Helping us go there today and explain today's action are Sylvia Jablonski, Defiance ETFs co-founder and CIO, and John McClain, Brandywine Global. It's good to have both of you here. But let's check out where we are heading in the last minute of trading.

And there it is. You can see the Dow is going to be off, most likely, around 260, almost 270 points. The S&P 500 had flirted with positive territory throughout the day, but it looks as if we're going to close down on the S&P 500, possibly six, maybe seven points. NASDAQ, however, you just heard from Jared NASDAQ is having a good day. Part of that has to do with the retreat on the 10-year. The yield at the 10-year, by the way, is 1.53. And you can see the NASDAQ is trading higher, tech stocks benefiting today.

So when we take a look at the closing bell coming up in 30 seconds, one thing to keep in mind is that the sector action today, who's in the green? We've only got a few sectors. Utilities, information technology, and consumer discretionary all in the green. Some of those, the Black Friday is a week from today, but you're going to already get some of the sales going on right now. I'm hearing myself in the IFB, by the way. I think someone's got a microphone open. But we're going to go to the closing bell. And here it is.

[BELL RINGING]

[MUSIC PLAYING]

All right, that is an end to today's session. And here's where it's all going to wind up. Let's rehash where those markets are going to close. Dow will be off 268 points. Still has to settle. And the S&P 500, as we said, it's going to be down, but the NASDAQ is closing up. Let's get to the guests immediately and talk about what we're seeing.

And John, you're focused a lot, or at least a lot of people are focused on what the Fed is doing with tapering and possibly liftoff with interest rates sooner than they're leading us to believe. What should investors think about as that is all in front of us? Because it's not going to hit until at least mid next year.

JOHN MCCLAIN: [AUDIO OUT] important question in the moment right now is how high the Fed ultimately hikes interest rates. Right now, expectations are for about two and a half to three hikes in 2022, and probably getting to about 175 basis points on Fed funds ultimately. But like you said, the market and the media are focused on a faster Fed tapering and hiking sooner than June of next year. You know, we certainly heard from a few officials today about speeding up the taper. And importantly, we're seeing inflation and things that matter to the consumer, prices at the pump, food, rent, all are going higher. And the list kind of goes on and on.

- Sylvia, what he just alluded to, the list going on and on about things costing more, motivating a lot of people as stimulus checks now, or at least stimulus savings, may run out for some people, to get back into the workforce. What should an investor consider if they believe there's going to be a continued wave of people working and spending money?

SYLVIA JABLONSKI: [AUDIO OUT]

- Sylvia, I think you might be muted. I do it all the time, by the way. The era in which I live.

SYLVIA JABLONSKI: I'm not muted.

- Oh, there you go.

SYLVIA JABLONSKI: Can you hear me now?

- Go for it. Yep, gotcha.

SYLVIA JABLONSKI: OK. All right, cool. Yeah, so I actually think that if we see consumers getting back to work and, you know, a lot of-- it'll sort of help the supply of things. So I think people will be able to consume more goods and services because, you know, the companies will be sort of fully staffed to provide that. The other side of it is that liquidity will remain. And I think that that bodes well for consumer discretionary.

You know, I know a lot of the sentiment types of surveys out there look a little bit negative, but the consumer spending number tells a different story. So retail sales were up 1.7%, I believe, in the last read. So that, you know, that tells me that, if consumers are sort of back to work and continue to have money in their pockets, it's going to go into goods or it's going to come back into the market and boost equities.

- I want to follow up on something when you talk about boosting equities because some people who've joined us this week have talked about maybe things are a little bit expensive, but you've also highlighted to your clients P/E ratios aren't perhaps as wide as you might think. What does that mean as we go into the first quarter of next year?

SYLVIA JABLONSKI: Well, I think what that means is that earnings have delivered in a lot of cases. So a lot of the stocks that, you know, have been treated as being overvalued this year. Particularly the FANGs have proven that there's a reason for that value. So although forward guidance has been lighter than, say, it was for Q2 going into Q3, earnings are still delivering.

And I think that, even with the pullback on that guidance, we're still looking at strong year-over-year revenue growth and projected year-over-year revenue growth. But you know, companies like Apple, Amazon, Microsoft, Nvidia even, like, you can look at their multiples and think this company looks overvalued, but when you think about the future and the role that they're going to play and things like the metaverse, quantum computing, all of the types of technologies that go into cloud, cybersecurity, things that just aren't going to go away, regardless of sort of inflation and rates, I think that those multiples tend to matter less.

- John, I'm not sure if you were able to get to this point when we were talking just a second ago about inflation, but you've pointed out that the Fed, in some ways, is a little bit hindered if it wanted to raise rates right now because debt levels are somewhat elevated. Explain to us what you mean by that, and how-- I'm using the expression of the Fed's hands being tied, because this does have meaning for people who are considering where to place their money, whether it be in bonds or equities.

JOHN MCCLAIN: Oh, absolutely. Right, debt levels are untenable if rates go meaningfully higher from here. So domestic central-- or developed market central banks across the globe are going to be faced with a choice between inflation and higher interest rates. And simply put, they're going to choose inflation. We're likely going to continue to see higher inflation prints in the short term. Those base effects may start to creep in in 2022. However, higher inflation hasn't been transitory, and it's most likely here for the intermediate time frame.

The supply chain impacts that we're seeing, they're not going to abate until most likely 2023. And because of the amount of global coordinated fiscal and monetary stimulus that's still working its way through the system, demand has been overstimulated. So, you know, when it comes down to that choice, you know, central banks, governments can't afford meaningfully higher interest rates. So they're going to choose inflation. And inflation is a tax on everyone, but it certainly impacts the lower income segment disproportionately, which is an issue that we see on a go-forward.

- Sylvia, you've shared with your clients that you do not see the Fed moving fast or furiously. So with the dollar yielding near zero, you know, where should someone consider putting money? I know that you consider crypto. For a lot of us, that's a little frightening because we don't quite understand crypto markets as well as you do.

SYLVIA JABLONSKI: Well, I think that's a great point, and it's a risk worth highlighting. And if an investor is sort of not savvy with crypto or not comfortable with trading crypto, and sort of what it is or the volatility behind it, I would say stay away, because that's a very valid point. But I think that there's actually a lot of value in crypto. And it goes back to the story that I just shared before. I think that technology is taking a turn, and that turn is going towards web 3.0. And all of the things that are going to power that are going to be semi-conductor types of names.

They're going to be companies that you might have not thought about for a long time. For example, Atari that has a lot of space in the metaverse, Facebook, Microsoft. A lot of these companies are really forward-looking in terms of the types of technology that they're going to invest in. So I think it's about what are the next FANGs for the 10 years ahead of us. And those are going to be stocks that are relevant to sort of blockchain technologies, cryptocurrencies, metaverse-related web 3.0. So the real disruptors.

- Sylvia, you just brought a big smile to my face because when you said Atari, and it was a different Atari at the time, but my dad actually came home 1,000 years ago with the Atari Pong game. And you took me back. So thank you so much for joining us. Sylvia Jablonski, Defiance ETFs co-founder and CIO. And Sylvia, I promise next time you're here, I want to talk to you about 5G, because it's going to be so big. And John McClain, Brandywine Global. Thank you both. Have a wonderful weekend.