Market Recap: Thursday, October 7

Stocks advanced Thursday, with investors cheering developments in Washington as lawmakers reached an agreement that would temporarily avert a government default by mid-month. Greg Staples, DWS Group Head of Fixed Income, Americas and Matthew Tuttle, Tuttle Capital Management CEO and CIO joined Yahoo Finance Live to discuss.

Video Transcript

ADAM SHAPIRO: Before we get to the closing bell, Greg, I want to ask you something. Steve Mnuchin, the former Treasury Secretary, on record today saying we could see a 10-year yield around 3.5% and not too far from this day. What would that mean for us average investors in American?

GREG STAPLES: Well, I'm not sure we're going to get there. I think that's a bit of a stretch, but I guess everybody's got their own opinion. If we saw 3 and 1/2% on the 10-year in the not too distant future, I think it's probably meaning inflation's really popping up, you know, north of 3 to 3 and 1/2%.

And quite frankly, I think that's going to have serious implications for the equity markets. PE's are tied to interest rates. And if interest rates go up, they tend to have a negative effect on PE ratios which could have a negative effect on equity. So it's something to pay attention to.

ADAM SHAPIRO: And we've seen just with small gyrations upward, what happens with big tech during the sell-off. OK, let's pause before we get to that closing bell and check where markets are setting up because we're going to have a day that ends in the green for the indices.

The Dow's going to settle up over 300 points followed by the S&P 500 and the NASDAQ. We were talking with Jared just a second ago about some of the sector action. And we did see that discretionary-- consumer discretionary-- big gainer today. Utilities, yesterday's gainer is today's loser. And here's the bell.

[BELL RINGING]

[CHEERS AND APPLAUSE]

[MUSIC PLAYING]

SEANA SMITH: And that does it for today's trading session. Again, you're looking at gains across the board. Stocks rallying. A lot of that has to do with the agreement reached down in DC. The Dow closing well off its highs of the day, but still up 337 points. Biggest gainers in the Dow today-- UnitedHealth, Dow, Inc., and Home Depot. All three of those stocks closing up just over 2%.

You're looking into the S&P closing up just around 8/10 of a %. And the NASDAQ notching a 1% gain. Adam was just talking about some of the sector action. Consumer discretionary leading the way. We're also seeing pretty solid gains in health care, materials, technology there among the leaders in today's session.

But let's bring back our panel for more on the action. We have Greg Staples and Matthew Tuttle to walk us through what we're seeing, what we would likely see going forward. And Matthew, what do you make of the gains today? I guess is this just a couple of days of trending in the right direction? Or are we starting to see a little bit more than that, and that momentum is likely to stay?

MATTHEW TUTTLE: So right now, this looks more like an oversold bounce than anything else. You know, the excuse, obviously, is the debt ceiling agreement. But I don't think a whole lot of people thought that we were going to be defaulting on our debt. So, you know, really, that just gave people an excuse to buy into stuff that it may be gotten a little bit oversold.

Short-term, we're still somewhat cautious. The market now has a gap that it's got to fill to the downside. So I wouldn't be surprised to see some weakness tomorrow or Monday. But longer term, we're still bullish. And, you know, unless we get 3 and 1/2% interest rates, that would change the equation for us. But short of that, we're still bullish to the longer term.

ADAM SHAPIRO: Matthew, we saw, as Seana pointed out, discretionary. That sector big. And one of the stocks that you actually-- you're looking at as a potential buy is a firm, which is that buy now, pay later situation. With the supply chain constraints, I always screw up those three words. Would that be a little bit risky, though, because if I can't buy what I want, why would I buy it now and pay later anyway?

MATTHEW TUTTLE: Everything with supply chain issues going on is a little bit risky. What we love about a firm-- and understand, we look at things differently. So we're looking at things. What are retail investors liking? What are stocks that are in strong uptrends?

But a firm also has a deal with Amazon. And last time I looked, Amazon pretty much controls the world. So having a buy now, pay later deal with Amazon is not a bad thing to have. And then they just add Target yesterday, which is why they were up 20%. So yeah, that is, is one of our favorites still.

SEANA SMITH: Greg, in terms of what could move the market here over the next couple of days, the jobs report out tomorrow morning. I know you're closely watching this. What do you think is most important just in terms of what you will be looking for in tomorrow's number?

GREG STAPLES: Sure, I think investors are looking for a rebound from that disappointing August number. They're looking for an indication that we have had a turnaround from that late summer COVID soft patch and also to see the effect or incentives from the end of the supplementary unemployment insurance.

Our expectations are roughly around 500-- 1,000 jobs created with the drop in the unemployment rate to 5.1%. But I'd be really wary of trading the headlines. There tends to be some noise underneath that really have to pay attention to-- revisions from last month, change in average hourly earnings. I mean, earnings are running at a 4.6% annual rate. That's real wage inflation. And we want to see the participation numbers.

OK, I know your earlier guests talked about the willingness of workers that are unemployed to get back into the labor force. And they've been reluctant so far. So we're going to be watching that one very closely as well.

ADAM SHAPIRO: Greg, I have been in that Labor Department lockup looking over the labor report before it gets released. And what you just said about be careful about trading on the headlines, because so often, that first 10 minutes after it's released, they're trying to figure out what it really means.

When the report comes out tomorrow, could it be ammunition for the Fed if we have a strong showing and we see strong participation in the labor market for the Fed to then-- I could see a scenario where investors saying, Aha, we taper. We're done with the tapering in mid-2022. And we start raising interest rates. Could that ammunition come their way with that jobs report starting tomorrow?

GREG STAPLES: I think you've done a good job of laying it out. First off, the whole tapering schedule-- that's done-- locked up, throw away the key-- starts in November as it ends in the middle of next year. But the market's looking for now is the first lift off in interest rates.

Markets thinking end of 2022, early 2023. And depending on how data comes in, they're going to either start pulling that forward with market effects or pushing it back out with market effects. That's the key variable that's in play right now.

SEANA SMITH: Matthew, in terms of the number that we could get tomorrow, would you change your strategy at all based on the fact that we could get either of it one side of it, very strong number on the flip side of it-- a number that misses by a long shot?

GREG STAPLES: Well, absolutely.

MATTHEW TUTTLE: So--

GREG STAPLES: I mean-- oop, go ahead. Sorry.

MATTHEW TUTTLE: Yeah, no, we wouldn't change our strategy based on the number but maybe based on how the market reacts. You know, what I'd love to see is a Goldilocks number that kind of keeps the Fed on the sidelines.

What I don't want to see is a number, one way or the other, too strong or too weak that really knocks the market on its heels. If that happened, then, yeah, we would change our strategy. And my whole idea about being more bullish long-term kind of goes out the window.

ADAM SHAPIRO: Greg, what did you want to say about that?

GREG STAPLES: Well, it's really, I think my concern would be the average hourly earnings number. You're really good at drilling through as to what labor cost inflation is. And that's, I think, the biggest deal right now. The market's getting very concerned about inflation being more sustained rather than transitory.

And if it does become sustained, it's going to be coming from supply chain issues as well as the labor market. That's something that could rattle Powell. And as you talked about earlier, pull forward expectations for the earliest tightening. And that could have market implications.