Market Recap: Wednesday, July 7

Stocks gained to end at records on Wednesday, closing out a choppy session higher after the Federal Open Market Committee's June meeting minutes signaled a split on the timing for rolling back crisis-era monetary policies. The S&P 500 and Nasdaq ticked up to reach record intraday and closing highs, led by a resurgence in growth and technology names. The Dow also rose. Simona Mocuta, State Street Global Advisors Senior Economist and John Lynch, Comerica Asset Management CIO joined Yahoo Finance Live to discuss.

Video Transcript

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- We've got two and a half minutes until the closing bell. We have Simona Mocuta, State Street Global Advisors senior economist, and John Lynch, Comerica's Asset Management chief investment officer, to help us make sense of the action that we're seeing today. And John, I guess first to you. What do you make of the leadership that we are seeing? Because so far, we have industrials and materials, both of those sectors up more than 1% today.

JOHN LYNCH: Well, those sec-- good afternoon, Seana. Yeah, those sectors are leading, industrials and materials, but curiously, utilities and staples are not far behind, which I find an interesting phenomenon, right, because if rates were really going lower, you would think-- if the market believed rates were going lower, you'd see more sustained leadership from the defensive space. So today is kind of a confused day if you think about cyclical leadership with industrials, materials, energy down, yet still some degree of leadership from utilities and staples.

So I suspect what's going on is the markets are trying to digest what substantial further progress means when the Federal Reserve keeps referring to that. And it would appear that the taper discussion, while it may be going on, is not imminent. And that's why the stocks are rallying.

- Simona, let me just get your thoughts on what we're seeing, not only today, but really coming on the heels of that better than expected jobs report that we got out last week. I guess, how are you viewing it, the market's reaction, comparing that to the econ data that we're getting?

SIMONA MOCUTA: I think, in some sense, you can say that there is alignment-- alignment here in the sense that we know for sure the economy still has a lot of growth ahead of it. And perhaps that's what the equity market is-- is looking for and banking on. There is still a lot of pent-up demand. In fact, what you're seeing at the moment is not an issue of too little demand, but almost too much demand trying to come online and work through the system.

And you're seeing these supply chain issues that are causing prices to rise. So I think perhaps what the equity market assumes is that this must be a fairly good pricing environment for these businesses. And therefore, even though input costs are rising, perhaps the margins can be salvaged here.

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- All right. [INAUDIBLE].

NASDAQ is going to settle up roughly [INAUDIBLE].

- Adam, it looks like we're having some trouble with your audio, so we are going to try and get that figured out. But I think as Adam was just saying, you're looking at gains across the board. We have the Dow up over 100 points today, S&P up 3/10 of a percent, the NASDAQ barely holding on to gains after hitting an intraday record shortly after the opening bell. The NASDAQ closing in positive territory, up just one point, though.

We want to bring back in Simona Mocuta and John Lynch for a little bit more on the action that we're seeing. And John, just in terms of where we're headed for the second half of the year, because I think investors are trying to wrap their heads around some of the leadership that we're seeing, and not so much today, but the fact that investors are once again favoring some of those big tech names. And then we have the 10-year yield, for example, trading down at 1.3%. So I guess where do you think we're headed from here, knowing that that type of action is taking place today?

JOHN LYNCH: Well, I think recently we've seen a comfort factor. As the 10-year yield has declined, people have gone with the tried and true, the big five technology, if you will. I think the more likely play, though, for the remainder of the year will be a cyclical bias for the market. And I suspect today's leadership, as we discussed previously, with industrials and materials leading, I suspect that is a good sign. We're going to get second quarter earnings beginning next week. Earnings should be up 60% or so.

And then I think as you get more clarity on reopening trade and more clarity on improved demand, you know, the Fed at some point is going to have to start tapering. And that would be OK. That would be a good sign for the market and the sustainability of this expansion. So I do believe, for the second half of the year, cyclicality will lead. I think the S&P would probably be fairly valued in that 4,500 range by year-end.

- Simona, I want to check up on what John was just saying regarding the stay at home trade, and whether the Fed's tapering really would be good, not only for those of us who invest in equities, but overall for the economy. What do you think?

SIMONA MOCUTA: I don't know if it would be good, necessarily. I mean, one buyer comes out of the market. But I think I do agree would be for sure a signal of confidence in where the economy is headed, and this idea that the economy and the market can-- can stand on their own two feet, so to speak, with less policy support.

There is no question that the moment of peak policy accommodation is behind us on fiscal, on monetary. So that's the-- what we need to consider, I think, economies, in terms of the macro investors, in terms of the market, how do we function without that policy support, or with less of it. You know, how troublesome, how volatile is that transition? I doubt that there will not be some volatility associated with this shift, but it need not be, you know, drastic, as long as you have this sort of growth underpinning the outlook.

- Simona, what about the JOLTS report that we got out this morning? Job openings climbing to a record high. Then we have the layoffs hitting an all-time low. What does that mean just in terms of the recovery that we're seeing in the labor market?

SIMONA MOCUTA: It's telling us, and not for the first time, that you are in a supply deficit in the labor market, not a demand deficit. The demand for labor, the demand for workers is certainly there. The problem is the workers are a little slow to come back. I think with perhaps the exception of construction, where you are seeing now some weakness for a few months, both in payrolls and in job openings, everywhere else, every company seems to be looking to hire. So I think it's just a matter of speeding up the reentry into the labor force of those workers who have been a bit slow to rejoin. We should be looking for some really strong employment gains during the second half of this year.

- All right, we're going to take a quick pause, go to Jared Blikre, who is on the floor of the New York Stock Exchange. Let's open up his mic, and let's go.

JARED BLIKRE: All right. Well, I've been looking at the NASDAQ and the mega-caps. For the last six weeks or so, we really saw a resurgence of the growth trade at the expense of value and cyclicals. And it looks like it has room to run. Now, we had a change of leadership today. It ends up that materials and industrials were leading by the end of the day, as previously noted.

But I think the growth trade has room to run here, especially into earnings season. We've got a couple weeks where we don't have that much news. You take the other factors, we have retail buy and call options on these mega-caps. Again, they influence the market. On any given day, they can be the big marginal buyers. So I think these-- these room-- these moves that we're seeing in Apple, Alphabet, and some of the others have room to run.

- John, when you take a look at what's been priced into the market at this point, lots of questions about earnings, what could potentially be another catalyst here for stocks going forward. What do you think has already been priced in up until now?

JOHN LYNCH: Well, low rates have been priced in, a Federal Reserve that will remain accommodative has been priced in, and I really believe, to Jared's point, you know, once we get through this-- the growth leadership, if you will, over these next couple of weeks-- it's really going to come down to visibility from corporations, and to what extent businesses are-- and when reporting earnings, are still positive about their earnings visibility, you know, the sustainability of margins, and the degree of economic demand.

As Simona talked about with, you know, the supply and demand imbalance in employment, I think you're going to see improved services employment. We had a disappointing number yesterday, but I do ultimately believe, as some of these unemployment benefits, for example, some of the states pull back on that, I think that combination with improved demand growth, not only domestically, but globally, I think that will probably be the next catalyst to get stocks moving again, and again, consistent with our outlook for cyclical-- cyclical leadership in the second half of the year.

- Simona, are you worried about these new variants that are popping up with the COVID-19 virus, and their impact on-- it's not the United States, but reopening globally, and then the impact on the US?

SIMONA MOCUTA: I mean, it's-- it would be foolish to not pay attention and not to worry to-- about them at all. I wouldn't-- I would say that, at the end of the day, despite all these headwinds-- and I don't think the delta variant would be the last that we learn of-- each and every day, we are making progress, and we are sort of gaining another step in the fight against COVID. Vaccinations globally are really finally accelerating. And not only are they accelerating, but they are broadening geographically.

So that is nice to see. And I'm hopeful that, as with every week, with every month, sort of the margin of pain in terms of, you know, forcing any reinstitution of mobility restriction, that diminishes. But this is-- we are definitely not out of the woods yet on this health crisis, and so the risk remains. It's just that, with the passing of time, the risk diminishes, in my view.

- Simona Mocuta of State Street Global Advisors and John Lynch of Comerica Asset Management, thanks to you both for joining us here today.