Stock market drop on COVID-19 variant fear could be 'buying opportunity,' strategist says

ProShares Global Investment Strategist Simeon Hyman joins Yahoo Finance Live to discuss the outlook on inflation, retail season prospects, and if markets are reacting appropriately to the new COVID-19 variant.

Video Transcript

JARED BLIKRE: And we want to continue the market discussion with Simeon Hyman, ProShares Global Investment Strategist. So Simeon, we got to lead off with the market carnage that we're seeing here. Just wondering what do you do in this situation, are you looking for some value plays here, maybe buying the dip? Or are you back in the work-from-home trade? What are you seeing as opportunities?

SIMEON HYMAN: Well, first let's start with stocks versus bonds. I think as much as it's hard on a day like this, I think we're still in a place where yields are so low that the safe haven of bonds isn't as safe as it looks. You're making not that much today on a little bit of rally in Treasuries, so it's a tough spot.

You have to I think like stocks a little bit better than bonds. At the beginning of the pandemic, you made money for about five seconds on zeros, and then it was gone. So I think you have to look to the equity markets and you just got to cross your fingers and hope that this variant isn't really another wave. And then within it look for some particular opportunities.

SEANA SMITH: Simeon, on a day like today, when you're looking at the Dow off over 900 points, that's a drop of more than 2.5%, does that type of a pullback, does that make sense or do you think it's a bit of an overreaction from investors?

SIMEON HYMAN: I don't think we have any idea. I think what we do know is that look, all the economic data of the last month or so was really, really strong. I mean, an all-time high ISM Services, that's services, it's not manufacturing. Manufacturing was also high. And retail sales was up 1.7%, by the way, online retail was up 4%, so even in pre-variant, online retail was reestablishing its ascendancy. Even capacity utilization had hit a post-pandemic high. So look, there's a lot of good economic data as we know, causing a little bit of inflation going into this. And to the extent this is not as big as Delta was ultimately, then I think maybe it's a little bit of a buying opportunity. But again, most importantly, I think it's still stocks over bonds.

JARED BLIKRE: And let me ask you about those buying opportunities. We've seen some really high profile earnings disasters just over the last week, Nordstrom comes to mind, Gap as well. And it just seems to be a case of have and have nots, where some of these retailers have their ducks in a row, they can build their inventories up, they control their margins and some can't. So I'm just wondering what you view the dichotomy of in the retail sector and what that tells you?

SIMEON HYMAN: Absolutely. So first, there should be a rule that only one Simeon per morning because I was getting very confused. I kept thinking you were speaking to me and you weren't speaking to me yet. But here's a couple of thoughts, I mentioned that last month, we saw 4% rise in online retail sales versus that 1.7, which is still a strong number overall.

The reopening trade may have gone a little too far and you see it with the folks who-- remember, everybody's transitioning but the legacy players are still burdened by that extra cost structure. You saw margin pressure at Walmart and Target, and I would argue not just because of the inflation pressures but also because of the incessant demands of competing with the born online players. At this point, the brick and mortar players have rallied to almost double the relative valuation compared to online retailers. And that's a real opportunity we think particularly, as even in a-- regardless of the pace of reopening, that valuation disconnect we think has gone a little bit too far.

SEANA SMITH: Hey, Simeon, when it comes to the strength of the consumer, we've seen consumers willing and able to digest some of the higher prices that we are seeing as a result of inflation. How long do you think that trend is going to be the case?

SIMEON HYMAN: Well, it is a tricky thing because if you think inflation is transitory, then that can hamper demand in the short run. So far we're not seeing demand hampered, which actually suggests two things. One, the consumer is pretty strong, but B, that inflation is probably not quite as transitory, again variant aside. So I think what's likely is the consumer is going to hold up, inflation won't be completely transitory but nothing near 6% but maybe 2.5 or 3, something a little north of the Fed's target for a little while. And that's not-- again, this goes back to stocks over bonds and pick your punches on the retail side, online retail over brick and mortar folks.

And I'll give you another idea that's very recession-resistant and inflation-resistant. You talked about health care being the only thing in the green today, pet health care is a major opportunity. If you look at the pet market, about half of it is pet health care and nobody stopped spending on their pets regardless of a little bit of a hiccup in the economic recovery or inflation.

JARED BLIKRE: And Simeon, we got time for another quick one here. I want to ask you about FIGS, this is a name that as you note in your notes to us this morning, it's right back down to its first-day trading levels. I was there at the New York Stock Exchange on that day, they had a nice setup, but I'm wondering what you like about or don't like about the stock right now?

SIMEON HYMAN: Yeah, as you know, we have ticker ONLN is our online retail ETF. And one of the nice things about the index that it follows, the ProShares Online Retail Index, is that IPOs do make it in on a fairly proactive basis, so FIGS is in the index. It's a very interesting company, remember, Walmart didn't put out of business every brick and mortar retailer two generations ago, Amazon had-- there are many companies that are thriving alongside of Amazon, niche category killers of what we saw in brick and mortar, we'll see it again online. FIGS is a dedicated medical apparel company with proprietary fabric. They're back down to as you said, somewhere around their IPO price. It's a very interesting opportunity with a lot of barriers. And by the way, 85% of medical professionals actually buy their own scrubs.

JARED BLIKRE: You know, I don't doubt that. And Simeon, we do promise next time only one Simeon per show. Simeon Hyman, ProShares Global Investment Strategist, thanks for showing up today on a really busy Friday. Well coming--