Stock Market headwinds 'that created this downturn are still in existence,' strategist says

BMO Wealth Management. U.S. Chief Investment Strategist Yung-Yu Ma joins Yahoo Finance Live to discuss the stock market, volatility, and what to except from the Fed's FOMC meeting this week.

Video Transcript

- Switching gears here and continuing to look at the markets, stocks, they mounted a stunning comeback on Monday, with the Dow closing in the green after being down 1,000 points in the session, actually when we were on air yesterday. And so to join us now and help us break this down a little bit further, we've got Yung-Yu Ma, who is the BMO Wealth Management US chief investment strategist. Great to have you here with us today. Let's just make sense of the volatility we saw yesterday, and even some of the declines that we're continuing to see today in spite of this slight close higher that we were barely able to squeak out at the end of Monday's session.

YUNG-YU MA: Yeah, sure, Brad. Thanks for having me. Yesterday was really more of a snapback relief rally after a lot of pessimism and a lot of declines in the market. Nothing really fundamentally changed yesterday. I think the market's really just waiting for, as Brian said, to see what the Federal Reserve does, FOMC, to see what Jay Powell messages at the press conference. That's going to be the next big important news event that comes out.

Of course, there's data that's trickling out. We had consumer confidence, which held in reasonably well today. But really, nothing fundamentally has changed. And the headwinds that created this downturn are still in existence, and we have to wait to see how these resolve.

- How do you explain the moves that we saw yesterday, though? I mean, we were talking at this hour yesterday, 24 hours ago, the Dow down about a thousand points. And you know, we got back to the end of the day, I had to do a double take here. I mean, was this about investors getting in to buy the dip, seeing the opportunity, or was it something more?

YUNG-YU MA: I wouldn't put-- I wouldn't read too much into it. I think it was more of a snapback relief rally. There was a lot of wholesale selling that was taking place, maybe even some margin calls. And I think it was just time for the market to snap back. And as we see today, that's not really holding up so well. So I wouldn't read too much into one day or two days' action. It's really are the fundamental headwinds and fundamental drivers of the market, are they shifting, and how are they shifting? And we have to wait for a little more clarity before we see that.

- And so what type of reaction-- as we know, the markets latch on to whatever the Fed says, and even signals for some of their future policy decisions-- what do you believe the Fed could say to perhaps quell some of the concerns that have even driven this move lower that we've watched?

YUNG-YU MA: Well, it's going to be tough. I think one big thing that the market will want to hear is the Fed remains data-dependent. If Chairman Powell can really emphasize that, I think the markets will take some comfort that, if there is some slowing in the economy, that the Fed will ease off the brakes a bit. I think that would be one big aspect.

And the other big aspect relates to the decrease in the Fed's balance sheet. I think the market really wants to see the Fed taking a gradual approach, perhaps putting that off toward the end of this year, or maybe even signaling a willingness to wait until early next year to start reducing the size of its balance sheet. The market would take some comfort in that, I think, as well. On the contrary, if the Fed signals that it's going to reduce the size of its balance sheet much earlier, say starting in the summer, I think that could, again, be problematic for the market. So that's a big point that the market, I think, is hanging on right now.

- So how do you think investors should be looking at their portfolio? I mean, a lot of people are counting their losses now, especially so far this year. We were talking about the small caps earlier, saying that a lot of these companies who are not profitable are getting hit hard. What are some areas that you think provide really good opportunity in a volatile market?

YUNG-YU MA: I think value in general is probably something that's going to outperform for quite a while still. As you mentioned, the unprofitable companies are going to be the ones that are getting punished more. So if you look at the low P/E multiple, stable companies that fit that value profile, those are probably the ones that are going to get more attention. Until we see more clarity in terms of the interest rate path, in terms of the trajectory of the economy, value's probably going to be a place, although it's underperformed for quite some time, many years now, probably going to be a place that garners more and more attention in the coming quarters.

- Yung-Yu Ma, who is the BMO Wealth Management US chief investment strategist, joining us today with the breakdown. We know you're going to be watching whatever is to come from the Fed's announcement tomorrow, plus the press conference. And we'll have to check back in in the future to see if they've delivered on some of the expectations that you're looking out for, as well. We appreciate the time here today.