Why the strong jobs report is drawing concerns over inflation

Head of Active Equity at Wells Fargo Asset Management, Ann Miletti, joins Yahoo Finance to discuss the ramifications of the better than expected jobs report and the opportunities within the market for investors as reopening efforts continue.

Video Transcript

- All right. A little over 2 minutes out from the opening bell here on this jump Friday, July jobs report coming in better than expected, and we see a mixed picture here, ahead of the opening bell. And joining us now to talk about today's market setup and what we've really seen in markets over the last couple of weeks is Ann Miletti, Head of Active Equity at Wells Fargo Asset Management.

So Ann, we see the reflation trade really kind of taking off again today. How are you thinking about the status of that trade, which was such a winner for I guess a good 9 months, and has sort of cooled off a little bit, as we've gotten into the summer?

ANN MILETTI: Well, the report today was certainly a lot better than many people expected. Not too surprising to us-- but remember, the number was better ahead of what appears to be more negative news with the virus. So we'll have to see what happens if we see more weakness, based on some more, you know, not lockdowns, but more stringent activity in the economy.

We're already seeing some data, restaurant data, et cetera, starting to soften a little bit. So we'll see. The data this morning, I think, the most surprising, was the wage growth. And certainly, you'll see some inflation concerns, based off of that and the numbers itself today.

- And just looking at more shorter term in nature, is this report bullish or bearish to markets, looking out for the balance of this month?

ANN MILETTI: You know, look, I think it's a bullish number. It's good to have people back in the market. We still have a lot of people, a lot of jobs to fill. So overall, it's good. But it will bring back those inflation concerns. So you started to see the bond market start to get a little bit more concerned about inflation. And that's the fear that you're going to see in the market today. But overall, I think it's a good report and bullish.

- Yeah, all right. We're about 30 seconds out from the opening bell here on this Friday morning, as we look to get today's session underway, on the back of that July jobs report. AMTD ringing the opening bell there on the floor of the New York Stock Exchange. Hong Kong based investment bank-- love the ticker on this-- HKIB, Hong Kong Investment Bank. How about that?

As we see there on the banner, the number one independent investment bank in Asia, as we get today's session underway. Again, and we had a mixed picture before the opening bell. So we'll see how things shake out as we get into today's session.

you know, Ann, I just want to talk a little bit about what the most common question you are getting from your clients is at this point in the cycle. Because we have seen, I guess, kind of three or four mini cycles within the market happen just this year.

Where are folks at today? I mean, is it still an inflation concern? Or have folks-- sort of looking at other parts of their portfolio?

ANN MILETTI: Certainly, people are concerned about inflation, and when do rates eventually go up? That's probably the number one concern on investors' mind, right? Has the market gone too / how expensive is the market? And where else can we put money to work? I think that's the primary concern of investors today.

And I think as an equity investor, I think there still is room for investors to stay. They have to stay positioned somewhat in equities, just because there's no other room to really earn good returns. And so-- and the economy is still strong. There's still room to grow here.

You saw Q2 numbers, really, really strong. I know that doesn't matter too much. It's all about forward looking. There still is room, though, to go. It's-- the concern really is about 2022. We know growth will slow. And I think the factors there really are what happens with the regulatory and policy environment for 2022. That's where the concerns primarily lie for me. But there's definitely room for the market to go.

- And when you talk about that need to be in equities, are you guys-- how are you thinking about allocating within there? Is it by style right now, tends to be more dominant? Is it by geography? What is that view like for you guys?

ANN MILETTI: I think there is-- domestically, certainly, there is still room for investors here. The emerging markets, you know, despite what's going on in China, we still like the emerging markets. In fact, there are some places in China that we still think are investable today. But domestically, we still like opportunities.

Small and mid-cap-- I would say mid-cap primarily-- is a place where investors have steered away, and it's ripe for opportunity. Can close the gap. There's room for acquisitions. Industries like industrials, if you get an infrastructure bill, there still is room in industrials. Health care has lagged behind. Still room for places in health care to invest. Consumers as well, right?

You see this Delta variant scaring people. But the consumers still will have room to grow when you get these jobs back in the marketplace. That will cause consumers to spend more money, especially those lower income jobs. When they earn those paychecks, they will go out and spend them. So consumer's another place that we believe you can invest.

- All right. We'll leave it there. Ann Miletti, Head of Active Equity, excuse me, over at Wells Fargo Asset Management. And appreciate the time this morning.

ANN MILETTI: Thank you.