Greg Staples, DWS Group Head of Fixed Income of the Americas, and Raymond James CIO Larry Adam join Yahoo Finance Live to discuss market responses to Russia-Ukraine concerns, the Fed's interest rate hikes, inflation, and consumer spending on energy.
Video Transcript
BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. Major averages gave up their leads for the day and for the week. Brad Smith here with Emily McCormick. And hopping on for the market close to help break down this week's activity, we've got Greg Staples, who's the DWS Group head of fixed income of the Americas, and Larry Adam, who is the Raymond James chief investment officer. Great to have you both here with us today.
We're going to be checking out the closing bell very quickly here. We've got just minutes left in today's activity. And taking another look at the major averages, the Dow Jones Industrial average right now is looking at the close down by about 1.4%. We'll around that off to 474 points in negative territory. 82 points lower is the S&P 500. That's lower by about 1.8%. And also in the red, the NASDAQ composite, lower by about 2.7%, 382 points in the red there.
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And this all accelerating off of US concerns that Russia will invade Ukraine. We're continuing to digest any news that comes out of Washington. We've even got updates that the Biden administration is looking to send 3,000 troops there and positioning them. Here's a look at the closing bell.
[BELL]
EMILY MCCORMICK: And that is the closing bell this Friday, February 11. As Brad was breaking down, we have all three major stock indexes squarely in the red to close out both today's session and the week. The S&P 500 down about 1.9%, the Dow Jones Industrial average down by more than 500 points or 1.4%, and the NASDAQ composite down by 2.8%. Those technology stocks again coming under pressure and underperforming against some of the other major sectors.
But heading back over to our market panel, Greg, I want to ask you first, just based on the market action that we saw today, this acceleration into the close that we had on some of those headlines coming out about Russia and Ukraine, do you think this move to the downside was an overreaction, or does this make sense to you, given the current backdrop on the geopolitical and the inflation fronts?
GREG STAPLES: Well, I suppose it depends on your view as to whether Russia is really going to invade Ukraine or not. I mean, it's sort of a binary situation. Either they do, or they don't. And if indeed they roll in over the weekend, probably we aren't overreacting. But I tend to think they won't. I'm not an expert here. And if it turns out that things sort of stand down over the next couple of days, it'll, in retrospect, very clearly be seen as an overreaction.
BRAD SMITH: Additionally here, Larry, I mean, just thinking through the reality of where we've seen the movement on today's activity in stark reaction to not just, of course, the geopolitical and international tensions, but also on everything that we've seen take place over the course of this week, whether that be on the inflationary front, whether that be on James Bullard as well and what he's signaled and the size of what the rate hike could be. You carry this all into next week where we're also going to get some retail sales data, even more of the economic data coming forward, and earnings season continuing to move forward. What is the most important things for investors to be zeroing in on right now?
LARRY ADAM: So I think you bring up a great point. I think the market's been very impatient, right? I mean, we've had rallies, we've had declines this week. And everybody was anticipating a good inflation number. You saw the market rally, and then what happened, right? It came in much hotter than expected. You saw it come down the other way. Obviously, you mentioned we've had some geopolitical tensions, and that's led to some increased volatility.
But I think the market's going to continue to be on edge until we really get a clear, solid footing on what we see the Fed doing. And I don't necessarily know we're going to get that, you know, until we get some of this data that you were referencing. You know, next week, we get retail sales. We're going to get PPI. We're going to get some information about what the Fed was actually thinking at their last FOMC meeting. I think all those things are going to be important, as everybody tries to get an edge on what the Fed's actually going to do come March 15 and 16.
EMILY MCCORMICK: And Greg, I also want to get your reaction to this morning's Consumer Sentiment Index from the University of Michigan. Now the headline index was at the lowest level in a decade. But what really caught my eye was that consumers' one-year inflation expectations rose to 5% or the highest since 2008. Does the Fed have the tools to keep these elevated inflation expectations from becoming entrenched?
GREG STAPLES: You know, we've seen, I think, more checkered data in the past. Obviously, we saw the sentiment number this morning. We saw mortgage starts earlier this week could be a little bit softer. And I think the point is that the data is going to continue to be checkered. We've seen some hot data over the past couple of days with CPI and last week's jobs number. But it's not going to be consistent to that regard. The consumer sentiment that we saw today I think is probably a reflection of what they're seeing in terms of prices and concern that perhaps the higher interest rates are going to mean a cooler economy.
And does the Fed have the tools to bring inflation down? They do, but it's going to take some time. When the Fed raises the interest rate, it's not as if it's a dial that, on the other side, brings inflation down. It's a much more indeterminate complex system. And ultimately, if they do raise interest rates, I think they will dampen demand. But they're not going to get inflation down to the level it was, say, in the fall of 2019 pre-COVID. It's much more complex than that.
BRAD SMITH: Do you feel that the Fed will feel pressure of having to get a better kind of dampen on inflation or some type of measure that they can implore faster than even we're anticipating at this point in time? Do you feel that they're going to feel some type of pressure to accelerate their timeline?
GREG STAPLES: I think the fed is a little bit more of a political animal than they like to admit. They're a creature of Washington. And like right now of the Fed board of governors, there are three vacancies that have to be approved by the Senate. And actually, Mr. Powell and Lael Brainard themselves have now been approved by the Senate. So I think there's a technical element and a political element as well that goes into play. They're sensitive to that. And that plays into their decision making.
EMILY MCCORMICK: Larry, are we seeing that we're at the point with inflation that this is, in fact, making consumers pull back on spending in a way that could dent economic growth and economic activity? Or are consumers still going to be accepting price increases, at least in the near term?
LARRY ADAM: Yeah, I think for the most part, consumers are going to continue to spend, especially as most of us have been still waiting for this second reopening, if you will. And I think as we go into the spring, you're going to continue to see spending accelerate, which will help this economy.
But I do think that the negative side of what's happening over in Ukraine is that it could actually build the worst case scenario for the Fed in the sense that you could see energy prices move higher, which if you start to see gasoline prices go north of $4 per gallon, I think that could crimp consumer spending. And then obviously, if energy prices go higher, that could lead to further inflationary pressures. And that could be a double-edged sword that the Fed could be challenged by.
BRAD SMITH: With the activity, Larry, that we saw accelerate in the back half of today's session, what would you be advising your clients, your constituents? And are there any type of rotation strategies that you would be employing right now?
LARRY ADAM: So when you get these types of movements because of geopolitical concerns, I mean, historically, they've been, you know, very temporary in nature. We would continue to look at these buybacks as a potential buying opportunity when you see these types of pullbacks. You know, we're pretty constructive for the rest of this year because we do think that growth will remain solid.
We actually think that people are overestimating what the fed is actually going to do right now from a raising rates perspective. And we think the S&P 500 gets up to 50-50 by the end of this year. So by today's metrics, that's like 13%, 14% upside. So we would be using it as a buying opportunity and not trying to time the market for the actual bottom. But I think this is a good time period to get in.
EMILY MCCORMICK: And Greg, what do you think about that? Do you think now potentially could be a buying opportunity for investors? And if so, where specifically are you looking?
GREG STAPLES: Well, clearly, if we're looking about the equity market, I think we've got some choppy periods ahead. Longer term, we are very constructive on the market. But I think we've got to get through the first quarter. Maybe if nothing else, just get through the Fed March meeting and where there potentially could be some activity there. But I think Larry's got it right. As long as you be measured in your entry points, look for days of weakness, I think you're probably going to be OK over the long-term.
BRAD SMITH: We thought it was going to be a smooth sailing session going into Super Bowl weekend. It was anything but that. And we're going to be tracking internationally, as well as going into some key economic data next week. Greg Staples, DWS Group head of fixed income of the Americas, and Larry Adam, who is the Raymond James chief investment officer, thanks so much for taking the time here with us today to break down the market's activity that we were tracking. Appreciate it.