Stocks were mixed Monday as investors closely monitored developments in Washington, DC. Larry Shover, D. Alexander Capital CIO and Tom Essaye, The Sevens Report Research Founder joined Yahoo Finance Live to discuss.

Video Transcript

SEANA SMITH: I guess, just how does the market look at something like this because you have Robert Kaplan, Eric Rosengren now stepping down from the Fed, two hawkish presidents. How does the market react? How does the market read something like this?

TOM ESSAYE: I don't think it's going to have very much of a market reaction. I think this is more just sort of, it's a bit of a juicy storyline, right? I mean, Powell said this doesn't look good. And it obviously doesn't look good. You don't want a conflict of interest among Fed governors, not that I'm saying there was one. I'm just saying that the optics of this aren't great.

The market's going to look past this, though. I mean, in the end, Rosengren and Kaplan weren't going to be deciding what the Fed was going to do. They were more on the hawkish side of things. I mean, you could make the argument that maybe it makes the Fed slightly more dovish. But I don't think that's going to change the outlook for stocks. I think instead, this is just sort of poor optics at a time when the Fed is sort of being more and more viewed sort of from a political prism. It's just bad timing.

ADAM SHAPIRO: Tom, let's follow up on something that looks pretty good though, as you highlighted in the latest "Sevens Report." And that would be the price of copper. I mean, we're watching commodities kind of go all over the place, oil above 75, to at least WTI above $75 a barrel. And what's going on with copper? And what's that signaling to investors?

TOM ESSAYE: Well, we've had copper come in right over the last couple of weeks because we saw-- essentially, copper really trades as a proxy for China sentiment in the very short term. So we had all these problems with the Chinese economy, which are still ongoing, they're just not the market's focus anymore. And then the Evergrande issue last week, you really saw copper come in.

But it's held some support now. And it's starting to bounce back. I think that's generally positive for the global economy, for the outlook for the global economy. And really, what you're seeing is, across asset classes, the market adopt a pro-cyclical view, which means better growth in the future, higher inflation, higher bond yields. You're seeing that from commodities through to equities today.

SEANA SMITH: Larry, one of the outperformance in today's market was energy, oil up another 2%, its highest level that we've seen in about three years. We also got that bullish note out from Goldman saying that we could see oil hit $90 here by year end. What do you see, I guess, as the likelihood that oil could potentially reach that level or maybe even push slightly higher?

LARRY SHOVER: Yeah, I mean, it definitely could. I mean, I'm not of that conviction. But yeah, I mean, I think really, the pathway out of the pandemic has so much to do with it combined with something Tom alluded to, the economic numbers in China. I mean, they're hopeful for great blowout PMI numbers in September. But August was really bad for them.

And this is surrounding the uncertainties with growth and inflation. I mean, that's the whole story right now, barring the intermediate interruptions with hurricanes and such. But when it comes to the whole demand and supply picture, it really is the uncertainties or the surety, as it were, with regards to inflation and growth. Will it really be there? It's really hard to say.

ADAM SHAPIRO: Larry, want to follow up on something from the last hour, and that's the fact that we're going to be in earnings season in a week, two weeks, right? What is your expectation? What should investors be paying attention to? And what should we disregard? Because we're being set up, it seems like, for a lot of disappointment.

LARRY SHOVER: Yeah, that's a great question because really, I'm of the mind that realized economic data, realized earnings potential is kind of already built into the market. And it's really a lot less about that and more about forward expectations.

So in my view, I think when it comes to earnings, will they beat? They seem like they always beat, and they probably will. But I think it's more about the forward expectations, the conference calls that we hear. And I think that's what we pay attention to because realized data, whether it's economic or company-specific information, I just don't think anybody cares anymore right now. It's more about what's going to happen in the short term.

SEANA SMITH: Tom, what do you think is the most important thing for investors to pay attention to as we do kick off the final three months of the year?

TOM ESSAYE: I think Washington is extremely important right now. I know that everybody sort of-- we just assume that this is all going to sort itself out, and it probably will. But the bottom line is we can see some volatility. And we're not talking a lot about tax hikes.

There's a decent chance, if not a good chance, that we see tax increases in the corporate rate. That will hit earnings, back to the point we were just discussing. You're also going to see, potentially, the personal rate go up to on that top tax bracket.

I'm not sure how much the market has really priced in tax increases and what that does to earnings and the multiple going forward. So I would be focused on Washington. I get people are nervous about COVID. I get people are nervous about earnings, rightly so. But I think Washington and tax hikes could be an issue that could hit markets.