Stocks gained on Friday as investors considered new economic data on consumer spending, income and inflation alongside stronger-than-expected data reports from earlier this week. Steve Sosnick, Chief Strategist at Interactive Brokers and Nancy Tengler CIO Laffer Tengler Investments, joined Yahoo Finance Live to discuss.
Let's just take a quick market check here. We have all three indices firmly in the green. We have the Dow up 74 points, the S&P 500 up just over 4 points here, and the NASDAQ up 14.73 points. Just a minute away from the closing bell. Adam, what are you watching?
The other thing, Bitcoin is falling today too. I mean, Bitcoin is off almost $3 grand, and it doesn't stop trading, but it's trading around $35,879 right now. The other issue, as we go to the bell is-- there it is. We've got ourselves the closing bell, although I can't hear it. There, I can hear it. Happy closing bell on this Friday, everybody. Give us a gavel, man. It's like he's listening to me, right?
So let's talk about where we're going to settle on these markets right now. And we are going to be up. The Dow is up 65 points. The S&P 500 is going to settle up almost 4 points, and the NASDAQ is going to settle up about 12 points. Let's go to our guests and get their input on what we're watching here. And I want to go to Nancy first because a big issue we keep talking about, inflation. And one of the issues that you talk about is the wages and the pressure that we're watching regarding wages. What do you want investors to pay attention to, as we head into the summer on that issue?
NANCY TENGLER; Well, I think we're going to get wage inflation. We've seen it in the average hourly earnings, which have some mix shift problems, which do not show up in the employment cost index. So we're watching that. We're watching companies spend on CapEx. Because you can have rising wages, but it should be coupled by companies investing in technology, which then really improves productivity, and that allows us to grow without an inflationary spiral.
But goods inflation is still a concern, and I just drove back through California, and gas was $5.69 a gallon, back into Arizona. That stuff shows up. And Costco reported inflation at just about every aspect of their business, negatively impacting margins. So we're watching that as well
JULIA LA ROCHE: Steve, I want to bring up a point that you made in a recent note, talking about the major US indices, that they're all around the flat line for the month with gold as a slight outperformer. We're just referencing the gold move. Talk to us about what you're paying attention to right now in the markets, and particularly, gold.
STEVE SOSNICK: Well, Julia, with gold, specifically, it was essentially forgotten about. If you look at a chart over the last couple of weeks, a couple of months, it's really sort of followed the CRB index higher, but for the first quarter, basically, it was in a mind of its own. It was really sort of the anti-dollar and not an inflation hedge.
I think as we've started to talk more about inflation, people have started to think about gold again. And while it's up, call it 5 for the month, it's still actually down slightly year to date. So it's been an underperformer over the year compared to almost everything, but it's been a nice performer this month in a month where, basically, all the major equity indices were flattish.
ADAM SHAPIRO: Steve, Nancy, we're going to come back to you in just a second. But Jared Blikre, we want to get your final thought on the markets this week.
JARED BLIKRE: So two weeks ago, I said get ready for a crypto winter in the summer, and last week I said we're in the crypto winter. Today I got a warning. If you look at what Tether and some of the stablecoins are doing, people are rushing into it. Meanwhile, the coins are going down. That indicates a flight to safety.
So I've been talking to Yves Lamoureux, a.k.a. the Canadian Whale. I mentioned him several times on this program. He believes that there is some Archegos-like investor, highly over levered, and we could see a major crash, including the possibility of exchanges going under. So just throwing that out there. Doesn't have to be your base case, but just be careful. Respect your stocks.
ADAM SHAPIRO: Jared, have a great holiday weekend. Let's get back to the panel. Nancy, I wanted to continue that discussion about inflation because you point out there could be a wild fire if the Fed is making a mistake, but you also worry that there could be a lag of fiscal drag, which could dampen inflation in 2022. Help us understand that.
NANCY TENGLER; Yeah, Adam. Well, I mean, I think we're learning more and more about the president's budget, and it's chock full of new taxes, not just for corporations, but for individuals. Now, in a perverse manner, this fiscal drag may actually help inflation by muting it, but I think what it tells me as an investor is that we've had all this stimulus. There's going to be some lagged effect going into the second half of this year.
But with rising taxes and probably rising interest rates, we're going to see a slowdown in the economy, which would then yield a return to the growth trade from the value trade. So we've been positioning ourselves for that, adding to high-quality growth names on sale over the last six months.
JULIA LA ROCHE: And Steve, you made some points about the Federal Reserve, specifically around a dramatic increase in the Federal Reserve's reverse repo facility. I want to help our viewers understand what you're talking about here and what you're paying attention to specifically and what the implications might be.
STEVE SOSNICK: Yeah. It's a fairly esoteric concept and one that gets overlooked, and I don't want to overstate this, but in short, the Fed has been utilizing the reverse repo facility in numbers that we really haven't seen in years, and it's been steadily increasing over the past few weeks. What the reverse repos are is it's a temporary way for them to reduce liquidity in the market. Basically, it's a way of saying we're going to sell Treasury bonds, which takes some of the money off the banks' balance sheets and deposits with the Treasury.
It doesn't increase the balance sheet because a repo has an end date. These are overnight repos, but they've been steadily increasing. And it really becomes an interesting question because you start to wonder is the Fed pushing on a string? Can you have a Fed that is committed to adding liquidity, while at the same time, they're going to great lengths to reduce the amount of cash that's sloshing around out there. I suspect they would say that it's somewhat transitory, that it was somewhat the effect of the money reaching states from the most recent stimulus bill, any number of technical factors.
But I do have to wonder how long can this go on. Can the Fed talk this great game about adding liquidity and keep growing their balance sheet. At the same time, they're basically overwhelmed by banks getting rid of the money.
ADAM SHAPIRO: I'm going to ask you in a follow up to that very question, Steve. Why would they do it? I mean, people can see what they're doing, and they can also see whether it's having any impact.
STEVE SOSNICK: First of all, Adam, I think that it's a certain amount of watch what I say, not what I do. I do believe that if you asked them specifically-- and I haven't heard much comment on it from Fed governors-- I would think that this falls into the transitory camp, that they think that maybe this money will find a home somewhere. And so I think in the short term, you keep doing it, but you do something long enough for a short-term basis, it starts to become a long-term thing.
We're at the very early stages now, but this is one of those things that-- it's always something weird that freaks out markets, and this is one of those weird things that I have keeping my eye on at the moment.
JULIA LA ROCHE: Yeah, one of the weird things that could freak out markets. I guess for you, Nancy, what do you think right now is the biggest risk that investors need to be paying attention to as it relates to the markets?
NANCY TENGLER; Yeah, Julia. Well, I think the speculative bubbles that we're seeing are something you want to keep your eye on. There's nothing wrong with speculating. It's just a question of how much you're speculating, and we have a lot of people out of margin that don't have the experience or the memory of what I saw as an investor in late 1999 and early 2000.
And then I think you want to keep an eye on policy. Most every recession has been sparked by bad Fed policy. Our friends in DC are spending money like Ronald Reagan used to say, like drunken sailors. And at some point, the bill comes due. So we can print money. We can increase the Fed's balance sheet for only so long.
And I think Steve's made a really interesting point that should also be on everyone's radar. So we're watching policy, but there's one sort of underlying floor to this market, and that's share buybacks. More companies have announced share buybacks than pre-pandemic, and that's why we're getting these shallow corrections, and then the companies step in and buy their own stock.
So there's a lot of mitigating factors. I think you still want to be long stocks, but you want to be careful and pay attention to what's going on at the Fed and in Washington.
ADAM SHAPIRO: Nancy, that line about the bill comes due, the key is to make sure someone else picks up the bill. Julia, are you listening cause I'm giving the check to you at the end of this. But Nancy, real quick, something else that you hit upon a few minutes ago too is CapEx, and a lot of people are not keeping an eye on CapEx, but that's going to play into this whole discussion we've been having.
NANCY TENGLER; Absolutely, Adam. I mean, the Richmond Fed CapEx numbers hit a historic high. You're up 4%. This is the intention to spend on CapEx to 42%. We've seen it in all the numbers, the PMIs, and also what we have that's different now is that Tech CapEx is greater than 50%, just marginally of total CapEx. That's a trend we haven't seen before, even in the '90s.
So that gives me hope because it really does flow through productivity, and so we can raise wages and higher and still see corporate margins not get hit on a sustainable fashion. But the GILTI tax is an offset to that, which is this tax that tax offshore income and intellectual property, and that will be a problem for technology, pharma and semis, and medical equipment, which are all subsets. Those are national security kinds of companies, in my view. So I'm hopeful that that won't be doubled as proposed.