Due to risks that have re-emerged ‘the markets have been striving for a sense of direction’: Analyst

Candice Bangsund, Fiera Capital Global Asset Allocation Vice President and Portfolio Manager joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

ZACK GUZMAN: I want to turn our attention back to the broader market here, as we are continuing to digest and bring you live coverage from the Yahoo Finance live coverage of the Fed's Jackson Hole Symposium. Of course, Brian Cheung walked through the latest comments we got from Esther George. But on the economic front, we also got the update on unemployment. The initial unemployment claims coming in slightly above expectations at 353,000. Analysts expecting exactly 350,000 there, but still near the pandemic lows.

And for more on what that means for where we're at in this recovery and what it could do to the Fed's timeline, I want to bring on our market guest here. Candice Bangsund, Fiera Capital Global Asset Allocation Vice President Portfolio Manager, joins us right now. And, Candice, appreciate you taking the time here to chat. I mean, we're watching these headlines. Esther George maybe sounded a little hawkish and maybe moving up that timeline to reel in the Fed's asset purchases. But what do you make about that language and maybe where the recovery is now?

CANDICE BANGSUND: Yeah, well, clearly, the markets today are focusing on those hawkish-leaning comments from both George and Bullard ahead of tomorrow's highly anticipated speech from Chair Powell. You know, we're not expecting a formal definitive announcement tomorrow, given the deterioration in the macro landscape since that July meeting, when the taper debate really unfolded.

Obviously, the Delta variant, you know, a major downside risk, bringing into question the outlook for the economy, and clouding the outlook, quite frankly. So we think this will see Chair Powell tomorrow, you know, take somewhat of a cautious and patient approach, not providing that definitive guidance, but laying the groundwork for an eventual taper later this year once the Fed can get a little bit more of a sense as to the economic outlook, given these developments on the COVID front.

ZACK GUZMAN: Yeah, how should investors be maybe navigating that? You know, you think about so many unknowns, not just on the COVID front, but also how the Fed might interpret what's happening on the COVID front, and what we've seen play out, because the market's still near all-time highs and the S&P 500, the NASDAQ. I mean, but volatility is down. The VIX is pretty low, relative to where it's been. So, I mean, what's your sense of maybe how much skittishness still remains here?

CANDICE BANGSUND: Yeah, well, in the last few weeks, the markets have really been striving for direction, and I think that is a result of those risks that have reemerged on the COVID front. Like I said, what does this mean for the strength and the durability of the global recovery, all of this happening at the same time that policymakers are preparing to rein in all of that massive stimulus? This is a big adjustment for investors, particularly at a time when valuations are extremely elevated, and quite frankly, priced for perfection. So we think that in the near term, some of these risks could potentially leave markets susceptible to a near-term pullback.

ZACK GUZMAN: If that is the case, I mean, when we think about how this has looked different than maybe prior years around the temper tantrum, as the Fed prepares to reel in their asset purchases and what we saw earlier in the pandemic. You know, I asked our last guest here on the show what the advice might be there to navigate volatility, if it hits. If there's certain sectors you like in the way that the market's been churning, what would those be?

CANDICE BANGSUND: Yeah, so where we see the pockets of opportunity are in that cyclical value space, the sectors and regions that are closely tied to that recovery and reopening narrative. So financials, resources, industrials, these are the sectors that led earlier this year in the first quarter. But of course, since the COVID developments have deteriorated over the last few months, we've seen that growth more a defensive bias take hold.

So should we see a pullback, this would be a great opportunity to get into those cyclical value-oriented sectors that are tied to the fortunes of the global economy. Because in the long term, this is where we see outperformance taking hold, and particularly in the context of more attractive valuations versus that technology/growth space.

ZACK GUZMAN: As you said, you know, as much as it's been good to hear some comments coming out of other Fed officials, the big one that a lot of people are going to be listening to tomorrow is Fed Chair Jerome Powell. And talk to me about maybe how much of a tightrope he's got to walk and what you're expecting to hear maybe about the look forward. Or, you know, the updated outlook when it comes to inflation being transitory here is that there is still a pretty loud minority there, I think, on the other side of the camp.

CANDICE BANGSUND: Well, it seems that the regional Fed presidents are the more hawkish-leaning members, where Vice Chair Clarida, Chair Powell, have been erring on the side of patience and dovishness, wanting to see how the economy unfolds. And of course, that substantial further progress condition very important as well. So our sense is that policymakers, and particularly the senior officials, will want to see more progress on the employment front. So I think this is where the August employment report in early September will be very important in getting a sense for the next step.

So that's why I think that it's premature for that formal definitive announcement tomorrow. There's still a lot of questions about the recovery, particularly in light of that deteriorating macro backdrop since that July meeting. So we'll have to watch the economic data, the economic response to the latest COVID statistics. And I think by September, we should have a better sense. And at that time, I could see more definitive guidance as to next steps. But inevitably, we do expect the taper to commence in late 2021.

ZACK GUZMAN: All right, Fiera Capital Global Asset Allocation Vice President Portfolio Manager Candice Bangsund, appreciate you coming on here to chat with us today.

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