Barry Bannister, Chief Equity Strategist at Stifel, joined Yahoo Finance Live to break down what investors should look for the remainder of 2021 in the wake of COVID-19.

Video Transcript

SEANA SMITH: We want to continue the conversation taking a look at more the broader market action today. Again, you're looking at a mixed picture. The Dow under pressure, off just around 33 points. We have Barry Bannister, he's the Chief Equity Strategist at Stifel, joining the conversation. And Barry, let's take a look at the S&P. We got a record high this week. We're not trading too far from that record high right now. Hovering right around 4,240. Where do you think we head from here?

BARRY BANNISTER: Actually, 4,240 was very close to where we were on the first of May. The big move occurred from around November 1 right before the election to the end of April. And that was a move from around 3,250 to about 4,200 and change for the S&P 500. What really drove this rally, was low real yields, continued support from central banks, positive seasonality. You just can't dismiss it. November to April was stronger than May. October, you can go back on that 75 to 80 years. The other is global money growth. Look, global liquidity, this is global M2 money measured in US dollars on year over year basis peaked at 22% in late March. And that kind of liquidity is very good for financial assets.

JARED BLIKRE: Well, the S&P 500 hit a record high only yesterday. But things have definitely stalled out, at least with acceleration of momentum when you look at it that way. And then we're in the summer doldrums here. And by definition, that means we kind of get some sleepy sideways actions a lot of time, even though the last five years we've been up over the summer. What are you expecting for this particular three sets of months?

BARRY BANNISTER: Yeah. Well, we had said right at May 1, we said that the S&P would go flat at this 4,200 is the best case, and then possibly fall as much as 10% if there's a misstep on policy. So far, the central banks seem to be running scared. The European Central Bank is continuing the PEPP program, the Purchase Emergency Purchase Program. And the Fed is reticent to even talk about tapering.

So when you think about it, we've got the support of central banks. The only issue is, the one thing that's being ignored is that China has been tightening policy. And when China tightens policy with a lag, that does affect the cyclical trade, does affect global GDP. So we think that by summer, most of the cash will be spent and money supply growth is already slowing down year over year and six month rate of change basis.

The Chinese tightening will be in full effect, and the Fed will be forced to make some sort of an announcement about when they're going to taper. This could be choppy and down for the market. So we would look for more downside than upside as you go through September of 2021.

SEANA SMITH: Barry, I know this is a tough question, it's hard to gauge right now, but when do you expect the Fed to begin to taper?

BARRY BANNISTER: I have spent an awful lot of time, I've talked to the Fed people over the years and I've studied the Fed very closely and the Fed history, and it's a very old historic institution. Obviously, it's been around since 1913. I think Powell is a little bit reluctant to rock the boat. His reappointment possibility is February 2022. Janet Yellen at Treasury is doing a pretty good job of running interference for the Fed. She has twice mentioned now that higher rates may be necessary or even good. This is to make sure the Fed preserves its independence.

But in an era of outright populism not seen since the New Deal of the 1930s, at that time, Fed Marriner Eccles, was underneath the Treasury and subservient to the Treasury for most of the period, 1934 to '51. I don't think the Fed wants to be in that position. So they're stepping lightly, being careful. But after February, we would get a much clearer picture of the Fed's future plans. That depends on who's appointed.

JARED BLIKRE: Yes, it does. I want to get your reaction. If stocks could go down by up to 10% and investors want to play a little defense, what are you recommending to them in terms of sectors, stocks, or even gold, for instance, which has perked up recently?

BARRY BANNISTER: Well, if you look at the sectors that we've been emphasizing now, we had played the value trade off the April 2020 lows when commodities and value on a relative and then a rate of change basis respectively, they hit their lows for almost a century. In fact, more than a century for commodities. We had a complete wipe out. Commodities 10-year growth rate was the lowest in 225 years. Value was at the lowest in the 90 years of history we have in April of 2020 during COVID.

But we played that rally. I think that rally is spent for the short term. I'm not believing that we're going to have this huge wave of money liquidity disinflationary growth that will help the tech stocks. So what we've been emphasizing is defensives for the summer, particularly health care. But also utilities, consumer staples, like food, beverage, tobacco. And REITs, Real Estate Investment Trusts.

We think that inflation will fade over the summer, and we also, this is long-term inflation expectations, such as the five-year five-year forwards or the 10-year breakevens. We think inflation expectations will fade, and with that, you typically get a rally in defenses.

SEANA SMITH: Barry Bannister, always great to have you. Chief Equity Strategist at Stifel. Thanks so much for joining us and have a great.