Brett Ewing of First Franklin Chief Market and Tracie McMillion at Wells Fargo Investment Institute break down today's market action.
ADAM SHAPIRO: OK, two minutes to the closing bell. Helping us digest today's moves in the markets are Brett Ewing, First Franklin chief market strategist, and Tracie McMillion, head of global asset allocation at Wells Fargo Investment Institute. Good to have both of you here. Let me start with you, Tracie. You've pointed out to your clients that you expect inflation to persist and to be here next year. How does that affect the choices you're making and that your team is making as to where to invest going forward six months to a year?
TRACIE MCMILLION: Sure. So we do expect inflation to persist into 2022. And we think that this year, we could see inflation about 4 and 1/2 percent. It could be close to 4 next year as well. So we're directing clients toward equities, commodities, those asset classes that do tend to perform pretty well, even though we see inflation on the near-term horizon. Away from bonds, as interest rates rise because of inflationary pressures, there could be some pressure on bond prices.
ADAM SHAPIRO: All right, we're going to deal with all of that. And Brett, I promise you, we're going to throw some love your way after the closing bell. But right now, we've got to get ready for that.
So let's take a look at where we're setting up to finish the day. You can see the Dow trying to fight back into positive territory. We'll see if we can do that in the last few seconds. The S&P 500 is up 14 points and hitting a new high. And the NASDAQ up 96 points.
Regarding sector action, we talked earlier today that we saw consumer discretionary up 1%, 1.3%, also communication services up about half a percent. When you take a look at what's going on in the Dow, the laggards today and the Dow include Chevron, American Express, and IBM. An d here is the closing bell.
SEANA SMITH: And that does it for today's trading action. Again, some buying into the close. The Dow almost making it past the flatline into positive territory but looks like it's going to close off just around 7 points. Adam was mentioning the worst performers in the Dow, IBM, a huge reason why the Dow closed today in the red, with IBM stock off just around 9 and 1/2 percent. Dow, Inc. and Chevron also the worst performers there.
S&P and NASDAQ though, holding onto gains. The NASDAQ was the outperformer, closing up just around 6/10 of a percent. But let's bring back in our panel. We have Brett Ewing and Tracie McMillion to help us break down the action.
And Brett, to you, when you're taking a look at today's market, we're not too far from the all-time highs, S&P actually hitting an intraday record high today. Where are we heading over the next couple of months?
BRETT EWING: Well, great question. But our call right now is we believe that the market we've seen since that 5% correction we had in September is very strong. I do believe the breadth is actually very, very good here. It's probably the best breadth of the market I've seen since going back to fourth quarter of last year. And we believe this market's going to continue to melt up. Our price target is 4,800 on the S&P here in the coming months.
ADAM SHAPIRO: Brett, you're echoing some things we've heard from people who joined us last month who said, look, if you can recover the losses in October, if you recover what we lost in September, you're going to finish the year out traditionally, higher up when you're looking at the S&P 500. But don't you have to set, at some point, an exit when you're looking at-- whether you're doing index funds or whether you're doing specific stocks, the good times can't go on forever.
BRETT EWING: [CHORTLES] They can go on longer than we all can believe. But going into this rally through this melt up, like I said, around 4,800, we would probably be reducing some risk into that strength going into the end of the year and building up a little dry powder. I do believe volatility is going to certainly pick up in 2022. The market is going to be faced with some headwinds, not only with the action from the Fed on their monetary policy, but also we are drying up on the pandemic fiscal spending stimulus that has been pumped into this market. And with the combination of both of those and potentially higher rates, yes, volatility will be higher in the coming months going into 2022.
SEANA SMITH: We have some breaking news here. Intel is out with its earnings report. The stock taking a hit after hours. Dan Howley has that for us. Dan?
DAN HOWLEY: That's right. They came in with revenue of 18.3 billion on expectations of 2.4 billion. Adjusted EPS was $0.90 per share. I'm sorry, they had 19.2 billion for their revenue this quarter versus expectations of 18.24 and adjusted EPS of $0.90 versus $1.11.
What is interesting is their data center earnings fell slightly short, 6.5 billion versus expectations of 6.64 billion. And they seem to have cut their adjusted EPS forecast. So that seems to be why shares are falling.
Intel CFO George Davis also announced that he's going to be retiring as of May 2022. And he's going to stay on in the role while Intel searches for a new CFO. Intel, obviously, being struck by AMD gaining in market share as well as Apple dropping its products, Amazon and Google both building out their own chips and that being a hit to the company.
ADAM SHAPIRO: Dan Howley, thank you very much.
Tracie, I wanted to ask you about something you're telling your clients, which is the slowdown in China not expected to have too much of an impact in the United States, will be the global locomotive of growth. Which sectors would you direct people to consider based on that?
TRACIE MCMILLION: Sure. So we're looking at the more cyclical sectors and some of the growth sectors and staying away from defensives here. So you think about things like industrials, where they have very high fixed costs. But once they cover those fixed costs, then there is significant margins that could continue to boost their earnings.
We also like energy here, energy and commodities. And we also like financials. With higher interest rates here and on the horizon, we think that financials could continue to perform well. We've also got an upwardly-sloping and steepening yield curve, which is another thing that is good for financials. Communication services is the last one that I'll add that we also like right now.
SEANA SMITH: Brett, when we take a look at Intel, because the stock is really taking a hit here after hours, a big reason for that is the fact that the company-- and this is no surprise-- has been grappling with the chip shortages. But that speaks to the larger supply chain issues. As an investor, I guess, how worried are investors or how worried should they be about the current supply chain issues that we're facing?
BRETT EWING: Oh, it's certainly a real problem that's impacting the economy. We're taking a little bit different view of it. I believe when there's a problem in America, innovation will rule the day. And people are working 24 hours a day right now all over this country in companies, at these ports. And innovation is going to come out of this.
I believe that the supply chain issue is going to show some relief going into the second quarter of this year and through the remaining of 2022. And I think that our ports and our supply chain issues are going to be stronger than ever on a global scale coming out of this.
ADAM SHAPIRO: Just to follow up on that, Brett, I hear a lot of good in what you're saying. What worries you? Is the Fed going to throw the wrench into this, or is something else unexpected that you could try to anticipate?
BRETT EWING: I think that we're hitting some peak earnings right here. We are hitting peak recovery on the growth rates here. So I think that inflation, a curve get thrown in there where the Fed is forced to react in a way that has not been priced in the market. And that's really one of the bigger things that we're concerned about.
Another big concern would be some additional lash out with China. I mean, look, Taiwan and China are at escalated tensions right now, according to their defense minister, at a 40-year high. I think something like that would certainly disrupt markets.
ADAM SHAPIRO: On that, we say thank you to both Brett Ewing, First Franklin chief market strategist, as well as Tracie McMillion, head of global asset allocation at Wells Fargo Investment Institute. Please come back.