Stocks dipped on Tuesday, but the major indexes still closed out August trading with another monthly gain. Cliff Corso, President & CIO of Advisors Asset Management and Michelle Connell, CFA and owner of Portia Capital Management, joined Yahoo Finance Live to discuss.
BRIAN CHEUNG: Well, we did get the market bell about four minutes ago. And you can see all the major indexes tilting into the red, although just barely. The NASDAQ ending the day just a smidge below where it ended the day on Monday, with the S&P 500 and the Dow down about 10 100ths of a percent. But let's get a little bit more of a breakdown with our panel this afternoon.
We have Cliff Corso, President and CEO of Advisors Asset Management, in addition to Michelle Connell, CFA and Owner of Portia Capital Management. And, Cliff, I guess I want to start off with you-- not too much market activity today. The 10-year looks like it had a little bit of action, up about 2 basis points. But of course, the big story is about the economic data that will get towards the end of this week with that August jobs report. What do you expect to see in that specific data release from the Bureau of Labor statistics, and how might that weigh on Fed policy as we look towards that September 22 policy-setting meeting?
CLIFF CORSO: Sure. Thanks for having me. I think the jobs report-- increasingly, the jobs report becomes more and more important because, as we saw in Jackson Hole, the process of beginning a taper conversation has begun. And so much of the story around rallying markets, whether stocks or other markets, has been around the accommodation from the Fed that is critical. The two things that we're watching, particularly around the jobs report, are wages-- very important to the inflation outlook-- as well as housing costs. We will see that in the jobs report.
But those are two very important and weighty factors that we think might provide a little bit more persistency to the inflation risk that we face. So again, the jobs report expected somewhere around 750,000. That's a good number-- kind of keeps a little bit of the pressure on the Fed if it's there or higher than that.
SEANA SMITH: Michelle, getting back to what we just heard from President Biden, because investors have been watching the latest developments out of Afghanistan-- although we haven't really seen quite a reaction in the markets. I'm curious just how you think the market is viewing some of the geopolitical worries that we still face now going forward.
MICHELLE CONNELL: I think that we're discounting them at this point. I think the markets will become a little bit more concerned if things, obviously, heat up in that area or in other parts of the globe. But right now, because there's just so much liquidity out there, it needs a place to go. So we're kind of just looking at the geopolitical issues as noise at this point.
BRIAN CHEUNG: Michelle, as a follow-up, we are starting September. It seems like 2021 is flying by. But there is some historical precedent for September being a pretty volatile month. So is September the month to kind of stay on the sidelines and just kind of see how everything plays out?
MICHELLE CONNELL: I don't know if it's the month to stay on the sidelines, but I do expect that we'll have volatility. I mean, you're looking at the S&P that's up almost 40% since January 1, 2020. The NASDAQ is up almost 70%. I think maybe upside may be limited here through the end of the year.
So I think it warrants sitting back and looking at what you own, reevaluating. Looking at potential downside-- Cliff mentioned inflation and wages-- those may impact companies that are reporting at the end of September. So maybe you need to review what you own.
SEANA SMITH: And, Cliff, keeping some of those potential headwinds in mind, I guess, where are you seeing the most opportunity right now heading into September?
CLIFF CORSO: Sure. Well, if we take a step back and we take a little bit of a longer view, we do think the continued growth of the economy and the reopening trade is going to continue. And so what we are looking at are things that are more value-oriented, and particularly so where there's an income component through dividends, because that tends to mute volatility. And again, we don't want to stay out of the market. We think there's a lot of underpinnings as we look forward, despite some of the new challenges that we're going to be facing-- whether it be a tax debate, how that works out, tapering, inflation-- all those headwinds-- debt ceiling, a lot of things we have to get through over the next few months.
But again, as we stretch back and look beyond that, we still have a very accommodative Fed, we still have a potential for very big fiscal package. And so a lot of those underpinnings are still with us. We'd just like to choose it in a little bit more of the value sector.
BRIAN CHEUNG: Cliff, when you say, value, I think immediately of financials, which have been a bit unloved. But at the same time, if there is some steam to go with those types of stocks, they hinge a lot on the yield curve. And we have not seen the 10-year tilt as high as maybe some people who were calling for financials as a play earlier in the year go up. So what do you see on that front?
CLIFF CORSO: Yeah, that's a very good point. And stocks have been very correlated to the yield curve for obvious reasons. However, we think the one big disconnect in these markets is where the rate curve is. And you have a 1.30% 10-year treasury, inflation running north of 5%. But even if inflation is at the Fed's 2.25% or some level a little bit above the 2%, that's still not a great return. So we do think-- and we're losing ground there.
So we do think rates will begin to go up, perhaps to the 1.75% level and a steeper curve. So if that is the case, it's very beneficial to the banking and finance sector, because the raising rates and the steeper yield curve makes the net interest income that much better. And as well, we think lending will continue to pick up. Consumers are sitting on a lot of cash, but at some point, that will run out and banks will be lending again. So we think it's a very positive sector to be taking a look at.
SEANA SMITH: Michelle, a lot of the trajectory going forward has to do with the Delta variant-- how big of a concern that is here for investors at this point. I guess, how much of that do you think is already priced into the market?
MICHELLE CONNELL: I would say that I think that a lot of it is already priced into the market. And you are seeing a bit of a slowdown in the economy. You're seeing slower home sales and slower retail sales. But I think as we move into fall and the Delta variant starts to lose steam in terms of the amount of people that have the variant, you're going to see more people going back. I mean, we saw the pent-up demand the beginning of the summer. I think we may see that again once the Delta variant loosens its hold on us.
BRIAN CHEUNG: All right, Cliff Corso, President and CIO of Advisors Asset Management, and Michelle Connell, owner of Portia Capital Management, thanks for helping us break that down.