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Market Recap: Wednesday, June 23

Stocks ended mixed on Wednesday, with investors looking for new catalysts to move higher with the pace of the economic recovery and inflationary pressures still in focus. James Bruderman, 1879 Advisors Vice Chairman and Greg Staples Americas at DWS Group Head of Fixed Income, joined Yahoo Finance Live to discuss.

Video transcript

- There's Just around three minutes until the closing bell. James Bruderman, 1879 Advisors vice chairman, and Greg Staples, DWS Group head of fixed income Americans are here to help us make sense of today's action. And Greg, let me go to you first.

Because when you take a look at some of the selling pressure today with the Dow off just around 60 points. So we can't make too much of it. It's not a huge move obviously to the downside. But the pressure that we're seeing in utilities and consumer staples, how are you looking at some of the selling that we're seeing today?

GREG STAPLES: You know, you bring up a good point. It's actually not a significant movement, given what we saw in the last week since the Fed. It was just a week ago that the Fed made that movement. And you saw, I guess you'd call it a taper spasm rather than a taper tantrum.

Obviously that impacted the equity markets, as well as the fixed income markets and the currencies in the last few days. But it seems to have calmed down now. And I'd call today's action more of a mopping up, like maybe a little bit of pressure in those interest bearing stocks, the high dividends like utilities and consumer staples. But I wouldn't read a longer term trend move into it.

- Greg, real quick, we're watching this zigzag as you point out back and forth, or sideways. Had one guest tell us that we're going to peak at some point this summer with a buying opportunity in the fall. What would you say to that?

GREG STAPLES: It's a little bit too soon to call on that. I think there is going to be some volatility. I think it's going to probably be driven by action from the Fed. Of course, I'm a bond guy, so I'm going to say that. But I think the real question over the next couple of months is watch those CPI prints.

Watch those PPI prints, meaning the data indicators as to where inflation is going to be. If they start to turn down and justify what Powell has been saying all along, that inflation is transitory, I think that's going to be a positive for the market. And I think you'll see a continued upside reaction.

If on the other hand, they start to run hot, and there's a sense that maybe the Fed is really going to have to step in and tighten, you're going to potentially see another leg up in interest rates. And I personally think that would be very, very, bad for risk assets, equities included.

- All right, well, let's take a look at where things stand. We were just under a minute until the bell again. You're looking at the Dow and the S&P in negative territory. The Dow off 63.3, S&P off just about a tenth of percent. So like we've been talking about, not a huge move to the downside.

But a break, certainly, from the gains that we've seen over the last two trading days. The NASDAQ, however, looks like it is going to close in positive territory, potentially at a new record here, up just around 17 points. And digging into some of the movers here within the major averages, the biggest underperformers in the Dow today 3M, Intel, and IBM.

A big reason why we're seeing the Dow in the red today. On this sector action, utilities the worst performer here. Health care, consumer staples, and materials underperforming consumer. Discretionary energy and financials ending in the green.

[BELL RINGING]

- All right, closing bell with a gavel to end the day. Did he do the gavel? Come on, give us the gavel, buddy. Let's see where these markets are going to settle. There we go, all right. We're going to see how we settle. Let's pull it up. We got the Dow is going to be down about 72 points.

The S&P 500 is going to fall about 5 points, NASDAQ is going to settle up. NASDAQ will be up about 18 points. Let's get back to our guests. And James, I want to start with you. For investors who are trying to figure this world out, and we know how important China is, you point out that, you know, keep your eye on what could be a liquidity squeeze for China.

And I'm curious-- I haven't heard people talk about liquidity freezes or squeezes since the Great Recession and that era. Why are you bringing that up?

JAMES BRUDERMAN: Well, it really rhymes with the tapering conversation that we've seen. And what we saw out of China the last time that that the Fed was tapering, and that was in 2014 when Janet Yellen was at the helm. And China moved to kind of defend their currency, and ended up spending a considerable portion of their reserves.

And the question is, how are they going to react just as the US tightens this time? And it could be really interesting to see if they're willing to defend it, or if they're willing to let their currency slide a little bit further.

- Greg, when you take a look at some of the concerns out there in the market right now, at least from what we've heard from a Fed perspective, obviously higher inflation, and also the fact that job creation remains much lower than where we would like to see it, when we have over seven million Americans out of work.

When it comes to the inflation side of the equation, are you in the camp that you expect the inflationary pressures to continue to just be transitory?

JAMES BRUDERMAN: Yes, absolutely. I'm sorry, Greg.

GREG STAPLES: No, I was going to say I think that Mr Powell is a little bit off base here, and that there is more to inflation than just the Mannheim Used Car Index, or perhaps the housing price index. I think anybody who's tried to eat in a restaurant or run a restaurant for that matter, and get workers, realizes that they're going to have to pay up significantly for that.

People who are shopping in the supermarket are seeing sticker prices on food go up. And of course, West Texas Intermediate and Brent crude are now in the 70s now, and that's going to work its way through in prices overall. I don't think that this is just something that's completely transitory, and we get back into August, September, October, and we're back to two or even a one handle inflation. I think there's going to be a little bit more persistency here.

And I think it could be a tough time for Powell, because he's going to have to react, and they're going to be pressured to react. And again, that's where I think the market could be at some risk.

- James, you wanted to get in on that, and then I'll follow up with you.

JAMES BRUDERMAN: Yes, we continue to think that inflation for the most part should be transitory. Collectively, I think there's a lot of-- there's a lot of demographic factors that support a low inflation environment. But certainly to the points that have been made, there is some upward pressure. There's a lot of pressure on wages.

But the real thing that we think drives inflation is wage inflation. And I think we're going to-- look, I don't think we're going to see considerable wage inflation until after we've got full employment. And we're a ways off from that. We're seeing it on a-- we're seeing in some sense, in some sectors of the market, especially with regard to hospitality, entertainment, where there's some shortages.

But I'm reasonably confident that those are going to work themselves out. And we should see more-- we should see a larger labor force, and a larger population willing to get back to work in the fall. Now that doesn't--

- Well, the follow up, too, because we're going to have those unemployment benefits that were extended expiring in September. But I'm looking right now at sectors, and essentially you know, which sectors would you advise people to consider, especially as-- I'll call it a wave. A wave of people get back into the workforce because they no longer have the ability to delay that. Are there sectors that you think will pop as that wave hits us?

JAMES BRUDERMAN: I think productivity is going to be a key driver, especially in the face of-- especially in the face of labor shortages, and potentially rising labor rates as well. So you know, we like-- we like technology companies.

We think there's a lot of-- we think-- we're really at the start of a huge cycle of technology upgrades, and there's a lot of room for productivity growth, especially among small companies that really haven't invested as much in technology up to this point.

- All right, we want to get back to Jack Blikri. He's standing by on the floor of the New York Stock Exchange. And Jared, I guess, what's your overall takeaway from the action that we saw today, because the NASDAQ was able to hold on to gains. We saw some strength in some of those big tech news with the Dow and S&P closing in the red.

JARED BLIKRE: Yeah, and I'll tell you what, the NASDAQ at a record high. That is impressive. And it comes on the back of falling longer term interest rates. That's a trend we saw over the past few weeks, and bucked it a little bit today. But I'll tell you what I've had my eye on all day, that is Bitcoin.

I want to go to the Wi-Fi interactive so we can look at the price action on a candlestick chart. This goes back two days. And we took out 30,000 very briefly. We-- excuse me, we post it up here. And then we came down off a little bit. And if we take a two-month view, and I think this is key here, you can really see how this support line was invalidated, and then we popped above.

But when this happens, in order for it to be bullish, we have to stay above. And we have to get a thrust. And so far, that really hasn't happened. What I'd like to see is something like this, where it comes up, and then breaks through, potential resistance at $40,000. If it languishes too far, too close to 30,000 for too long at the time, probably going to drop through there. And we have practically no support until 20,000.

- Jared, thank you. Let's get back to Greg on this one. And you know, you're head of fixed income for DWS Group. What would you say to a client or to an investor who right now wants to protect some money, and would have traditionally done that via fixed income, but is really concerned about what's happening with interest rates now and could happen in the future? What do you say to those folks?

GREG STAPLES: Well, I think you want to be a little bit more protected. We talk about the term of duration and bonds, meaning that your exposure to upward interest rates, I'd say maybe you want to bring your duration of your portfolio in a little bit. Keep it a little bit less exposed. But we still think there are good opportunities in other sectors outside of the Treasury market.

The investment grade corporate market, in particular, looks pretty good now. There are other fixed income instruments that actually play a floating rate plus a nice incremental spread in the CLO market, for example. So that if interest rates do go up, you participate on the upside there.

And another thing that's sort of interesting that was unheralded from last Wednesday's Fed meeting is that on the very, very short end, money market funds were earning zero. And as a result, they were crediting 0 or 1 basis point. The Fed did raise their administered rate, the RRP, it's called, and allows money market funds just a little bit more room to credit positive interest rates. And that was a big step. It means that cash is not necessarily completely trash it's earning a little bit. And I think that was a very important point.

- Greg Staples of DWS, head group-- or group head of Fixed Income Americas, and James Bruderman, 1879 Advisors vice chairman. Thanks to you both for taking the time to join us.