Stocks closed the first trading week of 2022 in the red as investors digested a key report on the U.S. labor market recovery at the end of a volatile week. Scott Ladner, Horizon Investments Chief Investment Officer and Johan Grahn, Allianz Investment Management VP & Head of ETFs joined Yahoo Finance Live to discuss.
Scott, let me start with you. When I bring up "Logan's Run" you can tell what I was watching on TV last night. Not suitable for kids 12 or under. Omicron and the fears we have, there will be renewal. Are we overdoing it with the sell-offs we witness because of the fears about this pandemic?
And if you think about it in that way, it's a little bit more. But if you think about it that way, this actually is probably not a bad thing for the medium term in terms of the way that we're going to deal with this crisis. Additionally, we're not going to see higher stringency in the United States. We're not going to see-- we're not going to lock down again like we did in March of 2020.
This is not Germany. This is not China. We deal with this virus in a different kind of way. So additional head takes with the market with respect to the way we're thinking about Omicron or any other-- next variant should probably be faded.
You know, when you don't have income to put back into the market, you can't really buy the dips. It makes it really tricky, right? So you need to be invested in a way that gives you what you're looking for, even if you can't find it, perhaps, in the most natural spots that you have for quite some time already.
ADAM SHAPIRO: All right, we are going to get the closing bell in essentially 25 seconds. So let's see where the markets are setting up at this point. The Dow, well, it's going to be a flatliner. The Dow is going to probably be flat. There you go. S&P 500 is going to be off about half percent. The NASDAQ is going to be off about a full percent. We're going to finish the trading session with that closing bell from the New York Stock Exchange in 3, 2, 1. Ring it, please.
- And that is the closing bell this Friday, January 7. Let's take a look at where markets are looking like they're going to be settling. The Dow, just around the flat line here, off fewer than 10 points this afternoon. The S&P 500, down about 0.4 percentage points. And the NASDAQ, again, the biggest laggard. The NASDAQ composite down nearly 1% during today's session.
Now, taking a look real quick at the sector action. In the S&P 500, we do have consumer discretionary, and information technology and real estate leading to the downside. Whereas, we do have energy, financials and utilities, the outperformers and the sectors that are in the green during today's session. And now, turning back to our panel, Scott, I want to turn back to you here and just ask real quick. What was your take on the December jobs report that we got out this morning? Because that disappointing number on payrolls. Do you think that changes anything here for the Federal Reserve?
SCOTT LADNER: It probably not. I mean, I think this is just going to confirm what the Fed thinks they see about the labor market. The Fed thinks this is a fairly tight labor market. There's really wasn't anything. There's only one thing in the jobs report today that would just confirm that, and that was the actual the headline and a report.
Probably got discount that number a little bit because nothing else in the report was consistent with a loose labor market or with anything that was like a labor market that's not performing pretty well. So everything from earnings, I mean, from wages to the household survey, to everything else we looked at and participation rates, everything sniffs and smells like a fairly tight labor market, probably not going to knock the Fed off of either March or a May hike.
ADAM SHAPIRO: Johann, when you talk about 7 out of 10 Americans saying they would be willing to trade some upside potential for more protection from market losses, where do you find that protection? I mean, if they run to bonds, they're really shooting themselves in the foot, aren't they?
JOHAN GRAHN: Yeah, that's the hard part, right? So you could put money in bonds, but the writing is kind of on the wall, right? And Scott alluded to this, too. And with the Fed moving ahead, you will probably argue that they're not just behind the inflation ball, but they're also implying they're behind their own narrative as it relates to what they've been communicating.
And clearly, that's what you've seen in the bond market this week with the 10 year really, really rally way up on the rates in the third year as well. So I think the proof is in the pudding already. So to your point, where do you put your money if you want to avoid the big losses? And the answer is still to find some type of equity exposure, but you've got to build in that buffer on the downside, if you will.
And that's one way to access that and do that. And you can do it either in the illiquid space or in the liquid space, right? So you have definitely options for how you can play this. Most people are OK with you 7% or 8% gains. Most people are not OK with 20% losses, and there are ways to access those type of structures.
- Scott, we'll be getting a pickup in quarterly earnings season next week with some of the big banks, including JPMorgan Chase reporting results. What are your expectations for fourth quarter earnings? And how markets might respond to what we'll be hearing from some of the major companies?
SCOTT LADNER: I mean, as far as the financials go, we think they're going to be pretty good. This last year seen a lot of trading activity. Fourth quarter notwithstanding. It was a pretty active quarter. And as we see, what's going on right now with respect to yield curve, you know, yield curve is steep this week, which is a little bit of a weird response to the Fed, thinking they're going to tighten even faster than we previously thought.
You wouldn't expect long end rates to really go up in an environment like that, but they did. But that being said, financial earnings are probably going to be pretty good, probably the middle of the road, as we get out into the more tech sectors or the industrial sectors. That's where things could get a little bit more interesting. The guidance is not really like fourth quarter earnings, but what does the guidance look like? What are you going to be saying about the next year, about the next quarter.
As we get into some of these tech companies that have been hit pretty hard over the last couple of months, the last couple of weeks, that's really what investors are going to be focusing on. And right now, the way the market is pricing things, they're not expecting very much.
ADAM SHAPIRO: Johan, when Scott talks about looking at the guidance we'll get during earnings season, I cover the airlines. We're going to be paying very close attention. And they keep telling us when they get on the other side of the pandemic, watch out business travel. At what point, as an investor, do you say-- you know, they keep telling me when, when, when, and it doesn't seem to come forward. At what point do you say, I'm done with this investment and move on?
JOHAN GRAHN: Yeah. You know, there's no straight answer to that question, as you know, right? But I think the when is really much further out than we have anticipated for a long time. And when I say we, I'm really referring to the communication from the top and from the Fed. We know that the term of transitory has been outdated. We know that it's always been really like a longer in the tooth, if you will, of a scenario.
So when this actually will take place? Who knows? But I think we're in it for the long haul. And when you look at things like inflation, at this point, we have seen the price inflation come through. I know that the Fed, they can't really do anything about the supply chain issues. And even if we might have a positive view on the virus itself and that it might actually start to mitigate, and we're going to have to learn how to live with that, that doesn't mean that it's going to go away completely.
And again, like Scott alluded to, different places and different countries and different nations will handle things differently. And the supply chain is a complex issue. So as long as that is out there, you're not going to see any real relief. And when you turn to what's happening here and you look at the wage inflation, and I know you had a segment earlier today, that's not going to go away anytime soon either. So we're going to have to live with this for quite some time. And there's really no definitive end in sight as far as we can see.
ADAM SHAPIRO: Johan, I'm going to summarize what you just said with another quote from that movie "Logan's Run," there is no sanctuary. Scott Ladner, Horizon Investment's Chief Investment Officer, Johan Grahn, Allianz Investment Management VIce President and head of ETFs, I encourage you both if you haven't seen it. It's a lot of fun to see what they thought was high tech, sci-fi in 1976.