Advertisement

'We don’t think [the Delta variant]... is going to slow down the reopening story': Strategist

Jack Manley J.P. Morgan Asset Management Global Market Strategist, joined Yahoo Finance Live to break down what to expect from the market going into Friday's jobs report.

Video transcript

SEANA SMITH: And let's take a look at where things stand, because the Dow up just around 200 points. In terms of the biggest gainers inside the Dow today, you can see it right there on your screen. Disney leading the way. Salesforce and Amgen not too far behind. Those three stocks up just around 2%, or at least 2%, I should say. We want to bring in Jack Manley. He's JP Morgan Asset Management's Global Market Strategist. And, Jack, I guess, what do you make of the moves that we're seeing today, just in terms of what is working in today's action?

JACK MANLEY: Well, you know, Seana, I think, on the one hand, you have some very strong earnings numbers out right now. We're seeing an incredible earnings season, almost 90% of companies beating on earnings, over 80% beating on revenue. So you have bottom line growth, you have top line growth there, very, very strong growth in this rebound. We also have those jobless claims numbers that came out this morning that I think are very encouraging. They are that sort of pandemic low that we've been looking for, and I think they helped to put to bed, or at least dispel some of the concern surrounding the stall in growth story that I think has been creeping up a little bit more, whether it was with the PMI reading earlier this week or the GDP report last week. So good earnings, an improving labor market story, I think all of this has investors pretty excited about where we stand right now in markets.

ADAM SHAPIRO: Jack, I realize that a lot of investors rely on the estimates as just one of the tools they use when they're making decisions. The question I'm asking is for those of us who are not that savvy when it comes to individual investing. What good are those estimates if we see companies beating at 90% on earnings and 80% on revenue? I mean, those are enormous numbers to beat.

JACK MANLEY: Yeah, they are extraordinary, and I think, you know, to put them into perspective is the first thing that's important. We have to remember that a pace like this is not sustainable for several years, let alone even a few quarters. Eventually, these earnings growth figures are going to start to come back down to earth. But I think the other point here, Adam, is that, you know, earnings matter a lot for, say, the next 12 months, but beyond that, we have to start looking at other things. And, of course, we continue to get guidance about longer-term trajectories for some of these stocks in many sectors, but we have to look at things like valuations. We have to look at things like the broader macro backdrop. So there are a few different ways to look at this market right now outside of just earnings, and I think, for the most part, it's still pretty encouraging and pretty supportive of a risk-on sentiment.

SEANA SMITH: Jack, just in terms of the development that we've gotten over the last several days, I feel like it's a totally different story now when we're mentioning COVID than it was just a week or two ago, with the threat of this Delta variant. I'm curious, just has this at all influenced your strategy and where you're seeing opportunity in the market today?

JACK MANLEY: Not particularly, at least not right now. You know, Delta is, of course, very scary. It's disturbing. People are, I think, really worn out by this COVID story. But when we look at the vaccine effectiveness, and when we look at vaccination rates in the United States, we don't think Delta, even though it is dangerous if you are unvaccinated, is really going to slow down the reopening story, and I think we're going to gain even more momentum when you roll out a vaccine that is authorized for those Americans that are under the age of 12. Once you can get your schoolkids vaccinated, that takes us to a whole next level in terms of growth potential. So I think it is certainly disturbing from a health perspective. I think it is suggestive that more of us need to get vaccinated if we are not, if we are eligible. But I don't think it changes the reopening story. I don't think it changes the expectation for well-above-trend economic growth over the next several quarters, and for that reason, Seana, I don't think it really changes our view on the overall stock market.

ADAM SHAPIRO: Jack, I think a lot of us as investors liked hearing "risk-on," but what would you say to those investors who are waiting for some kind of guidance at the Jackson Hole meeting from Chair Powell as to the tapering? There are a lot of people who say they'll begin the outline of the discussion to have the discussion, but you say be careful of expecting that?

JACK MANLEY: Yeah, I would say, if the Fed were to announce something about tapering at Jackson Hole, it would make for a great news story, right? It would be great press. But that's not what Jay Powell is about. Jay Powell, whether he likes it or not, he may be a celebrity, but I don't think he feels like it. I don't think he wants to be. He is a consensus builder. He is a lawyer and investment banker by training, so he's not even a formally trained economist. He wants to lay out policy as he sees it. And you know what? If the Fed already has something in mind, there's no reason that they would wait until Jackson Hole. They would come out and say it. And so, when I look at Fed policy, I don't think we're going to really get any meaningful forward guidance at Jackson Hole. I think we will start to hear that, maybe, in the fourth quarter of this year, and then the tapering will transition from just a conversation to reality probably in the first half of next year.

SEANA SMITH: Jack, what do you make of the chaos that we've seen in the Chinese markets? I was taking a look at some of those names today. Tencent, Alibaba, Didi all in the red once again. Didi off another 4%. Is it time to avoid some of these names, just because of the uncertainty out there, just in terms of what comes ahead with regulations?

JACK MANLEY: This, to me, has been a great example of a sell first, ask questions later type of environment. You know, when I look at what's going on right now, China, I think, is trying to bring a little bit of law in order to what is essentially the Wild West in terms of markets. You know, you look at some of these names that have grown just spectacularly over the last few years, and you have to remember that China has very clear social and political agendas that it's trying to hit. And so what we're seeing right now is a regulatory regime change, trying to rein in some of the exuberance surrounding these areas. Now, that's more for technology. Other things, like health care, education, they may come under a little bit more pressure, but something like tech, we believe, is a long-term growth initiative for China. Really, what this means, I think, is that we need to step away from this idea of owning one, two, three big names in the Chinese equity market, and start to own a larger basket of companies, perhaps look down in the market capitalization space, and, frankly, work with a manager that's got boots on the ground, because it goes without saying, it is a complicated environment.

SEANA SMITH: Jack Manley, always great to get your perspective, JP Morgan Asset Management Global Market Strategist.