Economy will accelerate in Q4
Jeff Schulze, ClearBridge Investments Investment Strategist joins the Yahoo Finance Live panel to discuss the latest market action.
Video transcript
- And when we look at the recovery, still about half a million jobs to go in regards to where we were pre-pandemic. But when we heard from Fed Chair Jerome Powell yesterday, it did seem like he was pleased with kind of where we're at in this recovery. For more on what it means for the market, as we see it pop here in the day after that announcement, I want to bring on Jeff Schulze, ClearBridge Investments investment strategist joins us right now. And Jeff, I mean, when we look at it, I guess, you know, all the telegraphing had already been complimented from a lot of market watchers out there, just in how clearly Jay Powell had been kind of communicating the timeline here, but what do you make of what we heard from him in his take on the recovery?
JEFF SCHULZE: Well, first of all, thanks for having me on the program. And it's not a surprise to me that the Fed is moving forward with the tapering, foreshadowing a November announcement. And if you think about the three-month moving average, the average jobs that have been created, right about 740,000 jobs created per month. That is stronger than anything that you had ever seen pre-COVID. So it's very strong job creation, even though you did have an August miss.
So he does feel that substantial further progress has been met, and barring a huge miss to the downside for September and October's jobs print, I think tapering is a foregone conclusion. And based on the economic data that we've seen over the last seven days, it is very much clear to me that the economy is moving past peak Delta, and going to reaccelerate in the fourth quarter. More in particular, the [? LEIs ?] this morning came in well ahead of consensus expectations. It's in that top decile. And when it's in that top decile, your forward six-month returns are 7.5%, or 15% on an annualized basis. So it's really good news, and the markets are cheering it.
- Yeah, I mean, talk to me a bit more about the market reaction here. I mean, it feels like, you know, on the one hand, the clarity is good, and yet there's also a bit of relief that, you know, the tapering itself isn't going to happen as quickly as anticipated. I mean, we're talking about the end of the year. That was sort of the timeline that was telegraphed. But why do you think we're seeing markets respond in the way they have?
JEFF SCHULZE: Well, for the first time in a long time, the markets are cheering on a marginally more hawkish Fed. But I think it's becoming clear to participants, again, that we are moving past peak Delta. You're going to see a very strong reacceleration over the next couple of quarters. And that's going to go a long way to keep earnings moving forward. And even though you may have a disappointment here for the third quarter because of the Delta-related disruptions, it's important to note that, versus going into the first quarter, expectations have only come up about 6% for Q3. And even though you've had a couple of negative preannouncements, I think participants are willing to give [INAUDIBLE] to this quarter and, more importantly, look out to what's the earnings potential as we go into 2022. And next 12 months earnings revisions have been going higher since August, in lieu of this slowdown.
- I wonder, too, I mean, if you talk about kind of the push there and the enthusiasm to get past peak COVID, as we're kind of talking about cases coming down and seeing that in a lot of states, I wonder if that kind of gives renewed enthusiasm to those sectors that were hard hit. We saw airlines pull back quite a bit in regards to travel. I mean, what sectors do you like, what bets are you are you placing here, if that is kind of-- if this is just the beginning of people starting to realize, all right, maybe this is kind of the light at the end of the tunnel moving forward.
JEFF SCHULZE: Yeah, so since the selloff really started to gain some steam at the end of last week and you had that-- the stronger economic data from retail sales, a couple of the regional Fed surveys, you did see a distinct movement into value and cyclical areas of the market. And if you look at leadership today, it's all your cyclicals at the top of the relative board. And I think that that's going to be the area you want to have exposure to over the next six months, as the economy continues to reopen and we have this reacceleration of activity. And a lot of these sectors, quite frankly, have come down quite a bit off of their highs, and they look pretty attractive for the environment that I'm expecting over the next 12 months.
