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There’s a lot of uncertainty surrounding the markets: Analyst

Daniel Morris, Chief Market Strategist and Co-Head Investment Insights Centre for BNP Paribas Asset Management joins the Yahoo Finance Live panel with the latest market action.

Video transcript

ZACK GUZMAN: I want to turn back to the broader markets here, though, as we're still seeing the Dow off by about a half a percent, but really all week has been pretty choppy-- of course, as we're learning about weaker economic data here and the latest there on the consumer sentiment front. I want to bring on Daniel Morris, Chief Market Strategist and Co-Head Investment Insight Center for BNP Paribas Asset Management, to kind of dig into the chop we're seeing play out.

And, Daniel, I mean, September is historically a weaker month, particularly the back half. So I'm not sure if this signals anything good to come in the rest of the month. But when you look at of where we're at right now and the jitters around even what's kind of a modest pullback, what does that say about where we're at?

DANIEL MORRIS: Well, I think it's just reflecting the ambivalence, perhaps, that some investors have looking at the market right now. So the good news, of course, we've had an excellent run in equities so far this year-- 20% or so. At the same time, infections higher than any of us would like-- it does seem to be that they're rolling over, but who knows?

And even if that's the case, we're only a month or so away before you would anticipate infections potentially rising again going into the winter. We know valuations are elevated, and then the uncertainty about what we're going to get out of the Fed. Do we have a hawkish surprise? And if we did, then, see, perhaps, a small spike in interest rates, what will that do to equity markets and particularly growth stocks?

So a lot of uncertainty, a lot of questions that we can't answer right now. And I think that's why you see the hesitancy in the markets.

AKIKO FUJITA: And, Daniel, what we're talking about concerns around increased cases around the Delta variant now, it feels like in many ways we've already seen the impact from shutdowns that have occurred, not just in the US but abroad in this most recent surge-- you talk about shipping prices going up because of ports shutting down over in China, the supply chains already being disrupted. I mean, these are months and months of disruptions. What's the sector, you think, is likely to have the most lasting impact? And what does that mean from an investment standpoint?

DANIEL MORRIS: Well, I think it's a bit interesting that what you see happening now in the equity market-- in a sense, you could say the bond market has signaled this for a couple of months. I mean, I think it's safe to say that the fall in Treasury yields we've had for the last couple of months reflects, as much as anything else, the increase in Delta-driven infections, whereas the equity markets, until quite recently, really did seem to dismiss a lot of it.

And as you point out, we're kind of now starting to get the hard data reflecting that impact, be it retail sales, which was still comparatively weak, and outside of the US actually have fallen versus the last month, the jobs data, and so on. So we're seeing that delayed reaction, perhaps, in terms of the equity market.

Hopefully we'll see kind of that same sequence as the bond market signals what's going to come ahead for equities. I think it's notable that as infections have plateaued, treasuries have started to move up a bit. We'll see if that process continues. But that would suggest potentially some upside for equities from here.

ZACK GUZMAN: It's kind of interesting to think about that dynamic between the way that the consumer out there is feeling about risks tied to COVID-- as you see cases come up, you know, we here cover it respectfully and the right way-- I'm not trying to instill fear on people. But those headlines are out there, and interesting to kind of see maybe the market performance of the airlines-- of course, travel highly tied to this as we've talked about that rotation on the equity side.

JETS, that ETF around airlines, down about 25%. As we've seen those fears-- interesting polling highlighted by Fundstrat-- the fear is back to basically around March levels of this year when we think about getting COVID and what that's doing in canceling trips. I mean, it seems like kind of this rotation that goes on in fear, and then the stocks lever to that, get hit, and then they recover quicker than the fears do. So I mean, how do you see that playing out when it comes to those cyclical stocks tied back to travel and other sectors?

DANIEL MORRIS: Well, I think it's exactly that. It's going to be these waves going back and forth from a bit of optimism to reality and then some pessimism. I think the only kind of positive spin that we can put out on it is that even with the way that's been driven by Delta, if you look at the impact on mobility, on activity, economic activity, there is certainly much less than what we had last winter. So if we do get a winter wave this year, which one really would expect is going to be the case, nonetheless, the impact should be less than even what we've gone through with Delta as vaccination rates are higher.

And also globally, governments kind of moved more and more towards the idea of having to learn to live with the virus and their reluctance to impose restrictions. And then hopefully along with that, at least in Europe and in the US, the higher vaccination rates keeping people relatively more confidence. That said, it's still going to impact travel, it's still going to impact retail, and I think it's just going to be that ebb and flow between the two until we get to some more static point maybe next year when we have a better handle, hopefully, on the pandemic.

AKIKO FUJITA: Daniel Morris, Chief Market Strategist and Co-Head Investment Insight Center for BNP Paribas Asset Management, it's good to talk to you today. Appreciate the time.