Investment banks caution investors about risks in U.S. equities this month

Investment banks Morgan Stanley, Citigroup and Credit Suisse warn investors over the potential risks in U.S. equities throughout September. Yahoo Finance's Julie Hyman and Brian Sozzi share the details.

Video transcript

JULIE HYMAN: Let's turn back to equities now for a moment because we are hearing some more cautious sentiment when it comes very broadly to equities. And that is coming from Wall Street and from a number of different fronts. You have Morgan Stanley, for example, cutting US stocks to underweight. Global stocks, they are going to equal weight.

You have Citigroup coming out and getting a little bit, again, more cautious. You can't necessarily call it bearish, but more cautious, saying any minor correction is at risk of becoming a more major correction right now in stocks. Credit Suisse also says it has a small underweight.

So Brian Sozzi, people are looking at this sort of maybe building risks in this market, maybe tapering is one risk, maybe the Delta variant's another risk, and also just perhaps valuations making all of these risks more amplified. Not everybody's bearish, to be sure. But it is interesting to see this drumbeat increase a little bit.

BRIAN SOZZI: As it should, Julie. For the most part, August really went the way of disappointing economic data. This trend continued into September, most notably last Friday but the jobs report. And now I think you're seeing Wall Street strategists finally realize that, you know what, the economy is likely to take a path not congruent-- [CLEARS THROAT] excuse me-- with their bullish outlooks for the balance of the year and to kick off 2022.

I mean, what is essentially going to drive a re-acceleration growth into year end? I think if you talk to a lot of folks on the Street, they are now finding it difficult to find what that catalyst could be. You mentioned the Delta variant. That is top of mind.

I'm looking at a good note from Goldman Sachs right now, led by Jason English, saying, quote, "the data he tracks paints a picture of a US consumer divided between being out and about versus sheltering at home." And Goldman tracks a lot of this mobility data. And they're noting a re-acceleration in the use of video tools, at-home fitness equipment, online payment apps. Those have seen greater usage right now compared to a few weeks back.

And again, I think you're getting some respect, I would say, for the impact the Delta variant is having on the economy. And because of that respect, you're seeing analysts come out here and slash their price targets, as they should.

I mean, look, we'll talk a little more about this later, Julie. But look at the earnings results. The earnings warnings, I should say, this morning from a Sherwin-Williams, from a PPG, from a Pulte Home. They are noting supply chain challenges. I'm sure they're also having difficulty finding workers and dealing with a slowdown in demand. And that has to be factored into the strategists' outlook.

JULIE HYMAN: Well, I would quibble with one part of what you said, which is the slowdown in demand part. That part doesn't seem to be happening. And so I wonder how that fits into all of this. But you're right. We're going to talk about this more.

But it's interesting you mention that data from Goldman, the mobility data. You sent it to me this morning. And I was just looking through it. But it's not very straightforward. That's what's kind of interesting to me. Live events are up 233%. But at the same time, TSA checkpoints are down 20%.

So obviously, people are getting out and doing certain activities. It's just that it's not as sort of straightforward as perhaps we thought it was going to be in the late spring, early summer.

BRIAN SOZZI: No, that's right on. And I think what the market has to realize now is that it's not going to be straight on. This is a market, I would say, before we start to see these strategist cuts, that has been priced for things going up in a straight line. People are out there. They're going to Live Nation. They're going to concerts more consistently. They're going to events like the US Open more consistently. And that's not happening. So the market has to adjust.

JULIE HYMAN: Yeah, it seems like the market is figuring out how exactly to adjust right now. It's interesting, some of the bearish commentary coming out or, again, cautious commentary coming out doesn't necessarily focus on the Delta variant. And it hasn't been something that the market has focused on either in a broad way. It's focused on it much more specific to these sectors that would be directly affected by some of these different data points that we're talking about. So that's something to continue to watch.

I was looking at some of the sectors this morning, Soz, and seeing that, over the past month, energy continues to be the real underperformer here. So if people are traveling less, that could be a part of that equation. But otherwise, stocks so far have been holding up pretty well.

BRIAN SOZZI: Yeah, now, the positive here, Julie, is look, we're not necessarily going into-- you don't see strategists out there calling for a bear market or a 15% pullback. That's good. But let's keep in mind, those things have to start somewhere. Maybe they're going to start with these downgrades.

JULIE HYMAN: We shall see if that is happening. It doesn't seem to be happening quite yet this morning.