Latest ADP employment report is ‘half of where we were in June’: Strategist

Cameron Dawson, Fieldpoint Private Chief Market Strategist, joins Yahoo Finance to discuss the biggest catalyst for the market, Delta’s risk to the market, and investment opportunities.

Video transcript

ALEXIS CHRISTOFOUROS: For more on the markets now, I want to bring in Cameron Dawson, chief market strategist at Fieldpoint Private. Cameron, good to see you. I want to actually start with what many believe to be the big catalyst for the market this week. And that's going to be Friday's monthly unemployment report from the government. That ADP report today from the private payroll company was not a great precursor to that report, coming in lower than expected. What are your expectations for that jobs report?

CAMERON DAWSON: Not just even lower than expected but half of where we were just in June. And when you peel back the layers of the ADP report, we can see that there were only 8,000 jobs added in manufacturing despite manufacturing employers saying constantly that they can't find employees. And then in leisure and hospitality, we saw the lowest number of jobs added really since February.

So you're right to say, what does this mean for Friday? And the question will be, if we continue to see ADP be lower than what we see in the non-farm payrolls as well as-- I apologize-- if we move to what will be bad news is bad news or bad news is good news. If bad news is bad news, what we'll see is the market react to underlying weakness in the economy. Or bad news is good news, which means that this just means that the Fed won't be raising rates or tapering any time soon.

KRISTIN MYERS: So Cameron, I also want to talk about some risks here, which is the delta variant, some folks concerned that it could potentially weigh on the labor market going forward. We have seen investors selling off over concerns about the surges of the delta variant around the country. How much of that do you see presenting a downside risk right now to the markets?

CAMERON DAWSON: So we think that there are three things to watch with delta, which is that the first one is we actually haven't seen Google Mobility trends move lower in the places where the delta variant has been the most resurgent. So that actually is good news. We also saw the report that 60% of American adults have had their first vaccine. That's also good news. The last one is that we saw the peak in the UK cases on the seven-day average for the delta variant the day after their so-called Freedom Day. So this means that we might have another month of issues where people start to taper their behavior in wanting to go outside. But it does spell better news that this shouldn't be as much of a negative event as the earlier surges and cases that we saw last year.

ALEXIS CHRISTOFOUROS: Cameron, a lot of the market strategists we've been talking to lately are looking outside the US and actually finding some opportunities in European markets right now. You say it's not time yet for international. What do you mean by that?

CAMERON DAWSON: So this has been a very popular call this year to say, it's time to move international based on things like cheaper relative valuations or the fact that performance has been just so weak in these international markets, from both an economic basis and a catch-up on economic performance, as well as just the fact that they've been underperforming for 15 years.

But what we do is we plot these markets, both the international developed and emerging markets, versus the US. And we find that we've actually been making new relative lows in recent weeks versus the US. So even though it's tempting to step in and be an early contrarian, until we see that relative performance start to turn, we think that we are still in a confirmed relative downtrend and that there really isn't much of a rationale to start and step in and be early and just try to catch the very beginning of the turn. We'd rather wait for confirmation and make sure that we're not getting caught in a value trap.

KRISTIN MYERS: So where are you really seeing opportunity right now, Cameron, especially as you are anticipating some volatility going forward throughout the summer?

CAMERON DAWSON: So it's interesting to see that some of the more defensive areas of the market are starting to outperform, such as health care stocks are doing better. And we're also seeing better performance out of lower volatility stocks. We think people are anticipating higher volatility as we move through the summer and into the fall. But we would look to those areas for opportunity.

We've really like dividend stocks all year as well, mostly if you have an expectation that forward returns will be lower. We know that forward returns typically are lower when you're coming in at high valuations. So to focus on your dividend and those companies that have the ability to grow their dividend and have it supported by strong free cash flow is something that we find very attractive.

And this is all consistent with being in the second year of a recovery. If we think about how we were coming out of the bottom in 2020, growth stocks did well because growth was scarce. And then value stocks did well because we were repricing all of the depths of the issues with credit. Now we're in that middle phase where we think quality is really where you need to focus.

ALEXIS CHRISTOFOUROS: All right, Cameron Dawson, chief market strategist at Fieldpoint Private, thanks so much for being with us.