Market Recap: Monday, November 29

Stocks jumped Monday to recover some losses after Friday's slide. Megan Horneman, Verdence Capital Advisors Director of Portfolio Strategy and Nancy Daoud, Ameriprise Financial Private Wealth Advisor joined Yahoo Finance Live to discuss.

Video transcript

ADAM SHAPIRO: OK we are one minute to the closing bell. Helping us make sense of what we've witnessed in the trading session today are going to be Megan Horneman, Verdence Capital Advisors director of portfolio strategy. We also have Nancy Daoud, Ameriprise Financial Private Wealth advisor. We appreciate you both being here. Let's check what's going on in the markets in this last 40 seconds of trading. You can see we're going to hold on to the recovery. We're not back where we were during the sell off on Friday.

But we are going to probably settle on the Dow up about 250 points. S&P 500 is going to be up almost 1 and 1/2% maybe gaining 65 points by the settlement. And the NASDAQ's going to be up about 300 plus points, almost 2% to the upside. But we're keeping an eye on all of this. One last thing, when we were talking about sectors, the big gainer today was information technology, then consumer discretionary. Here's the closing bell

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All right, that's a closing bell. Let's jump in with the panel to figure out what we're witnessing. And is this a real recovery? Or are we going to get some kind of dead cat bounce? Let's start with Nancy Daoud to talk about this. Because Nancy, there's so much that's uncertain, especially this new variant of COVID-19. What, if you were advising me as a client, as an investor, would you share with us? Because you don't want to miss out on a potential upside as we head toward the end of the year.

NANCY DAOUD: Yes. I do believe that we are still looking at a pretty strong year end. I think what happened on Friday was the news broke out about the South Africa virus. And because there's not enough information, there was a reflex knee jerk reaction as always. The market got spooked. It was also a low trading day because the market shut down early for the holidays. So that sort of helped a little bit, didn't allow the market to maybe react upwards by the end of the close because the close was too early.

But I still think that now that there's more information coming out, there's less of that spooked fear or panic. And we will still have a very strong year end most likely.

ADAM SHAPIRO: And Megan, I want to talk with you about what's going to happen with the fed. Because we were all focused on those issues before Friday. But before we get there, did we overreact on Friday? In my industry, we refer to it as the distraction of the week. It's the headline we all chase despite knowing that there are other issues that are perhaps weightier.

MEGAN HORNEMAN: Yeah, I think Friday was a bit of an overreaction and a knee jerk reaction as was mentioned before. But also, if you step back on what the markets look like coming into Friday, let's keep in mind that the equity markets continue to rally on some pretty scary inflation data that we're ahead of the fed getting ready to taper. We had some really strong consumer data even though the consumers are dealing with such higher prices on even everyday necessities. The markets kept continually rallying, and rallying, and rallying on some of these things. I just think it was really some little bit of negative news would have taken it down.

Sometimes we need a valuation correction. And I think you saw some of that on Friday. Going forward, I think the fed still is going to taper. I don't think it's going to be disrupted by what's going on with the new variant of COVID. I think they're still on pace to start their tapering in December.

ADAM SHAPIRO: So Megan, let me follow up with you regarding the fed. Because President Biden really has a powerful card he can play assuming he can get the Senate to approve. And you explain this to your clients as we always focus on the FOMC. Some folk may not realize that the voting membership changes every year. What's key about what's coming down the pike? We're going have one more meeting next month and then we're off to the races in 2022?

MEGAN HORNEMAN: Yeah, and there's several seats still that President Biden can put in place. Obviously, for his aggressive spending agenda, he's going to want more dovish people on the board. We see what he's done with Powell. I think it was the right thing to do. Markets don't like the unknown. They like the continuity. And we saw that after he did pick Powell. I think going forward though, it's more about who he puts in place in these vacant seats. We'll get more information in the first quarter of next year.

ADAM SHAPIRO: Nancy, let me bring you in on that because whatever the fed does, we're going to be focusing on inflation. And every sentence we utter regarding inflation will end with some mention of the fed. You don't expect prices to go back to what we all enjoyed say in 2019. But what are you advising investors and clients as to how to decipher what inflation means to our investments?

NANCY DAOUD: Well I think if we focus on why this is happening versus what is actually happening, it might be more helpful to understand what's going on. The key here is that we had a complete lockdown with a very strong economy. And then the lockdown was very easy and quick. But ramping back up is not so easy and quick. And it's essentially a supply and demand issue. So there is going, and there's billions and trillions of dollars being printed. So yeah, it's not so unreasonable to have this kind of inflation. And I think it will likely continue through the middle of next year until we are past the pandemic recovery, so to speak.

We will never go back to pre-COVID prices I'm sure. But hopefully, inflation will not continue at the trajectory that it is on now. Now how clients should be overcoming this is another story. I think that the sector is clearly to have been real estate, commodities, materials, and hopefully incomes will continue to keep up with the prices.

ADAM SHAPIRO: Megan, how would you advise a client who's trying to get-- we're all trying to get return, whether we're doing it for clients or for ourselves. Some of us have an appetite for riskier investments and my-- true, you know, high yield investment grade securities. But those of us who are just average folk trying to make heads or tails of what the fed's going to do when the real return on the 10 year is possibly negative, what do you say to those of us who are trying to figure out, what do I do with my money right now? I don't want to go into treasuries. And it seems like still only option is equities.

MEGAN HORNEMAN: Yeah, and on the fixed income front, I think the biggest risk here is that we will see a sharper move higher in interest rates. You can't abandon fixed income. It's going to be a part of any well-diversified portfolio. But you can be defensive. I would not actually advise going into the high yield and even most of the investment grade investments because spreads are just way too narrow. You're not being rewarded for that risk that you're taking on buying those.

Instead, be defensive in fixed income, short duration. Floating rate instruments are another option for fixed income. And in your equity exposure, you want to be in some of those areas that will actually do better in a rising rate environment. So your expensive growth tech type of names, they're going to get hurt in a rising rate environment. However, things like financials, energy, maybe some industrials, these may do better in a rising rate environment.

ADAM SHAPIRO: Just following up real quick regarding the financials, you're not worried about any kind of regulatory crackdown next year on the financials? Elizabeth Warren is sounding the alarm.

MEGAN HORNEMAN: Yeah, and I also know that Lael Brainard is also a bit more of a regulatory hawk with financials. It's going to be a risk no matter who sits in those seats, regulation not just in the financial industry but in other areas. But I think that there's just so much more to benefit in the financial side because of the fact that they're very well capitalized. And with an interest rate spread that we think will emerge into next year and the years after that, should benefit that sector.

ADAM SHAPIRO: Nancy, I know that you're advising your clients to limit exposure to stocks overseas. We just had a guest on in the last hour, though, who said, look. Don't necessarily cut off all overseas investment. Take a look at Europe. How would you respond? Because I mean, when we say limiting overseas exposure, there's seven continents on the planet. There are a lot of places to go.

NANCY DAOUD: Yeah, we're limiting overseas exposure only because there's so much opportunity in the US market. Why would we take the additional risk unless there's a very, very long term horizon? But you could see that the rest of the world has not recovered nearly as fast or as well as the US from this pandemic. And things are moving significantly faster and better in the US market. Currency is of concern. Inflation, if you think inflation is bad here, it's much worse elsewhere.

And so I just feel, I mean, being in the business of meeting long term goals, it's a much better opportunity to stay within the US.

ADAM SHAPIRO: Megan, we're going to hear from Secretary of the Treasury, Janet Yellen, as well as Jay Powell tomorrow. They're testifying before the Senate Banking Committee. It's supposed to be on the CARES Act and how those monies were spent. But you got to imagine someone's going to sneak in some questions about inflation and spending. Is there anything you'd be paying attention to, or want to hear during that hearing that would change your mind about the strategy you've set up?

MEGAN HORNEMAN: No, because I think that we are expecting that the Federal Reserve's going to hike interest rates next year in the second half. So the bigger surprise to me from Powell would be if he pulls away from that. But I don't think that's the case. I think he has pretty well telegraphed that that's what they're planning to do. If he gets some questions about inflation and becomes more hawkish about it, that could spook the bond markets and still benefit those areas of the equity market that I mentioned.

ADAM SHAPIRO: OK, I just want to signal to my crew that I think they're trying to talk to me through the IFB. When they push the button, I know the button's been pushed because the audio for our guests gets diminished. But I can't hear them talking to me. So I think I'm going to say thank you to both of you at this point. Appreciate your being here. And just want to remind everybody that Megan Horneman is Verdence Capital Advisors director of portfolio strategy. Nancy Daoud is Ameriprise Financial Private Wealth advisor. The best of both of you as we go into the holiday season.