‘We should expect that the bond-buying or the quantitative easing measures will probably start to wean off starting next year’: MJP Wealth Advisors President

Brian Vendig, President of MJP Wealth Advisors joined Yahoo Finance Live to break down the latest market action and what could be causing this pullback in stocks.

Video transcript

ADAM SHAPIRO: I want to move forward, though, because we're watching these markets, and Brian Vendig joins us from Wealth Advisors. He is the president there, MJP Wealth Advisors. And we're watching the markets. They had been much higher at the beginning of the trading session, but now they're pulling back. Any explanation as to what might be, at least with the Dow, causing this pullback?

BRIAN VENDIG: Hi, Adam. There's probably a couple of factors today in the headlines that investors are concerned about. I mean, the first is out of Washington, some headline risk coming from inefficiencies of being able to get this infrastructure bill passed. I think it's clear that our friends in Washington don't always get along and probably some of the good news from the headlines have worn off realizing that this deal probably won't get done to the fourth quarter of the year, of this year.

Of course, there is a headline risk, as well, as seen in the bond market with the 10-year Treasury dipping to around 1.15%. I think it's hugging around 1.17 as we speak. Right now that has a little bit to do, obviously, with concerns of the Delta variant and the virus with vaccine-- and vaccine, as well as infections going up and wondering where vaccines are going to fit in over the balance of the summer.

And again, we're in a period of time seasonally where the markets are generally a little bit weaker. And we know that we have the Fed speaking with Jackson Hole retreat later on this month and some important FOMC meetings after Labor Day. So I think investors are just really taking it, honestly, day-by-day, week-by-week based on the data that's coming out.

SEANA SMITH: Brian, with so much uncertainty out there, like you were just mentioning, I guess is it time for investors to reassess some of their risk exposure in their portfolio?

BRIAN VENDIG: That's a great question, Seana. I mean, I think every investor has their own tolerance for risk and need to think about what does versification mean. I think we saw over the last two quarters value stocks leading the charge in the first quarter, of gross stocks coming back with interest rates coming down and future discounted cash flows improving. I think at this point right now, it really does make sense to stay evenly weighted between value and growth.

And an investor need to assess how much equities or risk they want to have in their portfolio. We definitely have not seen a 5% pullback or more in some time, so I wouldn't be surprised if there might be an opportunity over the summer to buy into a dip when thinking about the economy continuing to expand moving forward. So I'd say right now there is a level of uncertainty, for sure.

And another thing that came out today was that we saw the manufacturing output around the world, as well as domestically, slowing a little bit due to the impact of supply chains. So I think right now it's really important to stay as diversified as possible. But we're not necessarily saying to our clients it's time to run for the hills.

ADAM SHAPIRO: There are some investors who might be running to the hills. I'm looking at the 10-year right now. The yield is 1.17. What do you want to hear from Jay Powell when he gives that Jackson Hole speech? This is the one where everyone's expecting some kind of outline for tapering. What do you want to hear?

BRIAN VENDIG: Sure. I think there's some clarity that all investors are looking for around the definition of transitory and trying to be a little bit more transparent on some of the inputs as it relates to inflation. Chairman Powell did a pretty good job recently when he was speaking in Washington on this subject. But I think we can carry that a little bit further and break out inflation into its parts.

I think the supply chain issues probably are transitory but are going to take a little bit longer to work out versus where the Fed was speaking earlier in the year. And hopefully Powell can highlight that and also create a correlation back to the labor market, which we know is taking a little bit longer to heal, and give a little bit more clarity on where they think the labor market's going to go as we think about things for next year.

I think one thing's certain, whether it's at Jackson Hole or fall FOMC meetings, I definitely think we should expect that the bond buying or the quantitative easing measures will probably start to wean off starting next year. But I think until we see the labor market strengthened, we definitely don't expect interest rates to be increased until we get to 2023.

SEANA SMITH: So Brian, what looks most-- you were-- going back to your earlier comment saying that right now it's so important to remain diversified in your portfolio, so what looks most attractive to you?

BRIAN VENDIG: Thanks, Seana. I think right now we want to think about what are some things out there that can hedge for inflation for some of those longer-term risks as they need to work through the global economy? So we like real estate as an allocation within client portfolios. Real estate is shown to perform better than both stocks and bonds as we move into inflationary periods of time.

We still do like cyclicals. I think there's been a little bit of a pause to the cyclical trade, but we still expect GDP globally to expand, GDP domestically in the US to continue to expand over the balance of the year due to a very accommodating environment, as well as additional liquidity coming from Washington. So that's still the basic materials, industrials.

And I think longer term, probably having some exposure to financials as loan growth and interest rates over time do eventually increase. We don't believe that we're going to be sticking around these levels on the 10-year forever. But as the year moves on and we move into next year, we should expect longer-term interest rates to increase due to, as I said before, the hints of Federal Reserve policy changing, but also just the global economy changing with higher inflation and higher costs.

ADAM SHAPIRO: We hear you loud and clear, Brian Vendig, who happens to be the president of MJP Wealth Advisors. Look forward to when you come back so we can continue this discussion.