'Investors are just pausing right now to digest... more of the earnings releases': Strategist

Market Strategist at Informa Financial Intelligence’s Zephyr, Ryan Nauman, joined Yahoo FInance Live to break down how earnings are impacting the overall market outlook.

Video transcript

SEANA SMITH: We're looking at losses here across the board with 15 minutes to go in the trading day. The Dow now off still off over 300 points, some of the losses there being attributed to Nike here, one of the worst performers in the Dow today. Well, let's talk a little bit more about this with Ryan Nauman. He is the market strategist at Informa Financial Intelligence Zephyr. And Ryan, great to have you on the show today. A second day of losses that we're seeing. Investors finding a reason to sell some of these big names. What do you make of the action that we've seen over the past two days?

RYAN NAUMAN: Yeah, great question, Seana. And thank you so much for having me on. I think a lot of it really has to do with digesting the earnings. We've got a big earnings season coming up. And we've moved along from being driven by sentiment and momentum. And now people and investors are starting to focus more on fundamentals. And that's what we're seeing here. We're taking a pause. We've had this fantastic rally. Equities are up 80% on the year. And I think investors are just pausing right now to digest more fundamentals, more the earnings releases that were going to start coming over the next couple of weeks.

ADAM SHAPIRO: Ryan, help us understand. Some of us are only saved by the fact that we don't try to time the market, but we get really worried. And you think one of the biggest risks is that investors might become overly bullish. Do you see that even on a day where we're seeing some retraction in the markets, that that might be the sentiment right now?

RYAN NAUMAN: I think that's also, going back to Seana's question, one of the reasons why we have seen markets pull back a little bit the past couple of days. And trading volume has been light over the past couple of weeks. Investors, they're starting to realize, I think, there is a lot of froth. There is excessive exuberance out there. And when you look at equities, maybe you can kind of understand all the exuberance when you consider the economy is reopening, the Fed is very accommodative, money is virtually free right now.

And the economy is on its way to a robust recovery. So you can understand some of that exuberance. But with that being said, when you look at some of the prices on some of the price action that's maybe going out on the fringe, such as NFTs, right? You saw NFTs trading-- being sold for $68 million earlier this year. You're seeing all these prices in cryptocurrency. And there's a lot of exuberance out there. Maybe not so much in equities, but on the fringe that gives me a little bit pause that maybe there's just too much exuberance, too much, you know, expectations that concerns me.

SEANA SMITH: So, Ryan, what sectors or names then do you like in this environment?

RYAN NAUMAN: Yeah, great question. So, going back to fundamentals, I think moving forward, it's going to be important to focus on fundamentals. We're shifting more from sentiment driven and momentum driven to fundamentals. And with that being said, focus on sectors that really benefit from the economy reopening and the robust recovery. I really like financials. I think financials, moving forward, we've seen strong earnings from the Wall Street banks. And I think that's going to move forward. Banks have reduced that drag of reducing their loss provisions. So I think that's going to help financials.

Other cyclical sectors such as industrials. I think energy, they've had a huge run up this year to date. I think they're going to continue. There's still some room there. But focus on fundamentals. Focus on companies that can benefit from a robust economy.

ADAM SHAPIRO: One thing we know is that there's going to be a lesser amount of high yield corporate bonds issued. We've already seen that trend start compared to what we saw in the first quarter of the year. Does that increase the risk for those of us who might want to seek yield in corporate bonds?

RYAN NAUMAN: Yeah, that's really interesting. Fixed income is a really tough spot right now. You know, after yields hit 175 basis points, they've retreated. And I think that was warrant-- and I think that contraction in yields was warranted over the past couple of weeks. But I still think fixed income, there's some pressure there.

And if you're going to look for yield, you're going to have to go to riskier assets such as high yield still. I think that's still going to be a place, especially with the robust economy, high yield is still going to be the place to get that extra yield in the fixed income space. And Treasury still going to-- I still think yields are going to rise this year. You've got a robust economy, inflation. You don't want to fight the Fed. But with that being said, I still think yields are going to increase, just because of the economic recovery for them this year.