Market Recap: Monday July 19

All three major indices closed in the red on Monday as the markets saw a large sell-off with all the mega cap stocks leading the market decline. Loreen Gilbert, WealthWise Financial CEO, and Kevin Simpson, Capital Wealth Planning Founder & Chief Investment Officer, join Yahoo Finance’s Jared Blikre and Seana Smith discuss the latest.

Video transcript

SEANA SMITH: We want to bring back in Loreen Gilbert and Kevin Simpson to help us make sense of some of the selling action that we saw today. And I guess, Loreen, when you take a look at the fact that the Dow closed off just around 2%, do you think that's a rational reaction to the numbers that we're getting on COVID, or is this a bit of an overreaction here from investors?

LOREEN GILBERT: I think it's a very emotional response to the concerns over the Delta variant. And we know we've had a melt-up in the market, really, since last year, and even this year, we had a melt-up. And that never works one way. The markets have to take a breather. So we see this as a buying opportunity and a temporary phenomenon, and, in fact, looking at those stocks that were hit the most today with areas that we see some of the best opportunity.

JARED BLIKRE: Well, Kevin, everybody wants to know, where's the bottom here? We've seen a lot of big down days, or kind of smallish down days, leading to some more protracted sell-offs, but that was mainly last year. The S&P and the Dow really haven't had more of a substantial correction this year. So is it possible this is a one-off? What kinds of signs are you looking for in a bottom?

KEVIN SIMPSON: Yeah, well, you know, it was just a few weeks ago, Jared, when you and I were talking about the fact that stocks don't go straight up forever, that sometimes they actually go down, and it's taken this long to validate that. You know, we're sitting here with the worst day of the year on the books, but we're still not down 4% or 5% from the all-time highs, and 5%, 10%, 15% pullbacks, you know, that's very normal market behavior in a cyclical bull market. So could we go lower? Sure. This isn't a one-day event. The catalyst is the variant, the Delta variant, for sure, but there's been a lot of underpinning signs in terms of valuations. In fact, through Friday, many of the names within the S&P 500 had been trading below their 50-day moving averages. In fact, it was basically Amazon, Apple, Microsoft and Google kind of holding this up. So for us to see a little bit further pullback, absolutely normal. And I agree with Loreen that these are buying opportunities for sure.

SEANA SMITH: Yeah, Loreen, you mentioned those buying opportunities. Some of the stocks hit today as some of the most attractive opportunities now. What would those be? Would those be some of the reopening plays, because we saw the airlines, the cruise lines here among some of the names getting hit the hardest. Or what else are you buying?

LOREEN GILBERT: Right. In addition to that, looking at industrials, materials, energy. And, you know, energy was the best performing sector. Got hit today. But now, with good news of OPEC Plus coming together, that signals some calming in that area of the market. And with that, ultimately, that would be good for consumers, and so, with consumers being able to take their summer vacations, do their travel, maybe a little bit lower gas prices, and hopefully we'll see those consumers spending, while they may delay some of their international travels, and I want to mention this as well, that the Delta variant is having a greater impact outside the US than inside the US, so I think that we have a better chance of continuing our recovery than some of the other nations around the world.

JARED BLIKRE: Well, Kevin, not lost on us today is that it's earnings season. Didn't really have much going on, but we've got Netflix tomorrow, IBM coming up. Actually, I think we have IBM today. Gonna check that out in a couple minutes. What do you have your eye on, any stocks or sectors in particular?

KEVIN SIMPSON: Well, you know, this is a symptom, maybe, of some old-fashioned selling on news. We're going to see earnings season here for the second quarter just blow it out of the water. I mean, we're talking about comparisons from a pandemic, and maybe they're going to be 60%, 70% higher than they were last year. I mean, that's about as good as it, hopefully, ever gets in our lifetime. And to the extent that we're looking ahead into third and fourth quarter, the growth rates are certainly going to slow down, but there's still going to be growth. So, to your point, I think there's going to be lots of opportunities for stocks that have pulled back, sectors that have pulled back. We're just looking for things like Caterpillar and Dow are two names that we had sold. We had actually had them called away with a covered call strategy, that, as we look at second quarter earnings season and infrastructure, that these are names we'd like to re-engage in the portfolio.

SEANA SMITH: Loreem, what about the other big driver of the markets recently, and that, of course, has been the inflation readings that we've been getting at? Any commentary out from Jay Powell, of course, investors have been paying very close attention to. What's your reading on that, and, I guess, your expectation, or do you have an expectation for the Fed to change its policy any time soon?

LOREEN GILBERT: Yeah, I think the biggest risk right now is that the Fed makes a misstep, whether one way or the other, either waiting too long to pull back on purchases, waiting too long and increasing rates, or vise versa, and we don't know, so we all have to look very carefully at the inflation data, and we do know that the Federal Reserve, the different presidents around the country, have differing opinions, so there's an internal discussion on when to go ahead and start tapering. Our opinion is that inflation is going to be sustained, and with that, that means investing in areas of the market that we feel like will do well, even in a more inflationary environment. One area, certainly, can be REITS, and real estate is just one area to be looking at.

JARED BLIKRE: Well, I want to follow up on that. The housing market has been hot, but it's pulled back a bit. Tons of issues with supply. We know what they are. Cost of lumber has fallen, maybe making it a little bit more cost-effective. But what should we expect for the housing market over the coming quarters, and maybe a year?

LOREEN GILBERT: Well, I think we're going to hear some of that information just this week, and that would be interesting to hear, but what we know is that, as far as residential housing, there's still an overall shortage, and that the home builders have not built enough to capacity. Now, they're facing the issues with costs and how to price it out, and what we heard recently from the home builders is that they're not going to adjust those prices, even though lumber prices have come down. And what that means is all that money will go to the bottom line. So that's still very opportunistic for home builders. And then, when I'm talking REITS, of course, we're talking about commercial real estate, looking at areas in the markets, like multi-family, where they can increase rents over time. So different areas of the market like that, that also proves to be a good area to be in when there's inflationary pressures. REITs tend to do quite well during those periods.

SEANA SMITH: Kevin, what about you? What do you see in housing? Are you seeing any signs of overheating as of late?

KEVIN SIMPSON: Yeah, I mean, we're going to get that information this week that's going to be a telltale sign. But to the extent that lumber prices have come down 40%, I went to Home Depot over the weekend, and the prices of lumber at the store weren't down 40%. So, as such, we're looking at Home Depot as a really great stock to play that avenue. It's a consumer stock. It's a housing stock. It's an infrastructure stock, and it's a name that I think you can really do very, very well, even if they decide to lower some of those prices down the road.

JARED BLIKRE: Well, let me just follow up on that. You're talking about places down the road here. Where else do you see investment opportunities? You've touched on a few different areas. How do you view the macro landscape evolving with all of these moving parts now?

KEVIN SIMPSON: The landscape has to be looked at positively. You know, this pullback is normal. This is a buying opportunity. We remain cautiously bullish. The bond market is telling you that hyper-inflation isn't long for the foreseeable future. It's not coming around. We're not going back to the '70s. The consumer is spending. Housing is increasing in terms of resales. The Fed could not possibly be more accommodative. And as we just talked about, the earnings season is going to blow it out of the water. So when you see pullbacks like this, you look for really high-quality names, and you go and you buy those stocks. We mentioned a few of them today that I think are really attractive. Another one we have our eyes on if you're looking at infrastructure, very specific to your question, Jared, we're looking at Caterpillar again. You know, here's a stock that peaked out at $245, probably trading back down around $200. If you get an infrastructure bill, you're gonna see that stock do well. It's an old-fashioned infrastructure play. But even if not, for all the other reasons, you've got tremendous value there and a heck of a dividend.

JARED BLIKRE: Well, Kevin Simpson, we want to thank you, as well as Loreen, for stopping by. Kevin Simpson, Capital Wealth Planning Founder and Chief Investment Strategist, Loreen Gilbert, WealthWise Financial CEO. Thanks, again.