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Market Recap: Tuesday, May 11

Stocks fell Tuesday, with the major indexes adding to Monday's losses as inflation concerns rose. Clinton Warren, JPM Private Bank Global Investment Specialist and Dana Peterson, The Conference Board Chief Economist joined Yahoo Finance Live to discuss.

Video transcript

SEANA SMITH: 3 minutes to go until the closing bell. We want to bring in Clinton Warren at JP Morgan Private Bank, a global investment specialist. We're also joined by Dana Peterson, Conference Board's chief economist.

Clinton, first to you. Just the selling action that we're seeing today across the board, started with the tech stocks, blood into the rest of the market. What's your read on what we're seeing play out today?

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CLINTON WARREN: Yeah, I just think it's really important to keep this volatility into context, right? I mean, over the last 30 days, we saw one pullback greater than 1% in the S&P 500-- looks like we're going to follow that on again today.

If you compare this to the volatility that we saw late last first quarter, this is nothing. Markets are still up over 10% year to-- so yes, there's volatility. There's going to be more volatility this year. But if you just take a step back and put it into context, there's way more things to be excited about than the little volatility that we've seen these last few days.

ADAM SHAPIRO: All right, put you both on hold. But Dana, I'm going to ask you a question about inflation when we come back. Right now, got to get to Jared because we are just about at the closing bell. And inflation is just one of the things on the minds of investors. Right, Jared?

JARED BLIKRE: That's right. I'm getting excited about the NASDAQ clawing its way back almost into the green. But if you take a look at the two-day losses, kind of a different picture here, though, it is nice to see coming off of those lows.

Now, the Dow is down the most today. That's down 1.4% as we speak, 493 points over the last two days and kind of telling that we hit a record high yesterday around the open-- 35,000. And now we've sold off a bit.

But we've been talking about volatility. Let's take a look at the VIX. Here is a chart going back here to date. And we can see the 20 level back in play. It's been in play for quite some time. It was acting as kind of a floor now. Maybe it's a bottom, again, after being a ceiling. So we'll keep an eye on that.

We do have this rounded bottom here. But really, when you take a look inside the market, nice to see some of these names bouncing back from yesterday. But if you take a look at the two day, for instance, here's Amazon down 1%. You might see Zoom down 4%.

I'm going to switch to a two day. You can see the magnitude of the losses there, especially in the mega caps and some of these chip names. Well, let's go back to the sector action for today. We got materials climbing into the green. That's commodities play.

Commodities have been very hot lately. We got the US dollar index sinking to a multi-month low today. And it's the energy, financial, and industrial sectors that are the worse off. So the value in cyclical play's not doing well. We'll just take a quick look at the energy sector.

Exxon's down 3% today. Chevron right behind it, down 2 and 1/2%. We did see crude oil close a little bit higher today. But the energy trade in focus as we try to reopen that colonial pipeline.

Here's a look at the travel sector, as we head into the final seconds of trading. Royal Caribbean is a standout in the upper right. That's down 3%. Some of the airlines looking weak, like Delta and American. Those are down 2%. Overall, not a bad recovery for the NASDAQ. But the Dow now, its counterpart-- here's that closing bell.

[BELL]

ADAM SHAPIRO: All right. That's going to end the day's action when we hear that gavel. And don't want to use the word contagion. But we are closing down. Let's see where the markets are going to settle when all is said and done.

We're going to see the Dow off about 470 points. We're going to watch the S&P 500 drop about 36 points. And the NASDAQ, it will be off about 12 points. We've watched considerably bigger losses on the NASDAQ in the past couple of days.

And just one thing to keep an eye on we were talking earlier-- gold and silver. Gold up today, not dramatically, but it's in the green as is in silver. Let's get back to our guests because I had-- I teased to Dana with the fact that I wanted to ask you about inflation, because one area where people might try to find some protection would be gold or even in equities.

By prices are going up, one would hope that earnings will go up with them. But we can't ignore inflation, especially when we're going to get CPI tomorrow. But the Fed seems to be ignoring it. Does this make sense to you?

DANA PETERSON: Well, I don't think the Fed's ignoring inflation. What they're saying is that there will be inflation. However, it's going to be transitory. So where are we seeing inflation? We're seeing it in producer prices, consumer prices, and also in asset prices.

Looking at producer prices-- prices for lumber, chips, corn-- all those commodity prices and inputs for machinery and high tech equipment-- those prices are rising. And that's a function of supply chain disruptions as well as very strong demand for those items.

But we also have to remember that oil prices are rising. And then we also have the situation in the Southern US where gasoline prices are rising due to shortages. Meanwhile, we're looking at consumers. Consumer prices for services are probably going to pick up.

We're already starting to see that for some items, like for some services, like airline tickets and also restauranteurs. Tours are raising prices for that service. And we're also seeing asset prices rise for housing and up until very recently, certainly the stock market.

But the key thing for the Fed is how much inflation will we see for core consumer inflation measures and for how long? The Fed is saying it will tolerate inflation above 2% for a period of time.

SEANA SMITH: Clinton, I guess what are you anticipating that we'll see on the inflation front? Because I saw in your notes that you're not too worried. You expect any inflation to be transitory. So then I guess, how are you positioned as a result of that?

CLINTON WARREN: Yeah, I mean, we do have a very positive outlook on the equity markets. But the biggest risk is inflation. And as the other guest just said, the energy complex, the commodity complex across the board are putting major stresses on businesses across the US and across the globe.

One commodity that doesn't get as much attention is copper. I'd keep a close eye on that to see how that impacts inputs going forward. Supply chain disruption. The Fed's stance, right? The Fed has said they're going to let inflation run a little bit higher than their target of 2%. So that is also a risk-- labor shortages and also the infrastructure bill that is on everyone's mind.

So although JP Morgan, we're pretty bullish on what's going to happen in the equity markets. Inflation is something that you really, really want to keep a keen eye on. And things that you could do in your portfolio. I would just look for different ways to protect against that. The commodity complex being one of the main ways to do so.

ADAM SHAPIRO: All right, we are going to go to earnings because Jared's got Electronic Arts. And it's a beat, right?

JARED BLIKRE: It is. It's a beat on both the top and bottom lines. But the guidance was a little bit weak. That may be why the stock is off about 1 and 1/2% in after-hours trading. First, the number's for the reporting quarter.

The first quarter-- fourth quarter results, excuse me, that they just finished. Adjusted revenue coming in at 1.49 billion. That's higher than the 1.4 billion that the Street was expecting. Adjusted EPS coming in at $1.23, higher than the estimate of $1.06.

And then another key metric is Lion Services and other revenue that came in at 1.1 billion, higher than the estimate of 968 million. Finally, Full game revenue, 250 million. The estimate was for slightly higher, 251.6 million. So slightness right there.

But now onto the 2022 year forecast. They're seeing adjusted revenue of 7.3 billion. And that's higher-- significantly higher than the estimate of 6.6 billion. You're seeing adjusted EPS for the year coming in at $6.15, whereas the estimate was for $6.11-- a little bit lower.

That fourth quarter driven largely by their live services. And also, of course, they're getting Apex [? Limit ?] Legends. They're seeing expansion of franchises to more platforms, more geographies, especially with the recent acquisitions as catalysts for future growth.

And here's a quote from the CEO and CFO in the earnings release. They're saying, "EA delivered a strong quarter, driven by line services and Apex Legend's extraordinary performance. Apex steadily grew throughout the last year driven by the games team and the content they are delivering."

But let's take a look at the stock. It's now off about 2%, as you can see on your charts there. And we're going to take a longer-term look. Here's a one year look at EA, kind of sideways choppy action, still up 20% over the trailing year.

Here's a slightly longer-term look. Choppy there too. It wasn't able to get through these 150 highs a couple of years ago. So that could be a stumbling point technically. It looks like it's a bullish but to breakout. But we could also move to the south side. Have to see what happens in early trading tomorrow in the close.

ADAM SHAPIRO: All right. We will keep an eye on that. Dana, I want to get back to this issue regarding inflation and another heads up for you. I've already quoted you in an article I'm writing that's going to go live tomorrow on price increases.

You said, "While some of the price increases may fade with the pandemic, some may not." There could be a double whammy here, especially with the labor numbers we saw for Black employees and Latina workers who we see the unemployment rate's a bit higher than for other people in the population.

What does the government-- what do employers do so that we don't have this constant one double whammy but also the expectation of inflation remaining?

DANA PETERSON: Yes. I mean, when we think about inflation expectations, for the most part, they're still pretty well-anchored. But when we talk to businesses, they're saying, look, we're having difficulty finding the right types of workers. And in some cases, we're going to have to raise wages. And so we could see some wage inflation coming through.

For Black and Latina workers, it is, unfortunately, usually the case that there's a gap and there's a lag in which in time with respect to when their unemployment rates decline. So, I mean, what can employers do?

Well, certainly, they can try to make sure they have diverse slates when they're hiring. When they are thinking about letting people go, they think about what demographics are being impacted. And certainly also with the rise in remote work, it means that you can recruit almost anywhere in the US. And so you can go to areas where there are large populations of workers of Black and Latina workers and look to hire them, especially if they can remote work remotely.

SEANA SMITH: Clinton, we did see--

CLINTON WARREN: --out of the jobs.

SEANA SMITH: Oh, go ahead.

CLINTON WARREN: Yeah, just real quick. One thing out on the jobs. We ran a study looking at if the pandemic never happened, how many Americans would be employed today? And the number was somewhere around 154 million.

If you look at today the number of Americans employed, it's about 140 million. So where there's a $10 million or so gap. The [? Jilt ?] survey that came out earlier show that there are 600,000 new job openings giving us to an 8.1 million number. And we think there's three main reasons that are driving this.

One, there is a portion of the population that is still concerned with health reasons in the pandemic. Two, the unemployment benefits that are still in the system that will dissipate towards the end of the year. And three, we're about to head into summer. And we know what happens in summer. Kids are home.

So what do you do with child day care? So this, unfortunately, impacts our female colleagues more than our male colleagues with these three reasons are reasons that we think the slack will be here throughout the summer. The good news is that this will dissipate and that the gap should close when we head towards late fall.

SEANA SMITH: So Clinton, is that the reason why we're not seeing a bigger reaction than from the [? markets-- ?] why we didn't see a huge sell-off after that massively disappointing number on Friday?

CLINTON WARREN: Yeah, I mean, I think most economists and then market participants are looking at trend lines. Yes, the number was disappointing. I think if you see a number more-- a few more prints to that degree, the market will pull back as well.

But the market is looking forward. What's going to happen the third, the fourth quarter? And like I said, a lot of these-- these factors that are out there, they're going to dissipate, right? The health concern will dissipate. The unemployment benefits will fade away. And thankfully, children will be back in school hopefully come this fall.

ADAM SHAPIRO: Dana, let's add on what Clinton was just telling us, though, because when those unemployment benefits go away, do you expect a surge in employment? Or is that a canard?

DANA PETERSON: Well, I think, certainly, [LAUGHS] you're going to see more people who are willing to go back to work. Another factor is that people are afraid of infection. And so we shouldn't ignore that. That's another factor. And certainly as more people get vaccinated and indeed as those very generous unemployment benefits go away in September that you will see the labor supply pick up.

And so until then, we probably will see some wage pressures certainly in industries, like manufacturing, construction, high tech. We're even seeing it in restaurants, as they are trying to open up all at the same time they're looking for folks.

So we think that, again, some of these pressures will be relieved. But when we get to next year, much of the slack in the GDP will be taken up as well as the labor market. And we probably won't see a return to labor shortages akin to what we were seeing just before the pandemic and consequently some upward wage pressures at that point as well.

SEANA SMITH: Dana Peterson, Conference Board's chief economist and Clinton Warren, JP Morgan Private Bank Global investment strate-- or global investment specialist-- excuse me there. Thanks so much for taking the time to join us--