‘The U.S. economy much like the global economy has fully recovered’: Strategist

Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab, joins Yahoo Finance Live to discuss inflation concerns and outlook on the tech sector.

Video transcript

ALEXIS CHRISTOFOROUS: All right, let's bring in Jeffrey Kleintop now, Chief Global Investment Strategist at Charles Schwab. Jeffrey, always good to see you. So we have to start with tech, because a lot of folks now, of course, are saying, well, look at the comeback that we saw today.

Does this signal that perhaps the tech sector was ready to rebuild? Do you believe that, or do you think we're going to retest those lows?

JEFFREY KLEINTOP: No, I actually think the tech sector is noise in today's move. I think if you look-- industrials leading to the downside while bond yields are moving higher, materials being the best-performing sector on the day or close to it, while the dollar is going up-- the only way this fits together is today's narrative is all about the risk of stagflation after we got-- tomorrow we get the inflation reports, today, we got news from the National Federation of Independent Business that small businesses-- 44% of small businesses can't find the workers they need.

The JOLTS data indicated job openings are at a new peak. We are finding input shortages, whether it's labor, or semiconductors, or raw materials, are slowing down production. Stocks are beginning to price this in. And tech-- I call it noise, but really, tech doesn't require strong economic growth to perform. We know it's more of a secular story. So I think it's moving past these trade winds that are blasting the rest of the market really focused on stagflation. Of course, tomorrow's CPI number could make or break that theme.

KRISTIN MYERS: So I'm curious to know, Jeffrey, then, looking out ahead to the rest of the year, given the economic picture that we have right now, given the market the way it is right now, it sounds like you're saying materials isn't sexy enough to be leading the market right now. But I'm curious to know if you think, perhaps, this might be the beginning of a correction, perhaps.

Some folks had warned us about that coming up this year. Do you see this, really, is a buying opportunity for some of those stocks happy-- perhaps even some of those growth stocks that you call creating a little bit of a distraction and some noise right now in the markets?

JEFFREY KLEINTOP: It's possible that we continue to get data over the next month or two that's disappointing. We haven't seeing disappointing economic data in a while. But the idea that these supply constraints are really limiting production, maybe slowing what's been unbelievable upward earnings revisions could actually stabilize, maybe even have to come down a little bit as companies are unable to meet their quarterly numbers based on some of these tight environments here, whether it's a logistical supply chain with ships backed up at ports for weeks, or simply unable to get the input products that they need.

That is a risk to a market that's really been priced on a lot of upside momentum. But I think the reflation theme reemerges this year, and it's still cyclicals, I think, where you want to be focused. So if you're looking to buy on the dips, it's areas like today, like in industrials that you want to focus your bets.

ALEXIS CHRISTOFOROUS: You know, Jeffrey, earlier today, our Fed correspondent Brian Cheung spoke with Cleveland Fed's Loretta Mester. And in that interview, she talked about inflation. She says it may end the year with inflation above 2% before falling next year. She does see upside risks to her inflation forecast. Do you think that she's setting us up, in those words, if you were to read the tea leaves, for the Fed to make a move sooner rather than later to combat inflation?

JEFFREY KLEINTOP: Our view is the Fed maybe in the fourth quarter of this year, maybe early next year, begins to taper their asset purchases. But that's only after we've really established a pretty firm footing here in this new expansion. I mean, let's face it-- the US economy, much like the global economy, has fully recovered. The recovery is behind us.

We're now in new all-time highs in terms of economic output. Again, I think the risk is on the production side. And a lot of things that are coming out right now in terms of policy, both from the Fed and the federal government, are actually making the problem a little bit worse in the near-term, right-- stimulating demand while there's this supply lag.

They can't actually create more product, they're just creating more demand. So in the near-term, there are some potential risks that could pull the Fed forward. But we still think the Fed's more likely to move later this year or early next year. Hence, I think the reflation thing remains intact.

ALEXIS CHRISTOFOROUS: All right, Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab, good to see you.