The 10-year yield is reflecting concerns about growth globally: Strategist

Kristina Hooper, Invesco Chief Global Market Strategist, joins Yahoo Finance to discuss ADP’s employment report and moves in the bond market.

Video transcript

ALEXIS CHRISTOFOROUS: I want to continue our markets conversation now and bring in Kristina Hooper, Invesco's chief global market strategist. Kristina, it is good to see you. You know, when we've talked in the past, we've talked a lot about opportunities that you've seen outside the US market. A lot of market strategists we've been talking to say they do see opportunity there. What are you looking at right now, especially given the sell-off we saw recently in Chinese stocks?

KRISTINA HOOPER: Well, certainly, Chinese stocks look attractive. If we look at the PE ratios as of July 31, they're more attractive relative to where they were a month ago, and they're also attractive relative to the global index, the MSCI World Index, as well as US stocks. So it is time to start picking through and looking for specific bargains.

Now, we want to do that in a discerning way, given that China has enacted significant regulations. I would expect a more surgical approach that's communicated in advance, but we just need to recognize that there are going to be some winners and some losers. But it certainly looks like an attractive place to be picking up bargains.

KRISTIN MYERS: Yeah, we've been hearing that a lot, how you have to go through this market to really pick out some of the bargains and some of the winners. At least here at home in the United States, where you seeing some of those bargains? What sectors are you liking, and what's presenting itself as most attractive to you right now?

KRISTINA HOOPER: Well, I think cyclicals have legs in the shorter term, although we know that can change on a day-to-day basis. Today, we got an ADP report that weighed down on markets because of concerns about growth. That, of course, has been added to by continued concerns about the spread of the Delta variant. So there are going to be days where growth and more defensive names, larger-cap names perform well, but I do think cyclicals in general should be the outperformers over the next several months. But at a certain point, we are going to see that handoff to growth, defensives, and larger caps as growth moderates.

ALEXIS CHRISTOFOROUS: I want to pivot for a minute over to the bond market, Kristina, because I'm looking at the yield on the 10-year, now at 1.18%. What do you think bond traders are telegraphing right now about where they see the economic recovery going?

KRISTINA HOOPER: Well, certainly, there are concerns about economic growth, but I don't think it is centered on the US. Yes, we got a disappointing ADP report today, but I don't believe the labor market's going to normalize in the US until the fall, when children are back in school and child care is not such a big issue.

So the 10-year yield, I think, is reflecting concerns about growth globally. And I do think there's a bit of fear out there because of what we're seeing with the Delta variant, especially for countries that have low vaccination levels. But that doesn't mean that we're not going to see solid growth. It just may not be as strong as one may have expected a month or two ago. So I think this is still a positive environment, especially when we're looking at US growth.

KRISTIN MYERS: But we are still seeing a bit of volatility. You know, just in the last hour, we were hearing about volatility could be expected through the summer and perhaps even a bit of a correction. So I do want to ask for some of the investors out there, how should they really start considering making some defensive plays, making some protective moves for some of those downside risks?

KRISTINA HOOPER: Well, we should definitely expect volatility. I think that is very likely this summer, given that we're heading into a period in which the Fed is likely to come out and announce tapering and then start tapering by the end of this year. So are going to be at least small jitters attached to that kind of environment. And of course, we also have the Delta variant having an impact on a day-to-day basis when we get spookier headlines.

So this is an environment in which we need to expect volatility, but I do think it's one in which we want to look for opportunities on the dips. So it's no different, really, than the opportunistic shopping we would do among China tech but in the US. And I think defensives, growth, especially the tech sector is likely to be more stable in the coming months.

ALEXIS CHRISTOFOROUS: All right, Kristina Hooper, Invesco's chief global market strategist, good to see you. Thanks so much.