Fitz-Gerald Group Principal Keith Fitz-Gerald and Victoria Fernandez, Crossmark Global Investments Chief Market Strategist, join Yahoo Finance Live to discuss CPI data, inflation, oil and energy prices, and defensive investing.
RACHELLE AKUFFO: There you have it. Your closing bell for July 12, but not too much to clap about. We look at what happened going into the close. All three major indices ended off their session lows but still in negative territory. The Dow there losing more than 180 points there. The S&P 500 losing almost 1%. And the NASDAQ, coming back from those losses as well, but just slightly, and they ended up losing about 1% on the day.
Let's break down the market action with our panel. Let's bring in Victoria Fernandez, Crossmark Global Investments' Chief Market Strategist, and Keith Fitz-Gerald, Fitz-Gerald Group Principal. So thank you both for joining us. So Victoria, obviously, this pullback that we're seeing ahead of key inflation data. What are the market's digesting right now?
VICTORIA FERNANDEZ: Yeah. Rochelle, I think the market is just very uncertain as to what they're going to see going forward. So you look at some of the names that Gerald was just going over, I mean, you've got kind of defensive names that were down with health care and the defense sectors. You've got tech that was doing well this morning. And now, it's pulled back. You've got the 10-year yield coming down.
So it doesn't seem like there's a full risk on or full risk off. I think people are trying to digest what they think that CPI number is going to be tomorrow. I think most people expect that the headline number will be a little bit higher. But that that's backward looking. It's a question of what that July number is going to look like and what the Federal Reserve is going to do if the core number continues to come down month over month. That's what they wanted to see originally when they talked about sustained decline. We will see if we get that tomorrow. And if that changes anything for the July meeting.
RACHELLE AKUFFO: Keith, how much of this do you think has to do with the upcoming inflation data versus the earnings reports that we will be getting over the next several weeks?
KEITH FITZ-GERALD: I think that's a very interesting question. At the absolute heart of the matter, I think-- in addition to all the things that my colleague just mentioned, I think what really rattled markets today was the fact that Microsoft said-- hey, wait a minute. We might have a problem and we've announced some layoffs, and we're going to have a strategic repositioning.
That company for the last few weeks, the story there, the narrative has been that it's untouchable. That it's going to sail through just fine. So I think that shook a lot of people and really what we saw was a lot of big money just simply taking its foot off the gas, deleveraging, unwinding, because they don't know what's going to happen tomorrow.
- And Victoria, the energy markets, one of the big surprises today, Brent down 7.5% WTI, now it's 96 bucks, just less than after an 8% drop. What's driving them down? What's an indication of the recessionary environment or something else?
VICTORIA FERNANDEZ: Well, I mean, there's a huge conversation obviously about have we bottomed, and that turned into are we in a recession already, are we going to go into a recession. Again, I think it comes back to this question of uncertainty that Keith and I are talking about. And that people just aren't really sure what's happening there.
We would anticipate, with the pipeline closing for maintenance if that's going to open back up again, what supplies are going to look like for Europe, obviously there's some concern there. But I think it's just really an uncertainty at this point, people trying to position themselves a little bit better before we get into earnings.
But I mean, you look at companies like the airlines that were up quite a bit today. I mean, they're huge users of gasoline for planes and for fuel. Those are things that you would think would help lift some of the energy stocks but we're just not seeing it. So to me, it's not a definitive move one way or the other in any of the sectors, I think it's just a little bit of confusion.
RACHELLE AKUFFO: So Keith, what's the play in this sort of environment where we're still waiting for sort of incremental data to keep coming out and waiting for the fed to make its decision?
KEITH FITZ-GERALD: Well, I don't know if you play golf or not, but there's an expression, keep it on the fairway. Now is not the time to try to hit the long drives, or get the hole in ones, any of that kind of stuff. Now, the job for everyday investors is to sit there, take a deep breath, keep the ball right between the trees, exactly where it needs to be.
Now's not the time to be a hero. What you want to focus on is companies that can maintain their margins, that can grow, that have savvy CEOs. This is the time. Take a deep breath, make sure you have the right names. Because the other thing is very clear and we don't tend to focus a lot on days like today is that history has a way of rallying, of moving forward when you least expect it.
So a day like today is not definitive to Victoria's point. I think that's an excellent point. But it's also the precursor. The markets are trying to bottom. The fact that it didn't just simply get shellacked over the last couple of weeks is something that's actually positive. Doesn't feel like it, but it is positive.
- They have a tough task ahead. It's hard to keep the golf ball on the fairway sometimes, Keith.
KEITH FITZ-GERALD: Exactly.
- But according to you, when you're seeing all this volatility day in and day out of selling here into the close like we saw today, how are you positioned?
VICTORIA FERNANDEZ: Yeah, so earlier in the year, we really had a more value tilt going. And what we've done is we've pulled that back a little bit. We've tried to be much more balanced. I mean, we have names like a General Dynamics. We like those defensive names. So we have a little bit of that in our portfolio. We look at some health care and some insurance, like an anthem name. We like that.
But I think you have to focus on quality. Keith use that word and it's what we do. Quality of business models, quality of earnings, quality of balance sheets, that's what you have to focus on when the markets are as volatile as they are. So we look at a name like an American Express or a name like Waste Management, those are all companies where they have good dividends.
Their balance sheets are strong. We like the business models. Their revenues are growing. They may not be super high growth, but you have steady, consistent growth. And for us, that's where you want to be in this type of market environment.
- Keith, I'm never in the fairway. But to go back to your analogy, your strategy is-- again, companies have a proven record, and as you say, not fantasyland projections. But if you could put some names to that strategy so we can better visualize it.
KEITH FITZ-GERALD: Absolutely. Take a look at Pepsi. Look at what that company just reported. Everybody's tempted to compare it to Coca-Cola as a soft drink company, but what they don't understand is that fully 50% of its revenues come from snack foods and things. So you're talking about a company that is driven by consumer demand, uniquely in almost entirely.
That company just raised projections, expectations. It can keep prices moving. Coca-Cola on the other hand, the better known brand, price is in demand. It prices by reaction. So to me, Pepsi is the stronger player. That's the kind of name I'm talking about. Some of the health care names for example, Pfizer, people say it's controversial because of the vaccines but it pays a great dividend.
And what it does next with the vaccine based technology is key to $30, $40, $50 billion on the top line. That's the kind of quality I'm talking about. Because that's the kind of stuff that can survive the short term market gyrations. If you've got three, five, even 10 years in front of you, those are the names that you will kick yourself at a cocktail party or a barbecue years from now if you don't buy them at places like now.
- And who are the fantasyland projections then on the other side of that equation?
KEITH FITZ-GERALD: Well, I hate to beat up on this company because it's been beat up badly. But Peloton is a great example for-- the company makes right now what is arguably the world's most expensive laundry hanger. People want to go out and live life. They're not going to shell out thousands of dollars for fitness equipment they're going to use in their living room anymore. That time has passed.
The news is great that they're going to realign manufacturing. They're going to rein in expenses, all that fabulous. But I submit respectfully, it's still dead money. So that's a fantasyland company. If you look at some of the EV providers, and I really don't want to name names here because that space is going to be with us for a long time, but they're just simply not stepping up to the. Plate the bigger, dominant names, the Teslas of the world, yeah, they're under pressure. They get all the headlines for being the bad actors lately. But those again are the quality names with the balance sheets necessary to move forward.
- All right. Keith Fitz-Gerald always great to have you. Victoria, thanks so much for taking the time to join us this afternoon.