Market Recap: Monday, August 2

Stocks turned lower Monday afternoon to close out the session in the red, giving back some gains after a winning July. Scott Crowe, CenterSquare Investment Management CIO and Ross Mayfield, Baird Investment Strategy Analyst joined Yahoo Finance Live to discuss.

Video transcript

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ADAM SHAPIRO: All right. We've got a closing bell and we started the session trading much higher. Let's see where we're going to settle down. The Dow is going to be off 100 points. S&P 500 is going to be down about eight points. NASDAQ's going to manage to inch out some gains, roughly up about eight points. And some of the laggards on the Dow, just let you know-- Visa, Dow Inc, and McDonald's all off by more than 1%. Visa was off by almost 3%. Let's go back to the guests. And, Ross, I wanted to ask you-- when you look at some of the fintechs, because we got the big news regarding Square today-- when you look at how they're performing-- when I look at Visa, little surprise that they would be off, especially in a consumer-driven economy where people are buying, buying, buying. Ross, what do you think is going on here?

ROSS MAYFIELD: That's the great question. I do think there's this unknown, right, this, kind of, Delta overhang. You know, earlier in the year, you know, we could tell this story about the roaring '20s, and a big reopening, and boom. Well, you know, we've had to pull that back a little bit. GDP was much softer than expected. The consumer spending is actually really strong, so maybe that goes against this narrative a bit. But I do think there's-- one, it's just the unknown overhang. And then, two, yeah, we just have to re-rate, kind of, our growth expectations a little bit, even if they're still strong, even if they're still, you know, above whatever the last decade-long trend has been. You know, anytime growth expectations come down, you'll see it in the stocks.

SEANA SMITH: And Ross, speaking of growth expectations, of course, there's huge uncertainty here with the Delta variant. I guess I'm curious just how do you think the market is looking at this at this point and what's priced in right now.

ROSS MAYFIELD: Yeah, it's a good question. You know, we-- we're seeing what so far has amounted to a historic earnings season, just really strong across the board, across all sectors. And the market, kind of, has hasn't budged. I think there was a almost a level of perfection priced into the market coming into the summer and, you know, a reopening that was really strong as well. I mean, you saw that the GDP miss-- I do think that there's a lot of things, kind of, working against the market near-term, both on a technical and fundamental perspective. And, you know, I wouldn't be surprised to see some volatility and maybe a bit of a correction here in the near-term before resuming, which should still be a really strong structural bull market. I mean, we're still growing at six-plus percent-- that's still-- that's nothing to sneeze at.

ADAM SHAPIRO: Scott, I saw you nodding your head when I was asking Ross that question about fintech and what's really going on here. I'm trying to pull up the sector, but my Commodore 64, the computer, is-- it's steam-driven here. But financials were off today. They were flat essentially. What is going on? Shouldn't that we see the financials much stronger, especially with people spending so much money.

SCOTT CROWE: Well, yeah, but as it relates to Visa specifically, what's going on is that Afterpay is anti-credit. One of the ways that millennials and younger people like to conduct their business is less through credit cards and this concept of buying something and then paying it off in installments is actually the opposite of a Visa card. So I think that's why you saw Visa off almost 3% today, despite the fact that, you know, the Afterpay valuation was very, very rich.

SEANA SMITH: Ross, you mentioned we could see a bit of a correction. I guess, what's a bit of a correction in your eyes? How big of a pullback could be potentially see?

ROSS MAYFIELD: Yeah, I mean, you know-- I-- we could see something big, but I think probably 5%, 10% makes plenty of sense. You know, the story circulated last week. It's one of the longest stretches in the last century without a 5% pullback despite all of the volatility under the surface with the growth value rotation, with things like the meme stock mania. I mean, we haven't had a 5% correction off recent highs this year. That's pretty astounding considering the headline risk, you know, we're still in a pandemic, the Delta variant, all of the other things that are happening. So I think a 5% to 10% correction shouldn't just be expected but would almost be healthy for market. Sentiment is still fairly high at the same time that you have the market narrowing a bit, kind of a weaker seasonal stretch as well. So it almost seems like the perfect storm for a bit of a correction but buyable, in our opinion.

ADAM SHAPIRO: Scott, when Seana was asking about retail opportunities, where do you see retail opportunities with $2.5 trillion in the bank that consumers have to spend.

SCOTT CROWE: Yeah, the retail sector-- the real estate, retail sector has come back really strong. We have Simon Property Group reporting this evening. But their foot traffic is almost back to where it was pre-COVID. Now, a lot of the retail landlords have benefited from the fact that COVID actually rationalized to supply. A lot of the weaker malls shuttered, a lot of the weaker stores shuttered. But we're seeing occupancies return to pre-COVID highs. A lot of the rent that was deferred is now getting paid. And, you know, across the board in real estate land, this has been one of the strongest earning seasons that I've ever seen in my career. And it's really driven by three things. A big rebound in demand, as we reopen and all that money, Adam, that you mentioned sitting in the bank. Very low interest rates, which are a big tailwind for real estate values. But also because the world shut down for a year, nothing new really got built. So as this demand is percolating, you don't really have supply to absorb it, at least for the next 12 to 18 months. And that's creating a lot of rent power for landlords.

- Ross, us what about you. I mean just more broadly speaking, where are you seeing opportunities? Are you looking at some of the sectors that have been beaten down like energy, financials, we are talking about that earlier, both off pretty significantly from the recent highs. What are you buying now?

ROSS MAYFIELD: Yeah, I think near-term we still like the cyclical sectors, the economically-linked sectors, things like industrials, financials. The rate story is challenging the-- particularly for financials if interest rates don't rebound. And we ultimately think they will, not some big rebound, but at least, you know, the 10-year move back towards those earlier year highs.

And, look, the thing is with industrials you have a multi-year tailwind from infrastructure, you have the economy is still reopening. I mean, you know, we feel like this reopening has, kind of, had a big, big summer, but there's plenty of opportunities, especially as it gets stretched out a little bit with the Delta bearing, kind of, pressing pause. And, finally, the earnings picture for 2022 on industrials looks really strong. financials, again, more of an interest rate story but we think they move higher, we think the yield curve probably resteepens to an extent and tend to like that opportunity there.

ADAM SHAPIRO: Scott Ross, hold on just a second, because we've got Dan Howley standing by with Take-Two, their earnings are out. What can you tell us, Daniel?

DAN HOWLEY: That's right, Adam, they beat on both the top and bottom lines here with $711 million in revenue versus what was expected to be $684 million in revenue. Earnings per share also came in higher $1.01 versus $0.90. And what's interesting is they're also saying that they'll beat out forecasts for Q2 2022. This is a fiscal 2022 year with 18 to-- $815 million to $865 million of revenue expected.

Estimates were for $868 million. So they're just falling shy of that actually, but still not too far of what estimates were. Really what's happening is we're seeing that analysts worried about what's going to happen going forward as far as their various releases. They haven't come out with the new game in the prior quarter and what they're expecting to release is really kind of remakes of the prior games that have done well for them-- "The Grand Theft Autos," "The Grand Theft Auto" online, the "[INAUDIBLE] Redemption 2." They're getting that kind of revenue, but really what they need is kind of a new blockbuster to come out and they don't have that any time soon. So we'll hopefully see something in the future from them about new releases.

SEANA SMITH: All right, Dan Howley, thanks so much again. The stock off nearly 5% right now, so certainly a name to keep in mind as we turn our focus to tomorrow's opening bell. But Scott Crowe, CenterSquare Investment Management Chief Investment Officer, and Ross Mayfield, Baird Investment Strategy analyst, thanks to you both for being here today.