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Market Recap: Friday, September 24

Stocks ended a choppy session higher to extend gains after their best day since July. Jay Hatfield, InfraCap Founder, CEO and Portfolio Manager, and Josh Wein, Hennessy Funds Portfolio Manager joined Yahoo Finance Live to discuss.

Video transcript

SEANA SMITH: The final 20 seconds of trading here as we work out the final trades of the day. The Dow looks like it's going to be able to hold on to gains, up just around 40 points. S&P up, NASDAQ under pressure today.

[BELL]

ADAM SHAPIRO: All right, we got a closing bell. Let's see when they hit that gavel where we are going to finally settle today. And remember, it's been a volatile day, up and down up and down. But the Dow looks like it will settle positive, up 32 points. The S&P 500 up roughly six points. And then the NASDAQ, the NASDAQ is essentially flat. It's off almost 5 points.

My Commodore 64, also known as a two-year-old MacBook Pro, is freezing on me, so I'm going to get right to the panel. Jay Hatfield is InfraCap founder, CEO, and portfolio manager. Josh Wein is Hennessy Funds portfolio manager. It's good to have both of you here.

Jay, I want to start with something that you raise as a potential drag on markets going forward. That's stagflation because many of us are old enough to remember as kids the real impact of stagflation, whether it's watching a parent lose a job and not being able to keep up. What would that look like today? And why do you think that's where we're headed?

JAY HATFIELD: Thanks for having me on the show again, Adam, Seana. Well, really, I think that was made a lot of sense to bring up sort of the past because really, what we have now is very similar to the '70s in that not only do we have surging house prices-- housing prices, 18-- up 18.6 year over year, but we also have surging rents, which we really haven't seen since the late '70s. And that puts a huge squeeze on consumers because it's very difficult for them to avoid paying higher rent. They can avoid higher gas prices, higher meat prices, but you can't really avoid rent.

And so, we think that's going to force the Fed really to raise rates at least two times. That was our call for really the last two or three months. Half of the Board of Governors are now on that page. So we see that as really the critical risk heading into '22, along with a corporate tax increase, which is terrible for growth, and then also potential drag from China, because of the regulatory countdowns. So we-- or crackdown, rather.

So we're concerned about '22, but of course, we don't want to get ahead of ourselves because the Fed still is injecting $120 billion a year. And we're about to head into earnings season. So this is not sort of a sell everything right now. But just be cautious heading into '22.

SEANA SMITH: Josh, what about you? How are you looking out over the next couple of months and then into next year?

JOSH WEIN: Sure, yeah, good to be with you, Seana. Yeah, I think that, you know, the growth side of the equation, I think just in recent days, I mean, we're-- you know, the 10-year has backed up about 20 basis points from its lows from only a few days ago. I think some of that's the Fed being a little bit more hawkish, and there is inflation that I think transitory probably a few months ago was 6 to 12 months. And it's probably now 12 to 18.

I think we keep backing up that end date where we get back to a little bit of normalcy. But I would say, you know, COVID still is a big deal. And once again, maybe for the third or fourth time, we're turning the corner. But I think economic growth, you know, looks firmly in place. And I don't know if it accelerates, but I think it's still in place. And I think that's important.

ADAM SHAPIRO: Jay, many of us are always on the lookout for how can I make money in whatever the environment is. There was a note from an investment bank earlier this week. We could see oil around $90 if we have a cold winter. You're seeing oil not quite that high. What do you think is going to happen? And is it something that investors looking to get some kind of return should consider right now?

JAY HATFIELD: Well, not just the oil, but we also think natural gas could be an interesting inflation hedge. The key short-term driver is really the recovery of the travel sector-- international travel sector, which has just got opened up by the Biden administration. And the other dynamic that could really support us next year, we call it OPEC Plus, Plus, so not just Russia being part of a de facto part of OPEC, but also the US and even some European producers. So they're restraining production.

So we really have global restraint on production, but yet higher usage because of international travel. So we're not quite at 90, but certainly if there's a supply disruption after Afghanistan, I think there's a higher international risk of violence or disruption in the Middle East. So we think that that could be a decent hedge against inflation.

And I think it's just quickly worth mentioning natural gas. In the US, it's $5 per MCF, which is very high recently, but it's $20 in Europe. So that creates a lot of upside to that commodity as well. And we think that it's really the way to implement the hydrogen economy because it's the cleanest fuel. And that's why you're seeing a lot of demand in Europe. So we're also bullish about natural gas.

SEANA SMITH: Josh, when it comes to inflation, the Fed, I guess, updating its guidance a little bit just in terms of the fact that it's running a little bit hotter than they initially anticipated. But they're still sticking to that transitory timeline or that transitory, I guess, storyline at this point. Do you agree with the Fed?

JOSH WEIN: I do. I-- it's a hard thing to agree with. But ultimately, that's-- I mean, I think about it a lot. I think that, you know, what's gone on is obviously hard to model. And I think there have been a lot of dislocations in labor. And we're now going to, in the next few months, see people returning to work perhaps, with unemployment benefits or the expanded benefits ending. So I think that there's a lot to work through. A lot of people are on the sidelines.

And this idea of rate hikes because of inflation, well, you know, to be sure, home prices are a function of a lot of demand and perhaps also limited supply. But basic staples like paper towels and things like that, that is, you know, a supply chain issue. And we have to work through. And raising rates doesn't solve that issue. It doesn't solve a lot of issues as it relates to inflation. So yeah, I-- you know, I think there's a good setup here. I think that inflation will return to normal, albeit somewhat elevated, and it just will take a little while.

ADAM SHAPIRO: Josh, we had Gary Cohn on yesterday, talking about getting people back into the labor force. And he hit that inflation issue from the standpoint of having to hire or offer higher wages and signing bonuses. It's inflationary, but it's, one, undercutting low income workers. And those who are not coming back into the workforce are getting undercut as well. Is that going to catch up with us? Or do you think inflation comes down before that becomes a real problem for millions of people?

JOSH WEIN: Yeah, it's an interesting question because I think that, you know, restaurant workers-- I mean, I've seen this. And it's anecdotal, but the anecdotal starts to become pretty meaningful. So, you know, on the one hand, having to raise wages for restaurant workers would be inflationary. That cost would have to get passed through. I think a lot of restaurant owners-- and I've seen it locally here in North Carolina-- they're just closing. So they know the math, and they know what people are willing to pay for a plate of food. And they realize that we can't make it work.

So I think that what looks inflationary is not bullish for growth. It's ultimately disinflationary, to some degree, if you see businesses closing. And then, I guess, the second point I'd make is, you know, companies are really creative, large and small. They'll figure out a way to do the same or more with less. And that's not bullish for employment. I think things like kiosks and automation and technology. It sounds trite, but I think that that is going to become an ever increasing part of what we talk about.

SEANA SMITH: Josh Wein, always great to see you, Hennessy Funds portfolio manager. And of course, our thanks to Jay Hatfield, InfraCap founder and CEO and portfolio manager. I hope you both have a great weekend.