Market decline

Stock market decline ‘perplexed’ amid strong economic data and earnings: strategist

Huntington Private Bank CIO John Augustine joins Yahoo Finance Live to discuss the state of the stock market as geopolitical tensions persist and U.S. retail sales report data for January.

Video transcript

AKIKO FUJITA: We see the Dow falling again today in this session after breaking a three-day losing streak. At present, it is down around 200 points, with the NASDAQ down 154 and the S&P 500 down 28. Geopolitical tensions persist as Russian claims of a border troop withdrawal Ukrainian are under scrutiny.

Joining us for discussion is John Augustine, CIO of Huntington Private Bank. John, it’s good to talk to you today. It looks like these tensions are still weighing on market sentiment, even as we continue to get relatively strong earnings reports. What do you think are the main factors currently weighing on the markets?

JOHN AUGUSTIN: Well, for us, it’s actually a little perplexing right now because, as you just said, we’ve seen some good overnight earnings reports. ABnB, you just mentioned it. We actually got some good economic reports this morning on retail sales, industrial production and even a home builder index. And the calm of the bond market. We understand geopolitical events and geopolitical pressures.

But what is interesting for us is that the European markets are not as low as the American markets. In fact, some are turning positive now. Thus, the US stock market seems to have entered today in a bad mood. And it’s a bit like that, at least at lunchtime.

BRIAN CHUNG: Hey, it’s Brian Cheung here. I mean, do you feel that US markets have been too sensitive to geopolitical risks? I mean, as you mentioned, the European markets seem to be weaker, at least today. But the big story in the ebbs and flows of, say, the last four or five trading sessions hasn’t been the Fed. It really is headline news from the State Department.

JOHN AUGUSTIN: Yes, we are trying to connect to the market. So we are not political experts, we are not geopolitical experts. What we actually observe is three things. We are watching the ruble, which is going nowhere. It’s limited. We are monitoring the price of wheat from Ukraine. Next, we monitor natural gas prices in Europe. None of these–none of these three markets give us any indication of imminent danger in this region. What we would say, though, is that the US markets, even if you’re right, they’re focused on what’s going on geopolitically, we’re probably waiting a bit for the minutes of the Fed meeting from 2 p.m. today.

AKIKO FUJITA: That said, what are you doing with your wallet right now? Looks like you have an eye on global growth. You are considering not only in the United States, but also outside the United States. What do you like?

JOHN AUGUSTIN: Yeah, what we do first is we strengthen the bond portfolio. So it’s kind of a three-step process when the Fed becomes active. First, we want to ensure that our bond portfolios are solid. This means for us that we want to increase credit quality and reduce duration. We are doing it right now. Second, as you said, historically, emerging markets have done well in cycles of Fed rate hikes.

So that’s something we’re going to look at when we meet, when our strategy team meets next month. And then we’ll also look at small caps in the United States. Historically, they do well. So the point here is that investors don’t want to be solely in large cap growth. When the Fed becomes active, the economy is positive, which we think it is. You want to be distributed in stocks. This includes overseas. We will examine this. It’s sort of the second of the three parts we’re going to look at.

AKIKO FUJITA: John Augustine, CIO of Huntington Private Bank, delighted to speak with you today. Hope to see you back on the show soon.