February's job report ‘showed something we could hang our hat on’: strategist
Art Hogan, National Chief Market Strategist, joins Yahoo Finance’s Alexis Christoforous to discuss the outlook on tech in the market and this month's jobs report.
ALEXIS CHRISTOFOROUS: Now let's bring in Art Hogan. He is chief market strategist at National Securities. Happy Friday to you, Art. Let's just get your thoughts on this jobs report. We heard from Michelle Girard just before the break. She says it's pretty optimistic, and she's feeling good about the economy.
ART HOGAN: Yeah, I think Michelle did a great job of summing up just what we saw in this particular report, much better than expected. Clearly, the revisions to the January numbers were great to see, too. So we had a significant revision higher in January, a blowout number this month. And we're going to continue to need to see those kinds of numbers to get anywhere close to getting some 10 million people that are still out of work from the beginning of the pandemic back into the labor force.
But this was clearly good news and exactly what we want to see. Every single piece of that report showed something that we can hang our hat on and portends something that's even better for next month. Because we had a good chunk of the last month that had some bad weather in some very large parts of this country. So I think that the hiring numbers and the job creation numbers for next month will look even better.
But it's important to remember we're only about halfway back to getting the people that lost their jobs during this pandemic back in the labor force. And I think that will-- the main focus of the Fed, the single mandate that the Fed is paying attention to right now is full employment. And they're willing to let inflation run a little bit high.
ALEXIS CHRISTOFOROUS: Yeah, Fed Chair Powell said as much, right, yesterday at that Wall Street Journal Job Summit. He did talk about the rise in bond yields, which has spooked investors lately. And he doesn't seem to be in any great rush to respond to them. Some are saying, you know, maybe he should be talking about tapering QE sooner rather than later. Maybe he should try to get ahead of the curve when it comes to inflation. What do you think about the way the Fed has responded thus far?
ART HOGAN: Yeah, I think the Fed has done a remarkable job throughout the entire pandemic. It continues to be very clear in their messaging. I think the difficulty with yesterday's Wall Street Journal confab was that there was a built-in expectation that perhaps the Fed would start leaning into or Jerome Powell would start talking about Operation Twist, which is basically what we saw back in the great financial crisis, just another monetary policy tool that flattens the curve out.
So they, in a sense, would be buying the long dated and selling the short dated and clearly driving down some of the long dated parts of the curve or the 10-year. That's always the focus. And he didn't lead into that. And I think that was the problem. I mean, markets built up an expectation. They said, hey, look, yield on the 10-year got above 1 and 1/2%. It's touching 1.6 at some point in time intraday. And perhaps this is the time for Operation Twist to come back.
And I think what Jay Powell is trying to tell us, is, not yet. That's not where we are yet, and we understand why. And I think the why is more important than the where in terms of Treasury yields. And the why is, it's an expression of better economic activity in the future. So I think they're OK with that.
It's just when it happens at such a pace that we've seen over the last two weeks, the bond market doesn't usually move in 20 basis point increments over the course of eight days. And that's what we've seen. And I think that's what caused the disorder in markets. But Jay Powell and the rest of the Fed are just not ready yet to pull that Operation Twist out of the toolkit.
ALEXIS CHRISTOFOROUS: I want to talk to you about your outlook for the year. Over the next 12 months, you have an S&P 500 target of 4,300. That would be a 15% return-- pretty nice. What do you think is going to get us there? What are the sectors? Is tech going to find its legs again and lead us forward, or is there going to be a change in leadership?
ART HOGAN: Yeah, I certainly think there's been a change in leadership, but technology is going to be a part of what gets us there. So what's important to remember is, when you're coming out of a recession and into an improving economy, cyclicals tend to outperform growth. And I think that's been true since Labor Day and will continue to be true for the balance of this year. I also think that small cap outperforms large caps. So we've seen the Russell 2000 outperform the S&P 500.
There's a lot of logic in all of that. But what really drives all of this is earnings, and earnings are really driven by better economic activity. And I think that happens in the back half of this year. So as we look at 2021, on balance, we see much faster economic activity, a resurgence of consumer spending and corporate spending driving better earnings. And I think that our estimate for the S&P 500 earnings for the year is probably-- it's probably conservative.
And remember, during the fourth quarter earnings reporting season, estimates for the first quarter in the full year of '21 went higher. That typically doesn't happen. And I think that that continues to happen when we start hearing earnings reports after the first quarter. So I think that putting today's multiple on '21's earnings, you get to 4,200, 4,300 with not a great deal of difficulty. We're not saying we're going to get there in a straight line, but I certainly think it's a conservative estimate for where we might be heading.
ALEXIS CHRISTOFOROUS: And if true, certainly a reason to stay long this market. Art Hogan of National Securities, have a great weekend.