Fed will probably ‘hike rates sooner’ than expected: strategist

Ryan Detrick, LPL Financial Chief Market Strategist, joins Yahoo Finance Live to discuss the latest inflation concerns, a potential pause in stocks and outlook for economic recovery amid the pandemic.

Video Transcript

JULIE HYMAN: In what has been a wild week for trading, whether you look at equities or cryptocurrencies, I mean, it looks like we're showing indications for a higher open here this morning. Let's bring in Ryan Detrick. He is LPL Financial chief market strategist. Ryan, it's great to see you. As you wrote in a note today, maybe after the big rally that we've seen over the longer term, it's time for a pause. But was that pause this week? Or are you talking about a bigger pause to come?

RYAN DETRICK: Yeah, we're thinking a bigger pause to come, right, after 89% rally. We all know sell in May, go away. And it is true, although May is usually pretty strong. That's why you should call it sell in June, is when the seasonal weakness comes. But, you know, again, you overlay this bull market with the one from 2009, 2010. They were nearly identical. That would go up, like, 80% right about now. This one will go up, like, 90% right about now. That one corrected 16%. I know it's a sample size of one.

16% end of the summer-- we only grew to quite that much with all the stimulus and improving economy. But we're just saying, you know, maybe there could be a little bit better picture coming later. And I've been calling you guys for a while, saying, listen, the market looks good. The values probably outperform growth. Those are still the themes we have. But just, we've been pretty spoiled, so maybe a little sideways consolidation would be perfectly normal of these troublesome summer months.

BRIAN SOZZI: Ryan, strong bouts of inflation like we are seeing now, is that good for the stock market?

RYAN DETRICK: Oh, the stock market usually takes inflation in stride, to be honest. If it's extremely high and it stays there for a while, you can have trouble. But I mean, you know, I know we've all been talking about inflation nonstop for a couple of days. Word with the Fed is transitory. Look where the inflation came from, right? Hotels, airlines, or rental cars, car insurance. I mean, those things are all saying we're coming back, right? I mean, rents are up 20 basis points. So we're not overly concerned about inflation. It was hotter than expected.

You know, the Fed-- yeah, the Fed's probably going to hike rates sooner than what they've been telling us. Janet Yellen let that cat out of the bag last-- two Tuesdays ago when she kind of hinted at that. But, you know, we're not overly concerned with the inflation near term here or near term, but the rest of this year, we think it's going to come back and be a little calmer. And hopefully, the market will just keep going and take it in stride.

MYLES UDLAND: You know, Ryan, thinking about inflation, it's funny-- we were sitting here a couple of weeks ago, or a couple of months ago probably, and we were talking about what's the impact on higher rates? Oh, interest rates are going up so quickly. Now no one talks about rates anymore. Does it seem possible to you that inflation kind of runs the same course? And God only knows what September brings, but it'll be the next new thing that we'll be talking about.

RYAN DETRICK: The next thing to worry about. Myles, I want to give you a quick shout-out. I love the morning email. I think the Daily Brief, right? You do it with Sam. I get it every morning. I mean, shameless plug, I'm aware, but I think it's a great one.

MYLES UDLAND: Morning Brief. Thanks for being a company man, Ryan.

RYAN DETRICK: Yeah, exactly. You quote me once in a while, so I got to say thanks. But no, it's good. But you're right. I mean, yes, to answer your question, it's just, what is the next worry going to be? And we'll see what September is. And again, we're not concerned. I mean, let's look at what's the market telling us, right? I mean, we can talk about inflation all you want.

Look at copper, right? Look at industrial metals. Guys, copper went sideways for 15 years. And now it's breaking out. The last time it did that was in the '90s and into the early 2000s. It went sideways for, like, 15 years. Copper went up almost 200% over the next year or so. We're not saying copper is going to do that again.

But Dr. Copper, so goes copper goes the economy-- the global economy. We believe there's something there. That much strength from industrial metals and copper is something that says, listen, the market pulls back. The market consolidates. This is still a healthy economy and likely a healthy stock market as well when you look at how solid those earnings were that we're wrapping up this first quarter earnings season.

JULIE HYMAN: OK, Ryan, so put it all together for us. You think there might be a pause in stocks, but overall, you're seeing strength there in the global economy. What do you do?

RYAN DETRICK: Yeah, we stick value over growth. I mean, we really like the financials, industrials, materials, right? I know those are the cyclical value names. Relative strength, those are leading. They've had solid earnings, positive reaction to earnings. And tech had great earnings-- not such a great reaction there.

So we think, you know, any weakness, any market consolidation, those are the groups you probably want to get into as the second half of the year-- I knew today's retail sales weren't that great, and the jobs number a week ago today wasn't that great. But we still think the reopening is going to take place. And those cyclical values early in a new cycle of growth are where you want to be. If it's that with us for a while, and we're sticking with it.

BRIAN SOZZI: Ryan, what are the best stocks to own when we're seeing inflation like this? Is there something beyond cyclicals?

RYAN DETRICK: Yeah, I can't give you individual names, but let's be honest, right? I mean, materials, right? I mean, you know, some of the copper plays, some of the material plays. Those historically do good. And financials and banks-- I mean, banks went nowhere for 14 years. Inflation goes up, yields go up. That's a little bit of a tailwind for banks. And these groups haven't done well for a long time. So financials, materials, and some of the copper miners potentially.

Gold-- I mean, gold does well historically. The dollar's weak, and we think the dollar is going to continue to be weak. So those are some areas you can kind of maybe weight your portfolio a little bit, should we have more inflation than what's expected.

JULIE HYMAN: Well, Ryan, it's great to talk to you today. We've got the opening bell coming in one second. Before we do, one last question for you. For some reason, the team wants to know which NFL team you support. There's a whole debate going on in our Slack channel.

RYAN DETRICK: Well, I support the Cincinnati Bengals, but I got a text right before this. My daughter made her middle school cheerleading team, so I'm a Bulldog fan right now-- Gold Hill Middle School. That's my favorite team.

JULIE HYMAN: Oh, excellent.

RYAN DETRICK: But Bengals look like a good team. There we go, yeah.

JULIE HYMAN: Mazeltov to your daughter. We got Magna ringing the opening bell this morning. Wow, look at this. We got plugs for the Morning Brief by Myles Udland, and we got plugs for the Bulldogs and for their cheerleading squad. Ryan Detrick, LPL Financial chief market strategist, we'll throw the Bengals in there, too. Thanks so much, Ryan. Appreciate your time this morning.