The markets are in a mid-cycle recovery: Morgan Stanley Managing Director

Kathy Entwistle, Managing Director at Morgan Stanley, joins Yahoo Finance to discuss the outlook on the market following the July jobs report.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, I want to get to Kathy Entwistle now, managing director at Morgan Stanley, for more on today's jobs report. Kathy, some people are characterizing this as a Goldilocks report. You have not too hot in terms of wages, not too low in terms of job gains. Would you agree?

KATHY ENTWISTLE: Yeah. First of all, Alexis, thank you for having me. And yes, I would say that we were looking for a little bit of good news here to help, you know, not just the economy, but the Fed to start making some of the steps that they need to take in order to catch up interest rates and the economy to where we really are.

KRISTIN MYERS: You know, Kathy, yesterday we were talking to Optimas head, Octavio Marenzi. And he predicted that markets wouldn't take too kindly to a very strong jobs report due to the potential Fed movements that would be coming down the line with the strength of the labor market. Of course, we are now seeing with, the exception of the NASDAQ, a nice boost right here in the S&P 500 and the Dow. The Dow right now, up over 150 points. Do you think some of that optimism that we are seeing over this strengthening in the labor market starts to dissipate once we start having that conversation, again, about when the Fed is actually going to start tapering some of those asset purchases and take some of that easy money off the table?

KATHY ENTWISTLE: Yes, I actually do agree with that. I think we've had quite a run, clearly, in the markets. And we think we're in this, you know, mid-cycle recovery, and a lot of the data has proven that to be the case. And one of the things that we're waiting on is the Fed to make some of those moves, and we do think that that will affect the markets. And it's why we're positioning clients to be more defensive at this point and look for more quality growth and some more cyclical strength in the markets.

ALEXIS CHRISTOFOROUS: Another question for you on this jobs market, Kathy, because the drop in the headline unemployment rate looked even stronger when you consider that the labor force participation rate ticked up to 61.7%, tied for the highest level since March of 2020. What does that tell you about the health of the job market going forward?

KATHY ENTWISTLE: I do think-- well, clearly, we have a lot of different industries and companies that are stating that they need the employees, you know, to come back to the labor force, but it is a positive. I do think also with the stimulus and the government's, you know, support ending shortly, that should also hopefully motivate some people to go back and start working again and earn, you know, a fair wage. So I do think that will be beneficial and it, again, will get us back to normalizing in this stage of the recovery that we think we're in.

KRISTIN MYERS: All right, Kathy, let's just talk about some of the volatility that we might see coming out ahead over the next couple of months, at least through the end of the summer, as we've heard so many analysts say we're definitely going to be expecting some choppy waters out ahead. What are you seeing as some of, really, the best defensive positions that some investors could take right now to start protecting themselves against some of that downside risk?

KATHY ENTWISTLE: Sure. Well, some of the things that we do like are sectors such as health care, consumer staples. We also think financials are a good play right now, going into the end of the year when interest rates do go up. And we saw that today, I think, in some of the earlier reports that financials have done well today. So some of that is really important, and we also think it's very important for clients to look at the tax impact of potential changes with the administration and how to position your portfolio and take advantage of some of those dips, perhaps, to do some tax harvesting, so looking at repositioning there as well and taking advantage of opportunities where we see fit.

ALEXIS CHRISTOFOROUS: I want to talk to you for a minute about the travel stocks and the airlines, in particular, which have really had a tough go over the past three months. We know that travel is rebounding. But with the Delta variant gaining steam, there's fear in the industry that people are going to start pushing-- pulling back. These stocks that have fallen, some of them double digits, percentage wise, in the past few months. Do you think that they look attractive now to jump back into that space?

KATHY ENTWISTLE: I think any time you see something dropped precipitously or pull back in a greater way than future expectations, it's always an opportunity to jump in. Would I jump into this area right now? No. But it's OK to start looking and taking a little bite here and there where opportunities arise. Because we're-- you know, we have to look long term. These are short fluctuations in volatility, and we have to look past 2021 into 2022 and even 2023. And if we think those are going to be doing well in the future, those companies that are in that industry, then we want to be starting to buy a little bit of them up.

ALEXIS CHRISTOFOROUS: All right, Kathy Entwistle, managing director at Morgan Stanley, good to see you. Thanks so much.