'I don't see a huge amount of money coming into the bond market in the near-term;': Nationwide's Hackett

Mark Hackett, Chief of Investment Research at Nationwide, joined Yahoo Finance Live to break down what may behind Monday's market rally.

Video Transcript

SEANA SMITH: And Mark, first, just your thoughts on some of the buying action. Jared was just rolling through the sector action that we're seeing today. Financials, industrials, technology among the big winners leading today's action.

MARK HACKETT: Yeah, this is certainly an encouraging rally if you're bullish. The pro cyclical nature of it, but also the broad participation really is nice to see. Well, let's keep it in perspective. This is really kind of a mirror image of what we saw last Thursday. And so we're-- I think we're in this environment where there's a tug of war between the bulls and the bears. The bulls are certainly winning today.

ADAM SHAPIRO: So if I'm looking where I should be placing my money because we had record, what, 80% of companies in the quarter reporting earnings that, you know, grew by about 4% when we were expecting losses close to 11% coming into the season, if I'm taking money out of bonds, should I just be keeping it in cash, or should I be looking to jump back into this market, especially on a day when things are expensive?

MARK HACKETT: Well, you know, we think over time, the equity markets are fairly well positioned. So we would definitely be allocating there. Their earnings season we just got through, as you mentioned, was very encouraging. That-- you team that with the broadening-- broadly improving economy, not just domestically, but globally, but also the very accommodative backbone from the Fed and the fiscal policies.

So there's really kind of a three-legged stool that's driving equity markets higher. Obviously, in the early stages of the market rebound, you expect things like emerging markets, small caps, other more procyclical areas to win. They had been winning. We expect in the near term that will be the case. But as you kind of mature through the bull cycle, we expect that some of the more quality growth names with good balance sheets and a lot of levers to pull for investor return will probably take over leadership probably at the later part of this year or in the next year.

SEANA SMITH: Mark, how about the last couple of weeks? Of course, we have been talking so much here about the higher rates that we've seen, the massive spike that we saw last Thursday, I believe it was, in the 10-year yield. How are you looking at that? And I guess, are you changing your investment strategy? I know you're just going through some of the sectors and some of the areas where you do see opportunity. But are you changing your strategy as a result of what we've seen play out in yields over the past couple of weeks?

MARK HACKETT: Yeah, we have seen a pretty sharp move in yields. Some of that's justifiable with, obviously, the Treasury issues that we see, but also the broadly better economy globally. But there's also some of the move has been dictated by some worries about inflation that really aren't showing signs yet. So a lot of the move that we see is probably fair, but a lot of it is probably exaggerated, too.

So when we put it in perspective, in the 140s for the 10-year by a historical basis is still incredibly low. So we're not going to see some of the damage that you would expect if interest rates really got more in the 2's and 3% for the market. Really, in reality, we've seen a sharp move in the 10-year over the past month. But historically, sharp moves in the 10-year upward really haven't been negative for equities over the long term.

If you compare this period, so the previous eight periods since 2003, with similar types of moves, over those periods, the S&P 500 returned about 17% over the following 12 months. So just because we have seen rates spike higher here does not necessarily mean that equities are going to be in for a tough time.

ADAM SHAPIRO: Mark, I think a lot of us as investors, or at least, some of us are passive investors. And so the swing and the yield on the bonds isn't as worrisome because we're in the equity markets for the long haul. But with all the money that is on the side-- I'm seeing estimates $1.6 to $1.8 trillion-- and then the money that was coming out of the bond market just sitting there, it gets to my question earlier. There's going to be a ton of cash that's got to do something. And it worries me if I'm an individual investor in stock that things are going to get even pricier as that money just chases the equity market.

MARK HACKETT: Yeah, for sure the equity market already prices in fairly strong expectations. But so does the bond market when you're still sitting with about a 1 and 1/2% 10-year and really, effectively, a 0% short term. So I don't see a huge wave of money coming in the bond market in the near term, particularly because we're starting to see what happens when rates rise. Some of the long dated ETFs are starting to lose capital that the NAVs are starting to go down.

That's something we really haven't seen for much of the past decade, or really, beyond the past decade. So I think bond investors are probably going to sit tight here. But equity investors, there's still a lot to like. We're sitting with a pretty good fundamental backbone here. Yields for the S&P 500 are still a little bit larger than that that you can get in a 10-year Treasury bond. So we still think that new money allocated is probably going to find its way to equities, at least over the intermediate term here.

SEANA SMITH: Mark, are you seeing any opportunity in some of those travel names? I mean, some of these beaten down stocks have been under a significant amount of pressure over the last year. Is now the time to buy or still a bit too soon?

MARK HACKETT: I think in general, there's probably easier ways, especially as you were talking earlier with some of the more long-term investors, that is an emotion-driven trading space right now, both to the upside and the downside. Market timing is incredibly hard because you have to be right get in and being right getting out. That has not proven to be easy, particularly over the past 12 months. So I think that while there's probably money to be made as we emerge from this lockdown, the overall broad market should participate pretty well under that. So I wouldn't lock yourself necessarily into some of these names stocks or story stocks that will show periods of strength, but also periods of weakness.