Michael Sheldon, Executive Director and CIO of RDM Financial Group at Hightower joins Yahoo Finance Live to discuss how additional fiscal stimulus and steady vaccine rollout can help rebound the U.S. economy.

Video Transcript

MYLES UDLAND: Let's stay on the markets here. Busy day, Jay Powell speaking, just got some economic data crossing the tape. Joining us now to talk a bit more about the market setup here is Michael Sheldon. He's the Executive Director and CIO at RDM Financial Group. Michael, great to talk with you this morning. I'd love to just begin--

MICHAEL SHELDON: Nice to see you.

MYLES UDLAND: --with your thoughts on what we're seeing just this week, this kind of quick sentiment reversal. Is it something that concerns you? Or does it, in your view, kind of come with the territory given how much enthusiasm had come into the market this year?

MICHAEL SHELDON: Well, I think the markets have generally been heading in one direction since we had the market lows back in March of 2020. So I think a pause or a little bit of a pullback is not unexpected. If you look back in history, for example, over the past 25 years there have been 11 declines of 10% or more in the market. So pullbacks and corrections come with the-- come with investing, and it's something that investors should expect over time.

I think one of the important things looking ahead to the remainder of this year is if you look at just, for example, economic stimulus, which we don't know what the next package will be but we know it'll probably be over a trillion dollars, and you combine that with the monetary policy where the Fed's buying about $120 billion of assets per month, or about $1.4 trillion, together that represents about 15% of GDP. So we're going to get some pretty good growth through the remainder of this year.

And I think the markets may be reacting also to the fact that interest rates have increased quite a bit over a short period of time. So on an absolute basis, interest rates, or nominal rates, treasury rates remain fairly low. But maybe the rate of increase in rates over the short period of time is maybe giving people a little bit of a pause or hesitation.

BRIAN SOZZI: Michael, do you think now-- look, Tesla shares are under severe pressure again today. Do you think now is the first time investors are understanding the impact of having Tesla in the S&P 500? It's a volatile stock, and because of that, the S&P 500, some of the stories in there, might get masked because of that volatility.

MICHAEL SHELDON: Well, I think you're right. I mean, if you look at the market, you could argue that sentiment has been maybe a little bit stretched if you look at some of the IPO activity, if you look at some of the SPACs. There are a number of things you could point to that maybe some areas of the market have gotten a little bit stretched or sentiment has gotten a little too-- gone a little bit too far, too fast. So I think it's only natural for some of these areas to pull back.

But if you look at the-- if you look at the 30,000-foot level, one thing I wanted to point out, going into the fourth quarter of last year, the fourth quarter of last year, earnings estimates were for a decline of about 9% on the S&P 500. And as of today with the majority of the companies having reported, earnings estimates on a year-over-year basis for last quarter are now expected to be up 2.5% or so, roughly. So I think the earnings recession is over.

And that's very positive, because stocks tend to follow the direction of corporate profits over time. So I think most of the drivers, the signals of the market that we watch, whether it's consumer discretionary stocks versus consumer staples stocks, credit spreads, copper prices, I think most of the signals are pretty positive. But it's natural to have pullbacks or-- or a period of consolidation from time to time.

MYLES UDLAND: And Michael, I guess related to that-- to those pullbacks, something that has struck me in the last-- this is a couple of years now, but it's certainly been in play in the last year since that March bottom is the speed with which things change in the market one way or another. Is this something that investors need to grow comfortable with, that if there's a 7%, a 10% correction, it might take only three days, and then we just sort of go back to living our normal lives? This-- this notion of a multi-quarter kind of decline in markets, I mean, that regime just has not been in place now for several years.

MICHAEL SHELDON: Well, that's a good point. I think a lot of what's going on in the market is quantitative-- quantitative computer-driven trading algorithms. So it does seem like over the past few years that you have seen quicker pullbacks and quicker declines. I think the bigger-- that's absolutely a valid point. I think looking ahead for investors who are taking a longer-term time frame, I think you have to look at the fact that we're probably in the early stages of a new economic cycle, and you can't lose-- lose face of that particular fact.

BRIAN SOZZI: Michael, have you added any crypto-related assets to your portfolio? And if you haven't, are you more inclined to do so now given the pullbacks we've seen?

MICHAEL SHELDON: That's sort of an area we've kind of stayed away from. We really haven't gotten involved in that. I'll tell you a couple of the things we have done over the past few months. We added an equal weight investment ETF in the S&P 500 a few months ago. That gives you broader exposure to the overall S&P 500 and sort of de-emphasizes technology a little bit. It also adds a little mid-cap exposure.

For the first time in several years, we've actually added to our foreign weighting, which is something we had not wanted to do, but now we feel a little more comfortable. And we've also added a few strategic ETFs that we think should help generate some additional alpha in our portfolios over the next several years.

MYLES UDLAND: All right, Michael Sheldon with RDM Financial Group. Michael, appreciate the time this morning. Great to get your thoughts.

MICHAEL SHELDON: Thank you very much.