Brian Levitt, Invesco Global Market Strategist, joins Yahoo Finance's Alexis Christoforous to discuss market concerns including Afghanistan, the Delta variant, and the Federal Reserve.

Video Transcript

ALEXIS CHRISTOFOROUS: Want to continue our markets conversation and bring in Brian Levitt now. He's market strategist at Invesco Global. Brian, always good to see you. Look, I want to start with what's happening on the geopolitical stage right now, the collapse of the Afghan government, and takeover of the country by the Taliban. To what extent are market watchers looking at this, and to what extent is this a market moving event, do you think?

BRIAN LEVITT: You know, maybe in the short term. But I wouldn't expect it to be a long term market-moving event. I mean, clearly there's concerns on it from a geopolitical perspective and from a humanitarian perspective for the people in Afghanistan, but it tends to not be these regional type of events that lead to meaningful changes in the economic cycle or meaningful changes in the direction of the economy. So you know, investors obviously should be watching it with some concern, but I would be hard pressed to change my views on the business cycle or on markets because of what's transpiring.

ALEXIS CHRISTOFOROUS: So what do you think is the number one concern for this market right now? Is it the rising Delta variant cases? Is it the Federal Reserve, which is starting to indicate that they're going to start taking their foot off the gas pedal? To your mind, what's the biggest catalyst for this market, the biggest concern at the moment?

BRIAN LEVITT: Yeah, I wouldn't say it's the Federal Reserve. I mean, the Federal Reserve has been quite transparent. And even if they do start to take their foot off the accelerator, the market's been well prepared for it, and it's going to be a gradual process. Clearly to me it's the it's the Delta variant. And you know, the good news is, it doesn't seem like we're heading back to where we were in March 2020. We have high percentages of American adults vaccinated, which is, you know, a good sign, and should prevent us from having to shut down large segments of the economy. But nonetheless, it's going to slow this economy down.

Now, that doesn't necessarily have to be ominous. You know, a slowdown is not necessarily the worst thing. It could in fact, ultimately extend this cycle as it prevents excesses from being built, prevents the Federal Reserve from tightening meaningfully, so yeah. But it's a risk, and ultimately I think we'll get through it just like we did a year ago. Medicine, science, human ingenuity will move us through it, but it's certainly going to lead to a slowdown in economic activity.

ALEXIS CHRISTOFOROUS: You know, last hour, Brian, I was speaking with Jay Hatfield over at InfraCap, and he was pretty critical of the Fed. He thinks they are behind the curve when it comes to inflation. He's predicting stagflation next year, and at least two interest rate hikes from the Fed in 2022. Would you agree with him?

BRIAN LEVITT: No, I don't agree with him, and the bond market doesn't agree with him. And so when I look at where the inflation break evens are, so what the bond markets expectation for inflation, it's generally well contained. You've got a one year break even of over 3%, which may sound scary, but I would say supportive for corporate earnings. And you've got two, three, five year inflation break evens moving back into the 2 and 1/2% range, which is largely consistent with the Fed's comfort zone, and suggests that the bond market, which tends to get it right more often than anything else expects inflation to moderate over time. Then if Fed, you know, if they had to move more aggressively, they certainly could. But right now the bond and currency market is suggesting that the Fed is managing this appropriately.

ALEXIS CHRISTOFOROUS: Brian, what do you like right now? We know the reopening trade was hot for a while. It's sort of gone ice cold. I mean, if you take a look at the cruise lines and the airlines among others today, they are all under pressure. So what do you like right now?

BRIAN LEVITT: Hey, you'd probably get back into this environment where we're favoring the more growth companies in what's going to be a bit of a slowdown in economic activity. I know you don't see that today in the NASDAQ stocks, but [INAUDIBLE] economy slows down, you tend to favor the more longer duration assets. And so you've seen that happen in Treasury rates, and you're likely to see that happen in the growth of your stocks. I wouldn't give up on the reopening concept.

You know, I expect that we will move through this. We will get to a point again where the economy picks up momentum where rates move somewhat higher, not meaningfully higher, and you'll see things like cruises and airlines benefit as a result of it. This is obviously, an unfortunate moment when people were starting to get more excited about reopening the economy. So I wouldn't give up on that. But you know, structurally, I think we're going to be in an environment where companies that can generate growth over the next number of years are going to be the big out-performers and what's still likely to be a persistently pretty weak growth world.

ALEXIS CHRISTOFOROUS: All right, Brian Levitt of Invesco, always good to have you here on the show. Thanks so much.