Stocks rose Tuesday as the three major indexes steadied following Monday’s declines. Twitter shares extended losses on Tuesday after the company banned President Donald Trump from the platform and stirred up concerns over increased regulatory scrutiny and impacts to user growth. Heavily weighed peer tech stocks including Facebook and Apple also came under pressure. Wells Fargo Investment Institute Senior Global Equity Strategist Scott Wren and Sevens Report Research Founder Tom Essaye joined Yahoo Finance Live to discuss.
Video Transcript
SEANA SMITH: Thanks to you both for joining here. Scott, let me just toss it to you for some buying action today. What do you make of the markets and this momentum that we’ve seen? Will it stick?
SCOTT WREN: Well, Seana, I think that if you think about the stimulus that has been recently approved and now that really we’ve had kind of a blue wave if you look at the Senate runoffs, the market’s expecting another big stimulus package. I think that’s a very easy call. That’s what’s going to happen. Interest rates are going to stay low. The global economy is slowly improving.
So I think that you have people who have been on the sidelines for a long, long time, and they’re starting to jump in. I wouldn’t say that there’s a lot of chasing going on in the market, but there’s a little bit of more interest, and people are starting to get worried that this thing is going to get away from them to the upside. So I think there’s some good fundamental reasons why the market’s trading higher and then also just some technical reasons.
ADAM SHAPIRO: Hey, Tom, real quick, Dr. Copper last week up almost 5%, telling us some good times are coming. Wouldn’t that translate into the equities we invest in?
TOM ESSAYE: Yeah, I think that copper is basically giving us a signal that’s confirming what we’re seeing in equities. I mean, as the previous guest just said, you know, we’re looking at a market that’s never seen this amount of stimulus before, that’s never seen low rates for years on top of fiscal stimulus on top of $120 billion of QE on top of more stimulus. So yeah, there is a positive story in stocks, and right now that’s pushing markets higher. The problem, of course, is what if something goes wrong? But that’s not something that the market’s interested in right now.
SEANA SMITH: Taking a look at some of the sector action here, we talked about technology being one of the laggards. You can see it off just around 5/10 of a percent, but energy and financials leading the way. We want to bring in Jared Blikre for a closer look at some of these movers here in the final minutes of trading. Jared.
JARED BLIKRE: Well, let’s get to the YFI Interactive where we see the Dow now really at session highs here. Not a big day, not even 100 points on the scoreboard, about 1/3 of a percent, but still, we’ll take it. NASDAQ up the equivalent amount, also near its session highs.
Russell 2000 though is the standout. It has been rallying all day and adding to its gains. It’s up 1.6%, really the market of the year here seven trading days into it.
But Tom Essaye was just asking what could go wrong? And I’d be interested to hear his thoughts after the bell on what happens if the 10-year T-note yield goes materially higher– 1.5%, 2%. Does the Fed step in? But we’ll take it one step at a time here.
Just take a quick look at the NASDAQ 100 heat map, and we’ve seen most of the mega caps under pressure for most of the day. Amazon a standout and also Tesla up nearly 5%, but Alphabet’s down 1%, and Facebook the laggard here, down over 2%. You can see it’s had a rough two months. They’re down about 8 and 1/2%.
Well, the sector action for today, as you pointed out, Seana, really about energy. Now that’s up 3 and 1/2% followed by consumer discretionary. That’s about a quarter. Amazon, and then you’ve got materials, financials, and industrials.
So the value and cyclical trade really in effect here. To the downside we see communication services off the most, 1 and 1/2%. That houses both Alphabet as well as Facebook. Here is the closing bell on Wall Street on this second trading day of the week.
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Almost there.
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ADAM SHAPIRO: All right, put a fork in it. We’ve got a closing bell on Wall Street, and we’re watching the markets. We’ve got indices looking like they’re going to close in the green. S&P 500 will settle up about 5 points. Dow is going to be up roughly, what, about 60 points. And we’ve got the NASDAQ is going to close up about 36 points. Something
Else to keep your eye on, the sectors today. Energy up about 3%, almost 4%. The consumer discretionary, industrials, and materials also in the green.
Losers today, communication services off about 1.35%. Utilities off about half a percent. Information technology barely off about a quarter of a percent.
Want to get back to Jared’s question, Tom, about the 10-year Treasury yield. Right now at about, what, 1.13%. Is it really a threat if it goes to 1.5%? I mean, that would be kind of dramatic within this time frame of 2021, or would it?
TOM ESSAYE: Yeah, I think it would. I think it would get markets’ attention. I mean, is 1.5% in an absolute sense going to kill everything? You know, the rally, the recovery, et cetera? No, it’s not, but it’s the pace that will begin to make people nervous. I mean, as much as I hear the bullish refrain– and it’s true. Stimulus, 0% rates, more QE. Doesn’t it beg the question, if there were no ill side effects of doing this, why haven’t governments been doing this forever, right? If we just do stimulus upon stimulus upon stimulus and there’s no negative side effect, no higher rates, no inflation, then wouldn’t this have been figured out already?
So while I agree the outlook for stocks and risk assets is positive, we just have to remember that there can be a negative side effect of this, and yields are really what you need to watch.
SEANA SMITH: Scott, what do you think? Do you agree?
SCOTT WREN: Well, Seana, I tell you, we had a lively debate about this at our investment strategy committee earlier this morning, and I’m on the side where, you know, the Federal Reserve, they’ve been trying to generate a little bit of inflation. And if we get a little bit of inflation and we get higher interest rates for the right reasons– I mean, personally I think the Fed would love to see 1.50%, 2% on the 10-year yield if we have the underlying growth that is driving that.
So if interest rates go up, inflation goes up, but we’re not getting the growth to support it, that would clearly be something that’s not very good. But it’s hard for me to think that after trying to generate some inflation, some economic activity, that the Fed would come in and step on the market, step on the bond market if rates got over 1 and 1/2%. Now, if you’re talking 3%, that’s a different story. But, you know, up toward 2%, it seems to us that the Federal Reserve would probably be happy to see that– once again, if it happened for the right reasons.
ADAM SHAPIRO: Scott, I want to follow up on something about the recovery and growth because we’re going to get the Beige Book tomorrow from the Federal Reserve. I realize backward looking, nothing huge expected. But full-year 2021 GDP growth expected around 3.8% to 4%. Seems to me as if it’s buy the dip time and that whether you like emerging markets or not, the United States is still a very good bet, at least for another 12 months.
SCOTT WREN: Well, I tell you, Adam, for us, we’re at 3.8%. We’ve been there for this year for quite some time, but that’s starting to look conservative as we see the economic data role in, as we know we’re going to see more stimulus and those kinds of things.
We have upgraded emerging markets. We’re not leaning hard toward that, but that’s certainly something that we’ve been talking about getting more interested in. We think the dollar’s got a little bit more downside, not a lot.
But for us, US assets are still going to look pretty attractive. And certainly that GDP number that you mentioned, if the consensus is somewhere around 3.8%, 3.9%, that may be a little conservative when it’s all over and done with.
SEANA SMITH: Tom, I want to ask you about the small-business optimism that we got out this morning, the index. It sank to a seven-month low. When we talk about the disconnect between Wall Street and Main Street, it’s highlighted in today’s move. Stocks are up, yet we’re getting this concerning reading when it comes to the economy. How are you viewing this, and is there at any point where this will start to impact the market?
TOM ESSAYE: Yes, it will start to impact the market, probably not for some time though. One of the biggest things we’ve spent a lot of time talking to clients about is that what they’re seeing in the real economy– and that’s around your towns, around your cities with small businesses really hurting– is not the stock market. The S&P 500 is the expected earnings of 500 large corporations. And as sort of strange as this may sound, except for a couple sectors, they’ve actually emerged in 2021 probably more lean and in a better position to increase profitability going forward due to the pandemic.
So eventually of course the economy matters towards earnings, towards large corporate earnings, but it’s not going to be over the next couple quarters. So keeping that economy and the S&P 500, the stock market, separate is going to be very important for investors in 2021.
SEANA SMITH: All right, Tom Essaye, Sevens Reports Research founder. We also have Scott Wren, Wells Fargo Investment Institute senior global equity strategist. Thanks to you both for joining.
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