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Market Recap: Wednesday, January 20

Stocks rose Wednesday, extending Tuesday’s advances as investors looked ahead to the first actions of the incoming Biden administration. Each of the three major indexes reached record intraday and closing highs, and the Nasdaq outperformed with a gain of nearly 2%. Shares of Netflix spiked more than 16% after the company added more users than expected in the fourth quarter and surpassed 200 million paid subscribers for the first time ever. Global Investment Specialist JPM Private Bank Patrick Schaffer and the Head of Macro Strategy at Academy Securities, Peter Tchir, joined Yahoo Finance Live to break down the details. Read More...

Stocks rose Wednesday, extending Tuesday’s advances as investors looked ahead to the first actions of the incoming Biden administration. Each of the three major indexes reached record intraday and closing highs, and the Nasdaq outperformed with a gain of nearly 2%. Shares of Netflix spiked more than 16% after the company added more users than expected in the fourth quarter and surpassed 200 million paid subscribers for the first time ever. Global Investment Specialist JPM Private Bank Patrick Schaffer and the Head of Macro Strategy at Academy Securities, Peter Tchir, joined Yahoo Finance Live to break down the details.

Video Transcript

SEANA SMITH: We of course want to stick with what we’re seeing from DC and talk about how this relates to the markets. With just around 3 and 1/2 minutes to go in the trading day, all three of the major averages, like we said, in the green, with stocks hitting record highs today. You’re looking at the Dow up 276 points, S&P up 1 and 1/2%, and the NASDAQ, the outperformer of the three indices, up 2%.

We want to bring in Patrick Schaffer. He’s global investment specialist of JPMorgan’s Private Bank. We’re also joined by Peter Tchir. He is head of macro strategy at Academy Securities. And Peter, let me toss it to you first. Stocks hitting record highs today. What do you think the Biden administration means for the markets here going forward?

PETER TCHIR: I think it’s going to mean stimulus. So I think we’re going to see that stimulus. We’re going to see not just Band-Aid stimulus, which we’ve seen in the past, but real job creation stimulus.

And I don’t think we can underestimate the impact of Yellen. The market really started rallying yesterday when Yellen was speaking. And I think she’s going to bring a real new element to the Treasury Department as secretary. I think she’s going to be very aggressive in her policies. She’s going to figure out more ways to work with the Fed. So I think there’s a lot of optimism on what she can do as well as part of this administration, assuming the confirmation goes fine.

ZACK GUZMAN: And right now, I just want to pause. I’ll get back to you guys in a second. We want to bring in Jared Blikre, as we’re just a couple of minutes here away from the closing bell. And Jared, I mean, as we’re talking here, it looks like across the board, going to be closing in on record highs.

JARED BLIKRE: Yeah, it looks that way, indeed. And not just the majors, the Dow, the S&P, and the NASDAQ, also the NASDAQ 100, the Russell 2000, the S&P 500 equal weight. And interesting way, nice way to round out the day here, a new chapter, perhaps.

And here is the NASDAQ composite up 2%. You can see over the trailing month it’s had some fits and starts here, but it has broken to the upside. And the action in today’s market has really been about those mega caps. You can see that Apple, Microsoft, Amazon, Google– all up more than 3%, along with Netflix. Haven’t been able to say that about Netflix in some time, finally breaking to the upside. Even Tesla is up 75 basis points.

But I touched on this before– where we’re seeing some real strength today is in those software names. Now, we already talked about Microsoft, but you take a stock like Adobe or Salesforce here– it hasn’t seen that much action in quite a while. A lot of these stocks have simply consolidated over the last three to four months, basically since September.

Now, Salesforce has that looming Slack purchase hanging over its head. But, you know, ServiceNow, this is another stock that could be breaking to the upside after a period of consolidation. So we’re going to keep an eye on that.

Now, one thing that hasn’t been moving today is the semiconductors. As you can see, a pretty mixed board. There most of these names are coming off record highs, by the way. And there’d be too many to name here. But just going through, we are seeing some rotation into the mega caps out of the semis, into software, out of bank stocks. And we do have bank stocks– a lot of the smaller regionals are reporting tomorrow. But my point is, it’s kind of a flip from what we’ve been seeing recently.

We can also check out the energy sector. Now, this is largely green today, but really underperforming the broader market. We do have crude oil above $52-$53 per barrel, really nicely consolidating here. I do want to check out, finally, the commodity space as we head into the close, because we’ve seen tremendous action not only in energy names, but also in grades. And here’s the final closing bell on Wall Street, guys.

[BELL RINGING]

SEANA SMITH: We’re looking at a record day here across the board. S&P, Dow, NASDAQ all closing in the green. NASDAQ 100, Russell 2000 also at a new record. Taking a look at the sector action, communications services, consumer discretionary, real estate, technology the outperformers in today’s market.

And the big cap names really driving today’s action, like Jared Blikre was just telling us. Taking a look at the leadership inside the Dow, the biggest outperformers there– Microsoft, Apple, and Salesforce, all three of those stocks up just over 3%. Inside the S&P, Netflix, of course, is an outperformer today, with the stock closing up nearly 17%. We saw better-than-expected earnings after the bell yesterday on revenue and also on their subscriber numbers. So that, of course, lifting the stock today up just over 16%.

So again, gains across the board on this record-setting day as President Biden is inaugurated. And we want to bring back our market guests. And for that, we want to bring back Patrick Schaffer as well as Peter Tchir. And Patrick, let me just go to you first on today’s topic. I guess, what do you think is driving today’s action, and how are you positioned at this point in the new year?

PATRICK SCHAFFER: Hi, Seana. It’s good to be here again today. There are three things driving today’s action. It remains vaccine optimism, massive amounts of stimulus, and corporate resiliency with very strong earnings. Those three trends remain very much in place and are likely to remain in place for the foreseeable future, which is driving really positive sentiment that is being expressed, as we speak, with a record high right now.

ZACK GUZMAN: I mean, on this front, too, we talk so much about this rotation, and interesting here to see it on today when Jared was just highlighting the financial space. Morgan Stanley, of course, the latest here in terms of earnings.

But it seems interesting to see the resurgence of FAANG stocks here today, as we highlighted Netflix also having a record move here. And Peter, I mean, what does that maybe signal? Because obviously moving forward, there’s going to be a larger emphasis on earnings as we get those coming in here. But it seems strange, maybe, to see the reaction here and maybe giving a pause to that rotation we’ve so long been hearing about.

PETER TCHIR: Yeah, I’ve actually been a big fan of the rotation. I think we are going to see any stock or company that still has a COVID discount built into it really do well. I believe that we are going to see progress on the vaccine against COVID. So I do like being heavily overweight anything that still has a COVID discount.

Today, a little bit surprising by the size of the move. I am a little bit worried whether Big Tech will attract some sort of tax issue from this administration. Obviously, no one’s worried about that today. In the meantime, I think– listen, we now have this Fed put. We’ve got a Treasury Department put. We’ve got stimulus coming through I think it’s hard not to be positive on stocks.

I really don’t like the bond market here. I’d kind of be shying away from treasuries. Maybe you want tips or some other part of fixed income, high yield. I like the leveraged loan space. And that’s where you’re going to have to go to your income. And I do think people are going to start stretching and really being forced back into dividend stocks as a way to get income in a high-inflation, low-yield environment.

SEANA SMITH: Patrick, what do you make of what we’re seeing play out in the bond markets? We have the 10-year yield still above 1%. We had a guest on yesterday saying that he thinks it could actually hit 2%– that was the first time we heard that– 2% by the end of this year. What would that mean for the markets, and what are you anticipating on that front?

PATRICK SCHAFFER: We expect the 10-year to exit 2021 around 1.35%. So we think we’ve essentially seen a big chunk of the move already, but we expect the yield curve to continue to steepen as the Fed remains on hold with Fed funds probably until the end of 2023, beginning of 2024.

As you mentioned earlier, if we were to see 10-year yields go significantly above our estimate, closer to that 2% number that you referenced a moment ago, that would probably be bad for markets. That would limit multiple expansion, maybe even see some multiple compression that we experienced last year.

ZACK GUZMAN: And Peter just lastly, I didn’t think we’d be talking so much about treasuries on a day where we’re seeing record highs across the board on the equity side here, but let’s wrap it up with that, too, because inflation expectations seem to be key here. And when you look at the difference between the 10-year and the 10-year tips here, it’s pretty high, above 2.1% yesterday. That’s the highest we’ve seen in more than two years.

Expectations there, though, and the– and the tips break-even would seem to indicate an average 2.1% expectation for inflation over the next 10 years. So talk to me about, maybe, what the impact might be of investors weighing inflation expectations a bit heavier here as we move forward. How does that trickle through, maybe, on the equity side?

PETER TCHIR: So in a normal environment, you would see yields go much higher. You’d maybe see the 10-year get to 2%. I think the Fed is going to work very closely with the Treasury Department to keep yields suppressed.

So I think one trend that started last year, and I think is structural now in nature, is a weaker dollar. So look for companies that will benefit from the weaker dollar, because the reality is, you have very negative real yields in the US. Our real yields are actually worse on the negative side than Japan or even Germany.

So investors, I think, will sell out of the dollar to some degree, which should allow for companies that benefit from that– and I also want to be heavily overweight overseas indices and take that currency exposure, because I think you will benefit from it this year.

SEANA SMITH: We want to take you to a live look here– you can see it on your screen, with Vice President Kamala Harris making her way to the White House. You can see her walking up Pennsylvania Avenue toward the White House. So we, of course, will continue to monitor that for you and bring you the latest from DC.

We want to very quickly bring back in Jared Blikre. And Jared, on the day where we have a new administration, record highs on the street, what’s catching your eye as we wrap up today’s market talk?

JARED BLIKRE: Well, largely overlooked was the Bank of America Global Fund Manager Survey. This is a monthly survey. We talk about it a lot here. And I just want to go to the YFi Interactive to point out a couple of things.

We are indeed at record highs on the S&P 500. Technically, we’re a little bit over-bought coming to the upper end of this trend channel. That’s been in place since that breakout in November.

But I want to highlight some of the findings in that fund managers’ survey. And here’s what one person is saying on Twitter about it. “Bottom line, investor sentiment is bullish, and maybe a little bit too bullish, because at record highs right now, we’ve got EPS, yields, inflation, EM readings– and guess what’s at an eight-year low? That’s cash.”

And then, by the way, we got Bitcoin as the most crowded trade. After that, it’s long tech. And so the Bank of America Bull and Bear Indicator– this is a very good contrary indicator– is high now. It’s bullish at 7.1. So they’re going to a sell signal on equity, saying risk correction is imminent.

If we take it all together, we have negative seasonality for the rest of the month. I wouldn’t be surprised to see another pullback, maybe down to 3,700. But this would probably be the ideal time to happen, since we have this frothy sentiment right now.

ZACK GUZMAN: All right. Jared Blikre, we appreciate that, alongside both of our market guests today on this record close here, Patrick Schaffer, global investment specialist, JPMorgan Private Bank, alongside Peter Tchir, head of macro strategy at Academy Securities Thanks to you both.

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