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Market recap: Monday, Dec. 6

Bill Baruch, Blue Line Futures President, and Chris Retzler, Needham Small Cap Growth Fund Portfolio Manager, join Yahoo Finance to discuss Monday's day of trading.

Video Transcript

- Welcome back to Yahoo Finance Live this Monday December 6. I'm Emily McCormick. In for Seana Smith here with Adam Shapiro. And we have a market panel here with us now to take us to the closing bell and beyond for this session.

Bill Baruch is Blue Line Futures President, and Chris Retzler is Needham Small Cap Growth Fund Portfolio Manager. But before we get to you both, we want to get a quick check of the markets because we are seeing a big reversal after last week's volatility.

As we could see on the screen here, all three major stock indexes are in sharply positive territory. The Dow definitely the big outperformer here up more than 600 points or about 1.9%. The S&P 500 following closely thereafter up just about 1.2%. And taking a look at the sector action, we have the industrials, consumer staples, and utilities outperforming in that index.

Now also getting a quick check here of Bitcoin prices. Though steadying around $49,000. And here we have the closing bell on the New York Stock Exchange.

All right. We have a closing bell first day of the week trading session. We are trading higher. This is where we're going to settle Dow.

Going to be up almost 2% 647 points. Just hasn't settled yet. But it's to the Green.

S&P 500 is going to be up a little off of session highs during the trading day. But still up 53 points. NASDAQ also up about 1%, will close up about 139 points.

Let's get to the guys who cover this stuff on a regular basis. Make their livelihood doing it and get their input for the rest of us. And Chris, I'm going to start with you. There's a lot being talked about with this Omicron variant and how to play it or not.

It might be she said, we can't make any final determinations. But it looks to be less severe than people fear. We don't know yet.

But would now be a buying opportunity for hospitality travel, restaurant type stocks, or should I as an investor consider not just chat?

CHRIS RETZLER: Look, I think the headline information is going to be very fluid. We're going to learn new information every day and week to week. You know, I think that the move today was probably a lot of short covering, where investors were putting on protection in those areas if this strain, you know, was more severe.

Thankfully, the news has been more positive. But I think I would probably take a wait and see perspective if I was to be looking at more of the hospitality names. Also, the airlines took on a lot of debt. And I think that that's something that, you know, has a difficult balance sheet that would not pass where we'd want to be putting money right now.

- Bill, I want to turn to you now because we have been seeing in the Treasury markets at least a jump in yields on the long end of the Treasury yield during today's session. But prior to that, we had been seeing spreads narrowing. What do you think the yield curve is telling investors right now?

BILL BARUCH: Yeah, we had a little steepening today. And that's healthy for the market, for the shows that help the economy. But yeah, you said it last week.

The spread between the 5 and the 30-year went to the lowest since early March of 2020. Really since when the news on Saudi Arabia and Russia conflict within OPEC. And that created oil prices.

So you know, that says a lot. I mean, it really says that the Fed could be speeding up at their tightening cycle into slowing growth. And that is a policy mistake. That's what the bond market was telling us last week. So I think when we had a bond breakout on the prices of the bonds really ripped higher was more about that rather than the Omicron fears.

- I want to follow up with you though on when we talk about bonds, Bill. Because you know, the 10-year now back at about 1.4, it still hasn't broken above too. But there's a whole lot of nasty coming our way as investors.

I'm not talking about the fight over the debt ceiling. I'm talking about the fact that we're not going to have diplomats going to the Chinese Winter Olympics, that we've got 100,000 Russian troops on the border with Ukraine. As an investor, do I need to pay attention to those diplomatic issues right now, and could that be part of what we're witnessing, you know, with these flattening yield curves?

BILL BARUCH: Yeah, absolutely. I think there's several tailwinds that are within the bond market right now. And like you mentioned, there's the conflict building on Eastern Europe and in Russia. And we could hear some news, you know, coming out of the White House on Russia.

I've seen that Putin has been commenting over the last couple of sessions going back to last week more than typical. It will be interesting to see how that plays out. I mean, there's other news too that may not be so much affecting the bond market.

But within Iran, I mean, look at what crude oil did today. And I think part of that is the fact that Iran nuclear deal is slowly deteriorating

Yeah, there's a lot to pay attention to in the geopolitical landscape because it's going to have an impact on bonds or other assets. And I do think really going into next year after the Olympics. And really keep a close pulse on China and see what they do in Taiwan after the Olympics because that could open the door.

I think they're very quiet right now not trying to rub-- you trying to rock the boat before the Olympics.

- Chris, I want to turn back to you because I know Adam was asking you about the travel stocks. But what's your outlook for these small caps? Because we saw today the Russell 2000 really roar back up more than 2%. Although it is still down about 10% so far for the past month. What do you expect going forward for these types of stocks?

CHRIS RETZLER: So I think near term, the small cap companies are caught in a tax loss selling period. Small cap growth has been in a downward path since last February. And so just a lot of those stocks are ripe for tax loss selling against gains that investors may have.

The single biggest item that we're watching after getting through the last earnings session was, what is the supply chains look like? You know, is that going to begin to alleviate in the next quarter? I think that that is probably the biggest question mark.

And if that does begin to alleviate, we would see small cap companies that really couldn't get supply to meet. Demand is not the problem. It's the supply.

So I think that that's something you want to be watching in the small cap companies. But then you also have separate from that energy and financials. And if the yield curve were to begin to steepen and further, that would be good for the financial companies. And then you can watch oil.

I think Iran is clearly one of the big variables that we don't know how that plays out. And how are the Saudis reacting to anything that we would be cozying up to the Iranians if that did happen? So I think you have to have resolution on all those areas to get some clarity on where the oil market ultimately may go.

- Chris as an investor, we saw consumer staples today. That sector was pretty, it was one of the leaders. But I'm curious. Is now the time to maybe sell some of the consumer staples stocks given what's going on with inflation?

I mean, I paid 26 bucks for a glass of wine with some friends at a bar here in New York on Saturday. I was kind of like wow. But everything's gone up in price. Is now the time maybe take some profits? Because can they keep passing on these costs to us?

CHRIS RETZLER: I think they can pass it on for a period of time. But I'm more looking towards the second half of 2022, where I do think inflation probably begins to tail off, where the comps get a lot harder for inflation.

But look, I think that those consumer stocks, many of them pay dividends nice yields. If rates continue to go up from here today, then you could sell. But otherwise, I think that it does provide some ballast to portfolios as we're in a period of headline risk and a lot of volatility that we're seeing almost every day. So I think people have found some safety in those names for right now because they have pricing power.

- And, Bill, of course, Chris is just speaking about pricing power. What do you expect for a corporate earnings going forward? I know we're in a little bit of a lull here as we get into a fourth quarter earnings season next year. But what are your expectations going forward for company profits?

BILL BARUCH: Well, you can see here that everything's really priced to perfection. And if they sort of adjust against, you know, against some of the guidance, stock and get hammered. I mean, look what happened to Salesforce.

I like Salesforce a lot. I think it's a terrific company. And I think we're going to see that stock trade back above 300 in the coming months. I've used it as a buying opportunity.

So I think more to answer your question, more as an investor, you don't necessarily know what stock is going to-- what company is going to adjust against guidance or it might miss a little bit. But you want to look further out and understand fundamentally how you feel, and what you think about that company, and stick to your game plan.

Because I've used that as a buying opportunity in Salesforce. Same way I use it as a buying opportunity about a year ago in Salesforce when it sold off after the Slack acquisition.

So I think, you know, going through these waters and sort of in these times Just having your game plan is really what matters more than anything. But I do think that corporate profits, overall. I mean, we're to see those continue to build up. But some sectors could see that tightening, and really it depends how they pass on some costs to their customers.

You've seen some of the grocery stores. They've done really well. Look at Albertsons making highest. Kroger has done really well.

But then you see other companies that are eating some of those costs that, you know, the investors haven't received that too well. And those stocks are taking a hit in the medium term.

- So let's finish this. Give Chris the last word. And I want to go back to something you said about what we witnessed today. A short covering.

I mean, we saw up down up down last week. When I hear you say that what the action today might have been a lot of short covering, should I be prepared for another drop tomorrow? Would that be the aftermath of that?

CHRIS RETZLER: Well, I just wouldn't think that short covering is a sustainable buying strategy, it's more of the shorts just covering the positions that they had thinking that the Omicron was going to be more severe. And thankfully, it isn't.

You know, what you really want to look for is, again, the companies that have good pricing power, good balance sheets. And I think that that's where a long term investor can take advantage of some of these pullbacks that we've been seeing.

- All right. Bill Baruch is Blue Line Futures president and Chris Retzler is Native Small Cap Growth Fund Portfolio manager. And we thank you both so much for joining us.