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AMC isn't a stock investors should want to chase: strategist

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Matt Maley, Managing Director and Equity Strategist at Miller Tabak, joins Yahoo Finance Live to discuss how meme stocks are trading this week and assess the state state of tech stocks amid the pandemic.

Video Transcript

MYLES UDLAND: All right. Let's stay on the markets here and talk a bit more about everything happening in markets these days. Matt Maley joins us now. He's Managing Director and Equity Strategist over at Miller Tabak.

So Matt, let's start with the meme names. And we were talking about it at the beginning of the show, and I know you've watched a lot of these trends within the markets evolve. You've watched them very closely over time. And we continue to see this as a feature of the market. As you talk to institutional clients and others, is this something that continues to come up, or are folks sort of letting these dogs lie over to the side?

MATT MALEY: Yeah, on the institutional side, they really are letting the dogs lie. It's something that people-- and I agree with them-- do not see a long-term fundamental backdrop for a stock like AMC to be trading where it's trading right now. And we've seen what's happened in the past. Obviously, with this stock in particular, but also with, obviously, GameStop a couple of months ago. And even with one-- again, these stocks with these high short interest levels and they shoot up. The same thing happened with Viacom. I mean, this stock went down 63% in a day and a half a few months ago-- not even, just a couple of weeks ago.

So this is, I think, a similar thing that we're looking at with AMC. It's the greater fool theory at these levels. It doesn't mean it's a bad company. It's just like a stock. I mean, you have a great company, like a Amazon or Apple, they're great companies. But sometimes their stocks get out of line, they get too far ahead of themselves, and they see a correction. And so I'm not saying that AMC's going to go belly up. But when a stock goes that far that fast and really no fundamental-- I mean, you're just guessing and hoping that they can turn things around many years from now, it's not one I want to chase. And talking to these institutional players, they don't they don't want to really play in this game right here.

BRIAN SOZZI: Matt, so you're saying institutions are not necessarily getting more involved this go around with this meme stock movement compared to what we saw earlier in the year?

MATT MALEY: Not the long-term holders, not the mutual funds do. Hedge funds, who may be, you can certainly consider it a institution, but sometimes some of them, you know, they have a bucket that they do short-term trading on, yeah, they can get involved. But again, it's the greater fool theory, trying to buy, you know, jeez, I can buy it here at 36, maybe somebody else will buy it from me at 42 tomorrow.

But I just don't see the same kind of buying that-- the people are just squeezing the shorts. If anything, we've seen some institutions who have made some nice money just sitting on the sidelines and waiting things to get to incredible extremes, which we've seen, again, when you got like, for instance, the RSI, and the relative strength index on the chart, you saw that in Viacom go from the mid 60-- I'm sorry, in the mid 90s-- that was a good place to come in and short the stock. I think individual traders really want to avoid that because the dangers of short squeezes.

But some money can be made on the other side of the field. And it's just, it's not-- when the music stops, this stock's going to fall hard, in my opinion. That's just one person's opinions. Other people may think it's got, go to $50 or whatever. But if you're thinking that, you're betting on a Tesla-type of game plan here, where they can change the world. I just don't see that.

JULIE HYMAN: And when does the music stop? That is the real question. But we'll leave that for another time, because we don't know.

Matt, so if you're not getting questions from institutions about meme stocks right now, what is the sort of central question or central point of suspense in the market right now that either you're thinking about and/or you're hearing about from clients?

MATT MALEY: Well, it's really the next move in interest rates. And you know, it's interesting, the bond-- people have been a little too focused on this 1.6% level on the yield on the 10-year note. I mean, gets a little above it and people say, oh, my god, it's going to, you know, it's going to be at 2% tomorrow. It goes below it, it's like, oh, we don't have to worry about anything.

The fact of the matter is the 10-year yield has been range bound for six weeks now, trading at a sideways range right around that 1.6% level. And it's no coincidence that the S&P has also been range bound trading. I mean, it's basically unchanged since mid-April. And of course, the NASDAQ and the Russell 2000 are unchanged since the beginning of February.

So the market's kind of flattened out here and people concerned. If we do see a renewed rise in interest rates and with some of this talk out of the Fed last week and the week before about tapering back, you know, we had Dallas Fed President Kaplan saying, he flat out said, we look for long-term rates to drift higher over time. That's got people concerned, because, you know, the biggest impact would be on the tech stocks.

And you know, I guess the concern, to drone on here, but the concern is that tech stocks have been fine. As long as they've been underperforming but still going up, the stock market's been fine. If they roll over and actually start to decline, it's going to be really hard for the stock market to, the broad stock market to rally in any kind of significant way.

MYLES UDLAND: And you know, Matt, of course, related to higher interest rates is what we're seeing on the inflation side. And you know, we've had two hot prints now. We've got the PCE data last week. We saw the CPI data a couple of weeks back. The Fed has stated how they are thinking about inflation. But certainly a inflationary environment, even one that lasts only four or five months, is going to be very different from what almost any investor actively in the markets now has really ever seen in their careers.

MATT MALEY: Right. And that's a big-- problem is it's like, yes, we will almost certainly-- that initial surge, of course, is going to be stronger. And therefore, inflation will be somewhat transitory, as we keep hearing for the term transitory. But I think what-- at least from what I'm seeing in, you know, in the economy, even when it comes, settles back down a little bit, it's going to be at a higher level. It's going to plateau at a much higher level than people been used to in a long, long time. It may not get as bad as the 1970s that some people are worried about. But it's still going to be a higher level.

And again, going back to what Fed President, Dallas Fed President Kaplan said last week, is that the markets are going to have to get used to going back to a more natural, their more natural level and, you know, without the Fed's help. That more natural level is probably going to be a little bit lower. And they have higher interest rates, a little bit lower stock market. Over the coming months, that's OK. Corrections are very, very normal. They're very healthy.

So nothing to be afraid of. In fact, it's something you should be taking advantage of. I just think people should be careful about chasing the markets up here, in a broad sense, up at these levels, and instead be focused more on group selection and specific stock selection, which has worked pretty well so far this year as well.

MYLES UDLAND: And then, Matt, just very quickly, before we let you go, you mentioned kind of style and selection there. The value outperformance, the value preference that the market has displayed in the last few months, I think at this point is bumping up against the high end of how long some people expected that trend would last. How are you thinking about that rotation in this environment today, where we're talking about higher rates, faster growth, but higher inflation, which can be challenging for some of those growthy winners?

MATT MALEY: Yeah. It's going to be-- you know, I think the rotation is still going to work, and the ones that have really been, were undervalued for a very long time and under owned, especially like the energy names. And even the bank stocks, which have had-- Warren has under-owned is maybe the energy names. And both of those groups are groups that have done very well and people have obviously upped their allotment, especially on the institutional side. They're more heavily weighted than they used to be. But they're still underweight, and they're still, even though they're less weighted in the tech stocks, they're still overweight.

So I think that that change will continue as we move through the year, especially when people are sitting on, if they're overweight big tech stocks that are really good companies but their stocks are a little ahead of themselves still, it's like, jeez, why am I holding on to Apple and Amazon, even though they're great companies very long term, where my performance is getting killed when I'm underweight the energy stocks and they keep on rising?

MYLES UDLAND: Now, flows, of course, an important story, important part of every market story, but certainly this one being a main driver.

Matt Maley, strategist over at Miller Tabak. Matt, always great to get your thoughts. Thanks so much for jumping on this morning.

MATT MALEY: Thank you. Have a great one.