Ryan Detrick, LPL Financial Chief Market Strategist, joined Yahoo Finance Live to discuss his market outlook and what earnings season has signaled about the recovery.
SEANA SMITH: The Dow off just around 175 points. For more on today's moves and what we've seen play out over the last couple of weeks, we want to bring in Ryan Detrick. He's LPL Financial chief market strategist.
And Ryan, outside of today, it's been a very, very strong month for the market. We have the Dow just around 12% since the start of November. What do you make of this move and the theory out there that maybe some of this move to the upside has been overextended?
RYAN DETRICK: Yeah, It's not just the Dow, right? Literally, as we speak, the Russell 2000 is up both over 16% for the month, which is the greatest one-month gain ever for small caps. S&P 500 looking at potentially its second-best November ever.
So yes, in the very near term, I think it makes a lot of sense. We're probably overextended. I know I was on you guys about a month ago and said, hey, listen, historically, you get a little weakness, have an election in October, and then November of an election year is usually pretty strong. We didn't quite expect it to be this strong. But you know, when you add it all up, I mean, this is a new bull market, right? I mean, small caps just made new all-time highs this week for the first time since August 31 of 2018.
So there's different ways to look at this. In the very near term, though, it does feel like being bullish is a crowded trade. What do I mean by that? Look at the investor sentiment polls, look at the flows, look at put-to-call ratios.
You know, the market can keep going up in the feel-good time of the year that we're in. But it's a little high-- a little more dicey, I think is what we'd say, with everyone getting optimistic about so much good news that we're seeing, you know, on the vaccine front and as the economy continues to defy the odds and do better, it seems like, with just about every economic data piece that we see.
ADAM SHAPIRO: Many investors might agree with the caution, the red flag that you might be waving right now. But if you're looking at March and the vaccines are going to-- look, they're going to get emergency-use authorization. That's no secret. Everyone knows that's coming to the next week or two--
RYAN DETRICK: Right.
ADAM SHAPIRO: --if not tomorrow. They're going get the vaccine. Isn't the market just going to keep going higher, forget the red flag? And I'm talking for an investor who's looking at a horizon of just March.
RYAN DETRICK: Well, I mean, it could, I guess, Adam, is the best way to put it. Market's a forward-looking mechanism. We know that. It's looking past potential issues. I'm just look-- I guess it got our attention is that retail sales number yesterday, a little weaker than expected, and restaurant sales actually decreased for the first time in six months. I mean, you look at New York City, obviously, just told students to do virtual learning. So there are these rolling shutdowns that likely are going to continue.
You know, and again, when everyone's getting too excited, that's when we want to pull back a little bit. I mean, at LPL Research, we upgraded our view in equities the last week of March. When we did that, we got some really weird looks. You know, and fortunately, things have worked out with a pretty big rally, obviously. So it's just kind of how you look at it.
But at the same time, what's the market telling us? What's happened? Well, that strength around the election is truly almost mind-boggling in some ways. You know, we saw almost-- over 70% of companies in the S&P 500 make a new monthly high right after the election. All that means is since 1990, guys, that's only happened eight other times-- that much breadth and that much strength in a short-term time frame.
One month later, you get negative returns on average. You can get a pullback because you're so so extended. But a year later, S&P is actually higher every single time, eight for eight. Small sample size, I get it, but again, one I wouldn't want to ignore. This blast of strength is a good thing longer term. Just more near-term, maybe let the pitch come to us is kind of how we're looking at things.
SEANA SMITH: And Ryan, what would you want to see, just in order to justify the market being at its current level?
RYAN DETRICK: Oh, earnings. I mean, earnings matter, and we're wrapping up earnings season, right? It's pretty much over. I mean, it's just historic. You know, six weeks ago, we were looking at maybe 21% decline in earnings. Now it's going to be negative 7%. You know, 85% of companies beat. I-- there's all these different stats. It was an incredible earnings season. I get it, the bar was really, really low.
But what corporate America had to say about the third quarter, and even into the future, was really good. Earnings estimates actually increased during the first month of earnings season. That's really rare. That usually doesn't happen. Usually estimates kind of decrease is how it works.
So if we keep seeing companies optimistic about the future, that's what we want to see to justify things. And you know, at LPL Research, we think this bull market's alive and well. And we think, you know, this time next year when we're sitting here, we might have potentially double-digit returns from where we're sitting right now with the market still looking quite healthy, just a little stretch near term.
SEANA SMITH: All right, Brian Detrick, great to have you back on the program, of LPL Research. We look forward to talking with you soon.
RYAN DETRICK: Thank you.