Yahoo Finance’s Alexis Christoforous and Brian Sozzi take a deep dive into the markets amid the coronavirus outbreak with Michele Schneider, MarketGauge Director of Trading Education and Research.
ALEXIS CHRISTOFOROUS: We want to get to some market action now, take a closer look at the markets with MarketGauge Director of Trading Education and Research Michele Schneider. Michele, good to have you on the show. Thanks for being with us.
So I'm looking at the market action here to start the week. We are lower across the board with the major indexes. Dow off about 200 points right now.
One area that wasn't getting a lot of love but seems to be getting love lately are the small-cap stocks. Having said that, the Russell 2000 is off about 1% as well today. Looks like a wide sell-off today. But what are your feelings on small caps at the moment?
MICHELE SCHNEIDER: Well, in terms of the small caps, right now what we're looking at is the fact that the NASDAQ had led the market up up until today when we'll see how shallow or deep this correction is, but it's been the small caps that actually outperformed percentagewise last week, and a big part of the reason is that there are a bunch of stocks in that area that are really, I think, going to be the ones to look at as we see this seismic shift that's happened because of the pandemic.
So that's some of the classic stocks like Amazon, Apple, Google, Facebook, et cetera. They're kind of almost prehistoric in a way in that they are saturated. Mathematically, you wonder how much more they have to go. So what we're looking at now in terms of the small caps are the ones that have really strong earnings and have good financials and could really fill the void in a space that's happening as a result of this pandemic, which would be where are the changes in technology? Where are the changes in everything we do-- how we consume, how we shop, how we go to restaurants, go to the movies, how we travel, et cetera. So that's where some of those stocks live are in the small-cap space.
BRIAN SOZZI: Michele, anything overseas in Asia-- in the Asia-Pacific region catching your attention? And I ask that because we're starting to see the Chinese economy start to come back while the US economy is still stuck in neutral or completely closed, in some cases.
MICHELE SCHNEIDER: Well, I don't know if I would necessarily say that that would be the most reliable information to trade off of because right now today, as a matter of fact, Wuhan has now reported some new cases. There's another couple of other regions in China that have reported some new cases. I know South Korea, which was quick to open, now has shut down again, restaurants and movie theaters. So I think the pandemic has yet to really play out.
Now, the catch up was good. And yes, since China was the first to close down, it makes sense that China would be the first to reopen, but this is going to be a key week because I believe we have some good, strong earnings to look at. Alibaba I think is reporting this week and there's a couple of other.
So I would keep my eye on it, but I would also keep my eye on another trend that's coming up through the pandemic, which is the United States trying to reduce its reliance on China like, for example, in chip technology where Taiwan Semiconductors has been the heavy weighted company within the SMH or the semiconductors. Now they're looking at Intel and, of course, Nvidia and Advanced Micro Devices.
So I don't know if I'd be in a rush to do anything right here. But if everything sort of survives the next week and we break out to new highs from where we've been as opposed to last week, yeah, then maybe China would be a good opportunity. But like I said earlier, I'm kind of focused more on those companies that will be the next Apple, the next Amazon, the next Google, those that are really innovative and small cap, which means that they're not nearly as large, so they may not tumble nearly as hard.
ALEXIS CHRISTOFOROUS: Michele, we've been hearing a lot of talk about stagflation. This is short of recession inflation, a situation when the inflation rate's high. Economic growth rate slows. Unemployment remains very high. Would you say that that's the environment we're in right now, a situation of stagflation?
MICHELE SCHNEIDER: Well, we haven't quite gotten there yet, but I do believe very strongly that that's a distinct possibility going forward. If we look back a little bit, what you're talking about is a period that we have not seen since the 1970s, and there's some interesting comparisons to what's happening now to the 1970s, except in the case of oil.
But oil started out that decade very cheap, and then you had the Yom Kippur wars, which drove the oil prices up. And then after that you had OPEC, which was much stronger then, do an embargo, and that was when oil prices went crazy.
From there, we have been in a recession, and there were lots of reasons for the recession. Obviously not a pandemic, but we had the Vietnam War which was winding down but still costing a lot of money. We had Watergate. So we had geopolitical strife. And then, in turn, we had some environmental issues with some of the soft commodities, and then gold started to explode, silver, sugar, some of the agricultural-- soybeans.
And so what's similar to now is that we have a very kind of an interesting situation where we've had very high production and very cheap prices, particularly in food. And now with consumer demand being low, once that starts coming back and production now has been cut with supply-chain disruptions, low labor force, et cetera, I do believe that we're in a situation where we can keep the recessionary environment and see these agriculturals-- and we're already seeing it reflected a bit in gold and the miners-- start going up to put forth what you're saying, which is stagflation. But I'm looking at it more end of this year, maybe into 2021, but we've already started accumulating positions for that.
BRIAN SOZZI: Michele, have you-- have clients asked you any-- or reached out regarding what trades to put on ahead of the election? We're at that six-month mark now. And the election, it's well on the back burner, rightfully so, but when should investors start be thinking about and start putting on trades?
MICHELE SCHNEIDER: Well, I like to look at it-- well, first of all, I think right now, as I said, let's get through this week because this is going to be a very pivotal week in the market. If people start to fear that the pandemic is going to rear its ugly head-- although it hasn't really gone away, but more from a psychological standpoint be an issue going forward-- instead of opening in May, we may not open until June, July, or August. I would say come September would be a good point. Let's get through the volatility of the summer to start look at some of these stocks I'm looking at.
For example, if you want to just look at a broad-based ETF, let's look at the Vanguard Small Cap, and that is VBK. And that right now is pushing against the 200-day moving average. If that breaks out, you could either get in now or, if it doesn't break out and correct, something that I would be looking at as we're going into the summer and the fall.
And I'm very much interested in commodities. That's been my major focus, really. We've already accumulated positions in silver, gold, gold miners, and now we're starting to look at some of those agriculturals. And we have also seasonally an interesting time because if we go through any kind of drought-- we just had a bizarre frost over the weekend, particularly in the Northeast. Then DBA, corn, wheat, soybeans, these are going to be where I think are going to be the best opportunities as we're going closer-- or what we're really just saying or what you asked me about before, the stagflationary type of trades.
BRIAN SOZZI: Michele, your bet or your comments on small caps, is that a play, ultimately, on a V-shaped recovery in the US economy?
MICHELE SCHNEIDER: No. I don't believe there's going to be a V-shaped recovery. And actually, I'm not an economist, so I'm not even going to pretend to be, but there's been a lot of conversation between V shape, W shaped, U shaped. I've got to tell you that we really don't know. I do believe that, at some point, we will recover, and we're going to see that mainly just with consumer demand coming back.
And also I do believe that we live on hope. You know, we're a very hopeful race as human beings and also in terms of the economy. But I actually don't believe that it's going to be that smooth. I see it more like W, actually. If I had to pick one, if I had to pick an alphabet to describe the economy recovery, it would be that.
So yeah. I would say if we're patient now-- I'm not into passive investing at all, but if we were patient and let the volatility subside and really see where this pandemic is going, by the time we get before the election, like you ask, there will be opportunities.
But I would be looking at those small cap, particularly ones that have good earnings that really deal with the pandemic. A couple are-- a HubSpot would be one. Zebra Technologies would be another. Those are two that I'm looking at. We're doing more research on that right now. And then like I said, commodities because where do people go in uncertainty? They go to commodities. And when demand picks up with food shortages, they're going to go into food commodities as a hedge.
BRIAN SOZZI: All right, let's leave it there. Michele Schneider, MarketGauge director of trading education and research, thanks for taking a few minutes.
MICHELE SCHNEIDER: Thank you so much for having me.