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Here’s how a Covid-19 vaccine could affect work-from-home stocks

Michael Lee - Michael Lee Strategy Founder joins Yahoo Finance to discuss why work-from-home stocks are here to stay despite coronavirus vaccine progress.

Video Transcript

JULIE HYMAN: We're just taking a look at the work from home stocks this morning, which saw a plunge yesterday after the news that Pfizer had seen some positive results for its COVID vaccine. Zoom, just to take one example, after falling 17% yesterday, it's down again this morning another 1 and 1/2%. So wither the work from home trade now? Let's bring in Michael Lee. He is Michael Lee Strategy founder.

So Michael, what do you do with those stocks? Now obviously, they've had a huge 2020 so far. Does this vaccine development mean a more sustained rollover?

MICHAEL LEE: So we are at a really interesting stage right now. So this vaccine news, it came out yesterday. It was really a week early. People were expecting this from Pfizer in mid-November to be able to launch by the end of the month. We will have multiple more vaccines, probably, with similar effective rates come out over the next few months along with additional therapeutics that'll come out. So we're, one way or another, going to get to the other side of this COVID problem. And that leads us to, OK, well, what are the structural changes to the economy that are going to stick with us?

So I believe there's a lot of people that have left their office and may never go back, right? So, you know, these work from home stocks-- and it's just the nature with a lot of these smaller tech companies that are high flyers with smaller floats that are going to get bounced around-- I believe that we're in a bit of a state of flux right here. I'm a bigger buyer of the S&P 500, and tech in general, when it's down around 3,200, 3,300, like, say, the Friday just before the election. It seems like an eternity ago.

So I am a little bit of a wait and see. I don't think Zoom is going anywhere. It's a really, really effective tool. I think the-- I think that's-- I think that's something that's here to stay. Something that-- one of these other work from home stocks that I think has gotten beaten up is Team Viewer, which, it has some really nice security features for it, which allows work from home. That stock got beat up a bunch yesterday. So a huge reversal yesterday, which is really, really interesting. I tend to believe that those are the types of days that you want to leg into tech, because these tech names aren't going anywhere.

I'm not necessarily buying this move in financials. I love the gap out in interest rates. So when you see the spread between the two and the 30, and the two and the 10 blow out like that like we saw, that's just the bond market saying, like, the economy's improving. Things are looking better. This is getting better. And I believe the financials got a little bit overdone on that. So I'd say if you've been in the banks, I can't imagine them going on a run. I don't see interest rates going much higher than where they are now. Maybe we get a little bit-- a little bit more when we get the 10-year up to 110 or 120, but I'd be a buyer of interest rate. You know, I'd be a buyer of the 10-year there.

So I don't-- I mean, we're very much on this news yesterday, especially with this rally that we saw, literally, from the Friday before the election to now. We went, you know, 450 S&P 500 points, which is just a huge move from the lows on Friday to the highs yesterday. So we're, in my mind, in a bit of a state of flux. I would say, The only thing-- only actionable investment advice I'd be giving right now is if you've owned the financials and you've owned the banks, I'd probably be taking some of those off the table. Because just with the interest rate environment, the structural-- it's just-- it's just not a friendly environment for their earnings potential going forward.

MYLES UDLAND: And Mike, I guess when you look at the magnitude of that move, you know, from before the election through now, I mean, the S&P was up, what, 9% last week? And that's ahead of the vaccine. Is this about positioning? Because we've seen so much news between the election, between the vaccine. Is it really just people getting caught offsides and having to unwind some positions that they didn't expect to have to unwind this quickly?

MICHAEL LEE: You know, Myles, I think you hit the nail on the head. I think what-- you have something really interesting going on in the background with the derivative markets pushing around the overall equity markets and not the other way around. And so, when you have this massive call buying and the most famous call buyer is SoftBank putting all this money in and essentially creating short squeezes on the other side of these market rallies, that you have these really, really fast moves in both directions. And what I would say, you know, for day traders, it makes it really easy to step on a landmine. But for individual investors that are legging into the market, you know, every two weeks or twice a month, like, these are your opportunities to buy on the dip. And then just to not get nervous. Don't celebrate too much when the market rallies too much, and then don't panic on the way down.

But I think, you know, asset prices aren't worth, you know, 10% or 15% a whole-- that markets are not worth 10% more in a week than they were the week before, or 10% less unless there's some sort of terrorist attack or some sort of wild event that really changes the economic outlook going forward. And what I'd also say is, look. We are in a new business cycle. We are in a new bull market. Is that going to last three years? Is it going to last seven years? The last one lasted 11 years, and I'd say part of the reason for that is the financial crisis, there were so many-- there were so many bankruptcies, so much reorganizations, and interest rates were so low for so long. And we had slow growth for a lot of the first part of it, that we were very much in a business cycle, which I believe we'd still be in if it not for the coronavirus.

But we're in a new business cycle now, so unless there's some sort of extraneous event that sends us into another recession, until we're at the preface of another debt bubble-- which, I believe, high yield, high yield hit all-time lows yesterday in terms of spreads-- we're nowhere near there. So until these capital markets dry up, until this debt bubble bursts, typically, the equity markets are going to continue to run for multiple years. Some years will be great, some years will be-- it will be flat or slightly down, but we are very much in a new business cycle in a new bull market.

So I'd say, you know, look for the really, really ugly days to get invested, which is much easier for me to say than to do. And then on these positive days like yesterday, you know, if you've been owning some JP Morgan stock, that's just been a stick in the mud, or you own the XLF, you know, it's gone from 21 to 28 in the blink of an eye.

JULIE HYMAN: Right.

MICHAEL LEE: Maybe it's time to reduce that position, because we're just-- it's hard for banks to make money going forward the way they used to.

MYLES UDLAND: You're talking about the beginning of a new business cycle, beginning of potentially a multi-year. We've had some guests on the program talk about a new decade. We've got 10 more years of stocks going higher. And I'm just curious what that conversation is like for you with clients when you're telling them, hey, you know, you might not have believed the entire last decade of stock gains. Everyone kind of thought the coronavirus sell-off was-- that was the moment they've been waiting for. And here we are, the S&P's basically back at record highs. How are-- how are those conversations going when you're trying to sort of outline a new go case to folks who might not have believed for the last 10 years?

MICHAEL LEE: Well, you know, I was very much a believer back in-- so in the last business cycle, the economy got really strong in 2014. And at that point, the Fed should have been, in my opinion, a lot more aggressive. So a lot of my clients, I've been talking to them about how good things are. And then now, it's easy to explain to them that we are-- we're already above where we were in retail sales. So if retail sales are hitting all-time new highs, right, and we've almost completely recovered from a consumption standpoint where we were pre-pandemic-- in fact, making new highs, that there's no other way to look at this. And if you look at the history and the nature of the business cycle, there's never been a double dip recession.

And then-- I just-- I-- you know, there will be some lockdowns in certain places in certain circumstances, but that'll be temporary. And so this-- not necessarily the vaccine, but the therapeutic treatments to deal with that, that this coronavirus is definitely going to be imprinted in our brains, but it's going to be in our rearview mirror sooner rather than later. And as you look at the labor market, I've been focused on continuing claims. And because the weekly claims was my go-to, as you would say, before that, but there's just too much noise going in and out of these state unemployment offices on a week-in and a week-out basis. So I haven't focused closely on the continuing claims. And if you look at the continuing claims, we've gone from 25 million down to 6.5, I believe, it was last week.

And if you look at the JOLTS now, and so pre-pandemic we were at just under 2 million, and the JOLTS numbers, which we're going to get out at 10 AM, it's right around 6 and 1/2 million. So we start looking at that, and you can see that there's a runway. There's a total and complete recovery. You start looking at the ISM surveys, and when you get new order prints in the subsectors above 60s, that there's just enough hard data to show that we are in a total and complete recovery. And I actually send out a different V-shape chart to my clients every week just for the subliminal beat it in them that we are getting back, and then there's never been a double-dip recession. And not everyone's going to recover in the same fashion, but from an equity investor market standpoint, the way that my clients are invested, we're going to do pretty well for the next five to seven years.

I personally think that this will be a shorter business cycle than the last one. I think the extraordinary measures taken by the Treasury and the Fed prevented a lot of that debt bubble being burst, and a lot of the reorganizations didn't happened the way it normally does. So as a result, a lot of the problems that you see resolved at the end of a business cycle in terms of the debt bubble were not resolved and were pushed out. So we'll see how long this one plays out. You could see something like a 2003 to 2007 type bull market. I believe this will be shorter, but we'll see how that plays out. You know, we've only had five or six different business cycles. Every one of them has been different. But we do know that this is-- we are much closer to the beginning than the end, and as a result, stocks will most likely trend higher for many years.