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D.C. is in ‘such disarray’, yet markets are ‘forward looking’: Strategist

Capital Wealth Planning Chief Market Strategist Jeff Saut joins Yahoo Finance Live to weigh in on how markets are faring following Biden’s inauguration.

Video Transcript

ZACK GUZMAN: I want to shift back over to the markets, though, because we are seeing a bit of a sell-off today, muted, with all three major indices in the red now. Last week, our next guest had been flagging this Dow theory buy signal. Last week, of course, when that happens, you see the Industrial Average or the Transportation Average making new all-time highs. And, for more on that, let's bring on the guest here for what that could have signaled because, even though we're down today, we've got an up week to celebrate. Jeff Saut is Capital Wealth Planning Chief Market Strategist, and he joins us now.

Jeff, I appreciate you coming on here to chat, man. I mean, the end of the week has been, I guess, maybe capped by some strength here in those big tech names we've seen kind of trade sideways for a while. Facebook is still in the green to wrap up the week. What's your take on where we're at now and where the market goes from here?

JEFF SAUT: Well, in the book "Reminiscences of a Stock Operator," there was a character called Mr. Partridge. And they called him Old Turkey because turkeys were very smart, and he was a very shrewd stock market operator. And people would come up to Old Turkey and ask him what they should do in the stock market. And he would tilt his head to one side, and, with a wily smile, he would say, it's a bull market, you know?

And that's what we're in. We're in a secular bull market. We've been in a secular bull market since March of '09. Secular bull markets tend to last 15 to 20 years. So we're like 11 years into this one. We ought to have at least another four to eight years left in this, and nobody believes it.

ZACK GUZMAN: Yeah, I mean, there are people who believe it. I suppose the question now that we keep hearing from a lot of other market guests is when this pullback is going to be coming and what's going to trigger that.

Some people had thought maybe, perhaps, it would have been the wins in Georgia for the Democrats. That didn't pan out. It could have been some of the controversy around the election here and the inauguration. That didn't necessarily pan out either.

You have a year-end target on the S&P for 4,100 here, which would seem to indicate some upside. I don't assume it's going to be a smooth right line, though, here. So maybe what are some of the risks out there you're watching right now?

JEFF SAUT: Well, January is always, always a tough month, especially, in the back half of the month. And you've got the virus that people need to worry about. You've got a new administration. You don't know what's going to come out of that. I lived in DC, and I've never seen, in DC, such disarray that it's in right now. And that's an issue.

Nevertheless, the market is forward looking. And, based on my estimate of $178 for the S&P this year-- and I think a 23 multiple is the right multiple for the current interest rate environment-- yields a price target of 2,100. And markets always tend to overshoot. So I would say 2,100-- excuse me, 4,100 to 4,200 on the S&P is a decent target price for this year.

ZACK GUZMAN: I'm glad you mentioned earnings, though, because, obviously, we're going to keep getting those updates rolling in through here. A few ones to point to, including Intel, that might be more of a-- more of a stock-specific focus, but we saw, from the banks, you know, a lot of these expectations were topped kind of across the board, but interesting to see a lot of these shares trade lower after those beats. What do you make of maybe how earnings season is shaping up here and expectations, particularly, how topping expectations might not be enough to see shares pop.

JEFF SAUT: Well, I think earnings are going to continue to come in better than expected. I continue to like energy and financials. Those have been two of the out of favor groups. Financials have actually come back into favor recently, but they're cheap. Both energy and financials are cheap. And my daddy used to tell me good things tend to happen to cheap stocks.

ZACK GUZMAN: Yeah, that has been some of the expectations here, particularly, in the energy sector. And we've seen oil prices fluctuate, and they were getting close to what was the upper bound from one of our closely watched energy experts and Stephen Schork saying $55 on crude seem to be the highest expectations you'd see here. What do you make of that and, particularly, how a weaker dollar may have driven that rise? How do you see supply and demand playing out in the back half of 2021?

JEFF SAUT: Well, energy pulled off a little bit here recently. And that's because people are worried about a drop in demand out of China, Russia, et al. I don't buy it. I think we're in a synchronized global recovery. I think, in the back half of this year, the economics are going to get stronger, not just here in the US, but around the world. And I think demand for crude oil is going to go up.

So I like the energy sector. They have decent yields the stocks are cheap. And I have been buying energy stocks, as well as banks.

ZACK GUZMAN: Yeah, when we talk about where we go from here, obviously, before you, we were just chatting with Rick Newman about those potential expectations around the $1.9 trillion package, some people saying that that might be a little bit too big in terms of what the market needs right now. But, when you factor in, you know, another 900,000 unemployment claims we got yesterday, what do you make of maybe where the market expectations are for what we could come-- or what we could see come through here, as Biden really does want to go big as he starts his administration?

JEFF SAUT: Well, I think the expectations in the market have come in lower than the $1.9 trillion budget from Biden. I don't know if he's going to get it or not. I mean, I get mixed results from my people in DC. You know, it's disarray in DC right now. As I said earlier, I've never seen anything like it in 50 years of living and working in Washington, DC. It's bizarre.

ZACK GUZMAN: Yeah, disarray, I think, is a fair word, but, hopefully, a little bit more of a return to normal from the early days that we've seen here. Jeff Saut, Capital Wealth Planning Chief Market Strategist, I appreciate you coming on here with us today. Have a great weekend, man.

JEFF SAUT: You bet. Thanks.