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Jobless claims worse than expected amid pandemic

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Yahoo Finance’s Kristin Myers and Daniel Morris, Chief Market Strategist and Co-Head Investment Insights Centre for BNP Paribas Asset Management, discuss market moves as jobless claims come in worse than expected.

Video Transcript

KRISTIN MYERS: And let's keep the conversation going now on market action. The NASDAQ just flipping into the green, trading fairly flat right now. We have Bumble's IPO well underway. So let's bring on Daniel Morris, chief market strategist and co-head of Investment Insight Center for BNP Paribas Asset Management.

Daniel, I want to start with Bumble's IPO. It is retreating a little bit from where it opened at $76 a share, but still a nice pop over that IPO price of $43 a share. So to borrow my coworker Zack's love of puns, I'm curious to know if you love some of these dating apps. Some folks had been saying that Bumble's valuation was a little bit high. 43 was above its expected range.

DANIEL MORRIS: Well, I think it goes to the broader question of when we think about valuations within the technology sector, valuations across the market. If you look at forward PEs for the S&P particularly for the tech sector for NASDAQ, and you compare that to historical averages, you inevitably, I think, come to the conclusion that things do seem quite high. I think what we need to remember, though, when we do historical comparisons with PEs or earnings yield is the difference today versus the environment 10, 15, 20 years ago when interest rates are much higher.

So, in aggregate, multiples do seem high, but we think that's at least, to some degree, justifiable by low interest rates. And of course, it doesn't exclude the possibility that you have individual stocks, that you have particular sectors where things are more extreme. So it kind of always comes down to the importance of being able to pick the stocks-- pick the right stocks, hopefully-- to avoid those scenarios where the multiples really do seem stretched.

KRISTIN MYERS: That point on valuation is a well noted one, particularly in the sector of tech. And I do want to circle back to that in just a moment. But I want to ask you about another piece of economic data that we do have out today, which is that jobless claims worse than expected, however, still coming down from the prior week, which had been revised upward. That was a huge nice drop that we had gotten in the prior week's numbers. Do you really just take this as, you know what? All signs really seem to point to the labor market is continuing to improve.

DANIEL MORRIS: Well, I wish it were quite so easy to conclude that. I think if we look at the non-farm payrolls data that we got a week ago, there was improvement. I mean, you did have job creation, but it was primarily temporary. Permanent job creation is still quite weak. You still have several sectors where you had a decline in jobs. So I think it's quite mixed, frankly, even if the number was down from the previous week. It's relatively elevated.

So what we really need to think about, though, is what's driving those struggles in the labor market. And it still comes down to the level of restrictions in the economy, either imposed by states or by cities or just people's reticence because of the pandemic to pursue the activities that they normally would. So the healing of the labor market is primarily going to depend on the level of those restrictions, as opposed to, frankly, necessarily any fiscal stimulus.

KRISTIN MYERS: Over the last couple of trading sessions in the markets, we've seen a little bit of a seesawing, where we're touching these intraday highs, and then we see the markets essentially turn tail and start to retreat. All three major indices right now are in the red. The NASDAQ had flipped into the green just a moment ago. I'm wondering if you think that a correction is coming up imminently. And if there is, would you view that as a buying opportunity or the beginning of the markets really starting to take a leg lower?

DANIEL MORRIS: I think it would be more the first scenario that you laid out. We actually are cautious in the short to medium term about the market, really, for the reasons that you highlighted. One, there are concerns about valuations. Secondarily at this point, we've had the good news, I think, around the vaccines. We've had the good news priced in around earnings, the good news priced in with the stimulus package. And you ask yourself, well, what's going to be the next bit of news?

And the concern clearly that it's going to be negative either around the pandemic, around variations, mutations of the virus, or concerns perhaps that we don't get as much stimulus as the markets are expecting. So I think the risks are tilting a bit to the downside here. That's why we are a bit cautious and kind of hoping for a better entry point if we do get a bit of a step back in the markets.

KRISTIN MYERS: Now, we've kept continuously mentioning valuation. So I want to kind of circle back to that because it makes me think, of course, about the tech sector. I'm wondering how you're approaching that sector in 2021. There's a little bit of a difference in that sector. We have the big tech names like Zoom, like Facebook, like Amazon.

But then you have other pieces of the tech sector, which folks are saying, you need to pay attention to them, especially when it comes to cloud computing, for example, that will perform well this year. So how are you approaching and how do you think investors should really approach that sector this year?

DANIEL MORRIS: Well, you mentioned the mega caps. And when you think about what that does when you look at multiples for an index or even for the sector because of the size of these companies, which is so dominant relative to the other ones in the index, really, it's those PEs that give you the impression that the PEs are high for the whole market. So what you do need to do is go to the individual stocks.

And if you look at the dispersion of valuations at a stock level and if you look instead at, say, the median PE within the index, then you actually find numbers that are much more reasonable. If you look, say, at what you have within the 25th percentile of the dispersion of PEs, there are still plenty of attractive stocks there.

So for our portfolio managers that are, again, picking the stocks, it's not necessarily so difficult to find opportunities to find attractive stocks. Probably not achieve valuations, but it's certainly something that they feel warrants an investment, given the growth prospects that they see. So really not only in general do you need to look at the stock level, as opposed to the index, but even more so with tech and the dominance of the mega caps that I think really distorts the valuation impression that you can get.

KRISTIN MYERS: All right, Daniel Morris from BNP Paribas Asset Management, thank you so much for your insights today.