Chris Versace, Tematica Research Chief Investment Officer, joins Yahoo Finance’s The First Trade with Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss what's moving the markets around the opening bell on Wednesday.
ALEXIS CHRISTOFOROUS: Let's get back to the markets, where already we're about a minute in. The NASDAQ and S&P have set fresh record highs. Let's talk about it with Chris Versace of Tematica Research. Good morning, Chris. Kind of, I just can't explain why we're seeing the market do what it's doing this morning, given this disappointing payrolls report we got from ADP. What do you make of it?
CHRIS VERSACE: Well, you know, Alexis, I think if we look at what's been driving the market, right, it's been the continued opening of the market-- sorry-- of the economy. We're getting confirming data earlier in this week. The IHS market manufacturing data for August clearly pointed to that. At the same time, we know the Fed is going to have a very accommodative stance on policy for a prolonged period of time. So, you know, where also are people going to go?
But at the same time, at the same time, people are gravitating towards those same names that we keep hearing about-- Apple, Google, Amazon, Facebook, Tesla. And what they're looking for is earnings growth. And you know, the backdrop on this is S&P 500 is going to be up 2% EPS growth 2021 verse 2019.
So again, people are gravitating towards where we're seeing businesses shift their spending, where consumers are shifting their behaviors, whether it's online to shop, online for school, what have you. And I think those are the driving forces of the market. In near term, I don't think there's going to be a big slowdown in that.
BRIAN SOZZI: First, let's talk some retail. Macy's has lost $830 million through the first six months of the year. Sales crashed in the second quarter down 35%. They virtually have no inventory in their stores. Do you have any confidence this company is around in five years? And if so, are you a buyer here?
CHRIS VERSACE: I see we're back to the Macy's question, Brian. And look, they continue to pivot towards online. But unlike other online players, they have, you know, the legacy business to contend with. Do I think they'll be around in five years? I'm not sure it'll be around in three years unless they can address the core brick and mortar business. And in the current environment, I don't see how they can do that.
ALEXIS CHRISTOFOROUS: Are you concerned that we just keep seeing the same-- interest in those same big tech companies? I mean, wouldn't you like to see a little more breadth in this market and a broader based rally to actually believe in it?
CHRIS VERSACE: Yeah. I think you're spot on with that question. You know, if we take a look at the number of stocks that have not been making 52-week highs or not even, you know, making highs in the month of August. it is a large number of companies. So from a conviction perspective, hard to get excited about it. Also hard to get excited about this rally when, like I mentioned before, for the overall S&P 500, the barometer of the market, from an earnings perspective, we're not seeing any growth, which means that the higher we tick up; the more records we hit; the more expanded the valuation for the market is. And the tough thing about that is it's extremely difficult to put new money to work.
So I think what you're seeing is people are doing the old hold your nose and buy. But I think that the minute we see a hiccup in this-- and it could be when we really get a lot of the August data, particularly on the consumer front-- that the market might take a pause. And then we'll start to see some shakeout.
BRIAN SOZZI: Chris, where else can you go in the land of tech? If you are not inclined-- if you miss the boat, and these fangs suck, everything is rising in this environment. Look at Peloton up 9% today; Zoom up 40% yesterday. The valuations on tech more broadly have gotten completely out of hand. What do you, just trade these name?
CHRIS VERSACE: You know, I think there will be people who trade. I think for people who were longer term investors, you know, again, we use a thematic approach. We seek a number of different things that are happening and driving not only revenues and earnings, but these were also pronounced tailwinds, Brian. So you know, we're only on the cusp of this 5G rollout, and we continue to get positive confirmation on that. And we continue to look at the ripple effect.
It's not just devices; it's the chips that power them. So you're talking-- sorry-- Corvo, Skyworks, Qualcomm. You're talking intellectual property as 5G expands new markets. So you're back to Qualcomm. You're looking at companies like InterDigital, IDCC.
But you're also thinking about the amount of data that we're going to be chewing through and sending receiving. So you have to take a look at data center stocks and the companies that really build the equipment that go into those data centers. Or as we like to say, you could just take a look at our digital infrastructure and connectivity index, and you'll see a plethora of companies you want to take a look at.
JARED BLIKRE: Hey, Chris, wanna ask you about the transports because they've been on kind of a stealth run here. A lot of them are at record highs, from FedEx to UPS, UNP. What's your take on the transports right now?
CHRIS VERSACE: Well, I think when you look at UPS, FedEx, you have to remember it's that pronounced shift towards digital shopping. And it's only going to accelerate. So you know, we can sit at home. You can sit on the couch, wherever you want, work wherever you want, learn wherever you want. But if you're ordering stuff, it still has to get to you. So I think that's what's happening there.
In terms of the rails, you know, we know, manufacturing is rebounding. Again, things being manufactured have to be transported. So you want to take a look at not only the rails but what's happening in the truck industry as well. I suspect, however, Jared, that there's going to be a lot of excess capacity utilization, which means new rail cars, new trucks probably not going to be ordered for some time. But the traffic trends kind of confirm the pickup in the economy that the formal economic data is showing.
ALEXIS CHRISTOFOROUS: You know, Chris, maybe this is just a sign of the times in this digital world we're living in, during the pandemic especially. But Bumble, the dating app, now gearing up for an IPO. What are your thoughts on that company? And what does this mean about the current climate for IPOs?
CHRIS VERSACE: Well, I mean, there is a pretty rich IPO landscape. So we're going to watch and see how the next several price. You know, the big one that a lot of people are focusing on is Palantir, the big data AI company. So a lot to watch as that comes later in the year.
But with regard to Bumble, in particular, I mean it's kind of-- I say this with a wink and a smirk-- but you know, it's the digital landscape. It's the COVID world. And you know, single people gotta date. So what are you going to do?
BRIAN SOZZI: Chris, I'll let you off the hook on Bumble. And let's touch upon AMC for a second. If you're not bullish on Macy's, AMC is just pretty much a basically another brick and mortar retailer except they offer movies. Now, they're opening up-- they will have opened up 70% of their locations. But are you confident that's a viable business moving forward? Or is the trade in movies basically at this point just ride the Netflix momentum?
CHRIS VERSACE: So I think what you're seeing with AMC is kind of a relief. Do I think it's sustainable? The answer is no to that. You know, if you do surveys and stuff, you know, the number of people that are willing to go to the movie theaters is nowhere near what it used to be.
And remember, Brian, the real leverage point for movie theaters is concessions where your margins are over 90%. That had been under attack even before the pandemic. And I find it hard to believe that someone's going to say, give me that big bowl of popcorn that you have to get by sticking your arm into the bin. So I really doubt that that's going to be a sustainable improvement relative to the stock prices. So I would be wary of AMC and the other movie theater chains here.
ALEXIS CHRISTOFOROUS: What do you like if you wanted-- if you want to play in the entertainment space right now? I mean, we talk about Netflix all the time. But outside of Netflix, where do you look at the moment in this environment?
CHRIS VERSACE: So you know, I'll answer that. And I will actually cop to missing one, which was Chicken Soup for the Soul, which is the company that actually has cracked and others. And they have actually seen a nice move in their stock price, but it's because they're a content company.
So you think about all of these Netflix, Amazon, Apple, they're all inking deals to fill these digital pipes. So you really want to start to look for the content creation companies, Chicken Soup for the Soul one of them.
ALEXIS CHRISTOFOROUS: All right, Chris Versace of Tematica Research. Thanks as always. Good to see you this morning.
CHRIS VERSACE: Thanks, everyone.