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Market leaders are 'looking to see if Joe Biden even mentions public option' in healthcare conversations: Strategist

Quincy Krosby, Prudential Financial Chief Market Strategist, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss what’s moving the markets following Tuesday’s opening bell.

Video Transcript

BRIAN SOZZI: I feel as though the last time we talked to you, the market was hitting a new-- close to a record high. It hit a new record high today. When does it stop?

QUINCY KROSBY: When does it stop?

BRIAN SOZZI: Yeah. How many more times can we hit records with no stimulus plan?

QUINCY KROSBY: No, but you know that even with the Dow, when we go to those big numbers, you go, you touch, you pull back, touch, pullback, and then suddenly, when you least expect it, it goes over, and it stays. Today may be that day, because we have to close. Remember, we've done this on the intraday. But we've got to close on it.

And today, it has that feel. It just has that feel, given the numbers, given the housing related numbers, given the fact that last night with the democratic convention, we saw a left wing progressive field to that. We'll see how it goes tonight. I think the market will respond to that as well.

ALEXIS CHRISTOFOROUS: How much are the conventions, though, these virtual conventions, really having an impact on, not just voters, but just on the overall market?

QUINCY KROSBY: What's interesting is that those of us who work in the market, the practitioners, the portfolio managers, the analysts, are watching and paying attention to some of these words that would suggest that Joe Biden has been, quote, unquote, taken over by the left, words regarding tech, financials, energy, healthcare, certainly.

You know, I have colleagues who are focused on health care. They want to see if he even mentions the term, "public option," because the market is sensitive to all of these buzz words. So far, the market hasn't been given anything in that regard. And then for tonight, which is important, AOC is given one minute. Everyone is interested in that. What is she going to say in one minute? And why was she only given one minute?

We know overnight, the progressives, the left wing of the progressives, have been very, apparently, unhappy with the way the convention is going, that they're not getting enough airtime. But this is good for the market.

BRIAN SOZZI: Quincy?

QUINCY KROSBY: Yeah.

BRIAN SOZZI: Yeah, Quincy, you know, Joe Biden has got a bad rap, pretty much the whole year, basically tied to his tax plan, the thinking being he comes in, raises taxes, and stocks go right in the toilet. But just listening to you would suggest that maybe a President Joe Biden might actually be good for the country and for the stock market.

QUINCY KROSBY: Well, for other reasons, all of the analysts now are coming out with their various portfolios, the Trump portfolio, the Biden portfolio. But the thing is, does he follow the Obama playbook? If you remember, Obama waited a while, waited for the economy to heal before he actually moved. Perhaps this is what Biden ultimately does, waits for the economy to heal completely before he moves with tax hikes.

ALEXIS CHRISTOFOROUS: What's your take--

QUINCY KROSBY: Yeah?

ALEXIS CHRISTOFOROUS: What's your take, Quincy, on retail-related stocks right now, I mean, Walmart and Home Depot off the charts. But there is concern that if another stimulus package doesn't happen in a timely way and more stimulus checks don't go out to Americans, spending is going to start to dry up. What do you do with your retail holdings right now?

QUINCY KROSBY: Well they've done so well that perhaps you take some profit there and redeploy over to another sector, because it is clear that that $1,200, the extra $600, fed into consumer spending. We saw it in the numbers. It helped create that V-shaped recovery, that initial V-shaped recovery, which actually was such a positive surprise with the market once those checks went out.

Clearly, it can't be as strong as it has been. It's going to, perhaps, normalize. But nonetheless, I think it's done so well. Maybe you do take a little bit of profit. Now, but the point is, if a stimulus package-- I call it relief package-- relief package actually is crafted and delivered, these shares can go up yet again.

BRIAN SOZZI: Quincy, you mentioned Biden maybe perhaps takes a playbook out of former President Barack Obama. But do you think the market is saying, just reading the market, that perhaps four years of Joe Biden would be transformational, not unlike Bill Clinton?

QUINCY KROSBY: You know, what's interesting is the market did very well under Bill Clinton. The deficit didn't grow dramatically. I think it actually pulled back under Bill Clinton. And remember, before Bill Clinton came in, we had a white collar recession, one of the first we've seen in this modern United States. Those workers actually found jobs in the booming tech industry.

So that changed. And then he was seen as a moderate Democrat, one that was not to the left, one who basically was right there in the middle, even a little bit to the right. No one is expecting that from Biden, by the way.

Nonetheless, nonetheless, based on last night, based on some of the commentary about Kamala Harris regarding her investigations into the financial industry, in which she didn't destroy her ability to destroy some of the banks, they're looking more moderate than initially projected by the market.

So we'll see what we'll see how tonight goes and how the convention closes. The market is focused-- and these are the analysts-- focused on any of those buzzwords, including taxes, and what the plan is.

ALEXIS CHRISTOFOROUS: And Quincy, you and I have talked before about small cap stocks, how they were underperforming. Are they starting to come back into favor here with investors?

QUINCY KROSBY: Yes, they are. And in fact, one area that's becoming increasingly attractive is small cap biotech. You can see them doing well. Biotech in general has done well. But small cap biotech is getting a bid, and it's interesting to see-- you want to see the small cap perform.

The reason is it suggests that managers, portfolio managers, pension fund managers, see the economy climbing, gaining momentum, gaining strength. That is what the small caps will offer to the market.

Granted, you know, the tech names, the five tech names can push this S&P 500 over the top in a nanosecond. But what you really want to see is the small caps and broadening out of the sectors pushing the market higher.

It would be a commentary on those who believe that this economy has pulled out of the worst and is going to continue growing, albeit perhaps at a slower pace after the third quarter, which should be very strong, but nonetheless normalizing.