Market Recap: Friday, December 11
Stocks closed mixed as traders watched Washington lawmakers hold at an impasse over advancing another round of virus-relief measures. US Bank Wealth Management CIO Eric Freedman and Chief Market Strategist at Truist / SunTrust Keith Lerner joined Yahoo Finance Live to break down the details.
Video Transcript
ADAM SHAPIRO: Just under three minutes to the closing bell. Let's get some first take as to where we're headed with Eric Freedman, US Bank Wealth Management CIO, and Keith Lerner, chief market strategist at Truist. Thank you both for joining us. Eric, let me start with you. We are going to be able to put a lot of this political stuff the market may or may not like behind us very soon, or have we already discarded it? It's no longer having an impact?
ERIC FREEDMAN: I don't think we've totally discarded it, Adam. I think there's a couple of catalysts. One is stimulus and whether that goes or stays. And then, of course, the Georgia special election. So we do think that the path forward is higher for equities and likely more stagnant in fixed income, but there are a couple of hurdles. And again, year end stimulus will be important, as well as that January 5th special election.
ADAM SHAPIRO: Keith, to Eric's point, there's $1.4 trillion, I think, that people have saved just in the last year because of the pandemic. Is that market going to flood back-- that money going to flood back into the market?
KEITH LERNER: I don't know if it'll flood right back into the market right away. I think it's spring-loaded for the economy, like it was the second half of next year. But it's a short term-- don't forget, we just had the best November since 1987. Sentiment's a little bit hot. And I think we're just right now, we're digesting some of these big gains from November. Perfectly normal, and I don't think it's a bad thing to see some of this frothy sentiment reset a little bit here shorter term.
ADAM SHAPIRO: All right, I want to let everyone know that Keith and Eric are going to be with us after the closing bell. But Ines Ferre has been watching these markets all day long. And as we go into it, Ines, some of the sectors are in the green. Others have fallen into the red. What have you got for us?
INES FERRE: Yeah, let's take a look at where we're going to end the session right now. We've got energy and financials that have been in the red, communications services, consumer staples, industrials in the green. Over on the Dow, the big outperformer has been Disney, up more than 13% after the subscriber numbers for Disney Plus. Looking at the NASDAQ, we're seeing that Tesla has been down more than 2%. Tesla was downgraded at Jefferies to a whole, doubting that Tesla will dominate the auto industry.
Then just taking a look at Lululemon, that's down more than 6% after its quarterly results beating on the top and bottom. But its fourth quarter year over year revenue growth is expected to trail its third quarter results. And just looking at travel stocks today, how they fared, in the red. You did have a downgrade from Deutsche Bank, downgrading Delta, American, and JetBlue. Here's the closing bell for Friday.
[BELL RINGING]
ADAM SHAPIRO: All right, we're going to wait for markets to settle, but we got the S&P 500 is probably going to be around down about 5 points. The Dow is going to be positive, up about 50. And when this all settles, the NASDAQ is going to be about 27 points. Let's take it back to our guests. I'm going to start again with Eric. You talk about the fact that you have a bias toward owning large cap. I thought the rotation, though, was out of that. Are you starting to rotate out, or are you going to stay there?
ERIC FREEDMAN: Yes, we actually have been trimming, Adam, throughout the course of the past-- the past, really, three or four months. And really, that was a compelling idea back in March. And certainly, we still think that over time, CFOs are going to be spending a lot more money on software, information technology. We have a real productivity gap in the global economy and acutely, in the US economy. So we still think that it's worth buying on dips.
But in terms of favoring that in portfolios, we think that time is likely past. And so, for right now, our emphasis has been really on US mid-cap stocks. That's a place that we actually think there's still some upside, clearly a strong November, a strong couple of days in December. But we also think that tends to be an under loved and an under filed area. So US mid-cap stocks is a place we think you should be involved in.
We also think you can start dipping into some of the recovery stocks, again, not the first time we've done that. But things like energy and financials are weak today. We think they're good for trade. We think that some of the leisure hospitality stocks are interesting. And again, this is probably more of a reflation trade. And then once we get back towards more of a normal environment, we do think that those scarce growth stories will become attractive once again.
ADAM SHAPIRO: Keith, I realize that Eric has just talked about the benefits of going to midcap. And you're not ruling out midcap, but you like small cap better. Why?
KEITH LERNER: --placed in trade, and we are still pairing that with some-- with large growth as well. When we look at the reflation trade with small caps, they've just had the worst underperformance that we saw since 2000. And the valuations are at a big discount to large caps. And the earning trends are actually stronger than pretty much any other part of the market. And that's why-- that's a reason why we still think there's upside for small caps.
ADAM SHAPIRO: I want to look at sectors, too, because you're underweight, or you would recommend-- I saw in the note there's a great chart-- underweight energy, consumer staples, and real estate. Real estate just too pricey with the demand for everyone moving out of cities right now?
KEITH LERNER: You know, I think that might be plays that start to get more interesting early into next year. We actually just upgraded energy to neutral after being underweight for a long time. The way we're playing this recovery is we still want to bar bell this to a certain extent. We think there will be some unevenness short term with some of the COVID numbers.
But I think the market is looking correctly to the other side, you know, 12 months away. So what we're doing is we're bar belling with materials and industrials. That's our favorite areas on the economically sensitive side. And then, on the growth side, we still have, you know, some of our money in technology and discretionary. And we think that's an effective barbell to help bar on this kind of unevenness that we still expect short term.
ADAM SHAPIRO: Eric, you raise attention to the weakening dollar. How's that going to impact choices that investors have to make over into, say, the next six months?
ERIC FREEDMAN: A couple of things. One, Adam, is that we're approaching a really important technical level for the dollar, especially versus the euro. And so, one of the great sources of excess return and also for investors like us has been to really underweight international stocks, particularly international developed, Japan and Europe. And that's been a place where we've been able to make a lot of relative money.
I do think that the fundamentals of the European economy, as well as the Japanese economy, are going to be challenged for some time. But you can get that call completely right, but the currency totally wrong. So we do think that based on what happened yesterday, when the ECB announced some policy changes and, actually, had the opportunity to weaken the euro, but they didn't. And that's something that we think is going to mean dollar weakness for some time and something that, again, we think will probably translate into a slightly better playing field for non-US equities, just from a relative return standpoint.
So again, we do think that this is still a portfolio design, at least what we think of US Bank, that you should still favor US equities. But really that relative comparative relative value is a little less compelling right now because of the currency change.
ADAM SHAPIRO: And Eric, if I'm one of those nervous investors who doesn't like a weak dollar and I get scared by what, to me, would appear to be an expensive equity market, how do I protect myself? Because if I stay in cash, I'm getting nothing.
ERIC FREEDMAN: You know, the opportunity cost of sitting in cash right now isn't particularly high, not that we're advocating people sit in cash. I do also think that if people feel that long duration treasuries will have the same shock absorption power in portfolios, we actually would take the other side of that. So we do think that for those clients that are a bit more nervous, for those investors are a bit more nervous, there are probably parts of the bond market that are worth owning.
Long duration is not one of them. But we think high quality US corporate credit, there's still some degree of premium attached that's interesting. So we'd really be more biased towards mortgages and corporate credit as opposed to government bonds. That would be the way that we probably hang out here and for those investors that are looking for a little less volatility in their portfolios.
ADAM SHAPIRO: Keith, I think you would agree with what we just heard from Eric or not, because I know that one of the things you're also doing is closely monitoring gold that you're maintaining is ahead.
KEITH LERNER: Yeah, I think we-- maybe one variant in our view, I think there's a lot of bearishness on the US dollar. And I think where we kind of stand different than the consensus is, we think the US dollar is going to likely stabilize next year. Technical trends have been weak, but we actually think the more the euro goes up, the more that impedes their recovery, that we're in a fragile state heading into this as well.
Lagarde just talked about the euro being somewhat of an issue. And we're already up 15%. So for international to really outperform, you would like to see much higher, you know, currency strengthened. Right now, our base case view is we're more of stabilization. You know, gold was something we put on as a hedge into the election. And with the COVID numbers, we're really low on fixed income. So we want some things in the portfolio as a diversifier.
Some of the loss that has come out of that, we're sticking with it for now because we still think we have some challenges short term. But the big story for next year is, we think we're moving to the next phase of the bull market, which tends to be a more moderate, but still positive side, where we still have a pretty big overweight in equities. And we'll look for pullbacks to add to that position.
ADAM SHAPIRO: All right, Eric Freedman is US Bank Wealth Management CEO. Keith Lerner is chief market strategist at Truist. We appreciate your both being here with us.
