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Market Recap: Friday, January 29

Stocks sank Friday, closing out the week and month lower after a volatile week of trading. The S&P 500 shed 1.9%, erasing its gains for January and 2021 to date. The index’s weekly loss came out to 3.3%, for its worst since October. During Friday’s session, the Dow shed more than 600 points, or about 2%, and the Nasdaq also sank by 2%. Global X ETF Analyst Chelsea Rodstrom and Wilmington Trust CIO Tony Roth.

Video Transcript

ADAM SHAPIRO: Let's break down what happened in the market today with Chelsea Rodstrom, Analyst at Global X ETF, and also Tony Roth, the CIO of Wilmington Trust. Good to have you both here, and thank you for giving us a little extra time to speak with the CEO from Novavax.

Let me start with you, Chelsea. What is drawing your attention most? We've had a down day. It's been a down week. But one week, one day does not a trend make, does it?

CHELSEA RODSTROM: Sure. So looking beyond the volatility we've been seeing in the markets, I think what we're really starting to see is a more active digitally-driven millennial group, right, getting online more, becoming more active in their own portfolios. What we're seeing is not necessarily new. Rather, I would say it's more of a larger-scale iteration of maybe what we saw last year with Tesla.

And it really brings to the fore a lot of long-term trends that we've been seeing culminating in the market, right, so a preference and good performance among gaming stocks. We have an ETF that we launched back in 2019, actually the ticker is HERO. It's been performing very well. I think that that's a direct result of these millennials getting more involved in the markets.

You also look at electric vehicles, right, as I mentioned, Tesla last year. You're only starting to see that build more and more now that Biden's announced that there will be 500,000 charging stations throughout the US. So basically, just more involvement from the millennials in the more digitally-driven environment now.

SEANA SMITH: Hey, Tony, what do you make of the selling action? Because yes, we're getting more millennials into the market, this resurgence here that we're seeing of the retail trader. But when we take a look out at what this could mean for the market going forward, how are you evaluating that?

TONY ROTH: Well, I think that there are a few things that are driving the sell-off that relate to some of these stocks that were a subject of short speculation that have been bid up through the so-called Reddit crowd and such. Then you've also got-- so that's spilling over, of course, into the broader sentiment around the market, because the market really shouldn't trade this way. It doesn't make a lot of sense for the lowest-quality stocks to take off in this manner. So that's creating some, in the retail community, frankly, some systemic fear around the markets.

You also have some concern around the new variants from a COVID standpoint and whether that is going to delay the recovery. And then you have concern around what's happening in Washington and whether or not we're going to get the fiscal stimulus that the president is pushing and such. So I think those things are coming together at a time when the market is very toppy, needs to blow off a little bit of the froth on the market.

And so it's not a-- it shouldn't surprise anybody, frankly, that with those short-term proximate factors that it'll push the market down. But the recovery trade is still very much intact. And the underlying economic narrative for a very powerful recovery is still very much intact. And those three things that I listed are all, I think, not structural reasons to be concerned around the recovery.

ADAM SHAPIRO: Tony, I just wanted to follow up with that, because I know that you've been making a case, too, for emerging markets, we should be looking at the growth that will come in 2021 in the emerging markets. But no two emerging markets are alike. When you say that, should I-- should we as investors look at India? Should we be looking at Brazil? Where would you direct us?

TONY ROTH: Yeah, it's a really good question. In general, you look at China, for example, to start. And when you talk about the EM, you can't start anywhere but with China, both from a market cap and an overall GDP activity standpoint. China has led the economic, I would call what we're experiencing today in the world as an asynchronous economic recovery. And China has emerged from the COVID situation in advance of the rest of the world.

So I would start with China, and I would look at the rest of the non-developed Southeast Asia complex. And then I would look at areas like Brazil that are suppliers of commodities that are being consumed by places like China and other places around the world. So sort of a classical paradigm, where you have a lot of countries that are expanding consumption, expanding infrastructure, et cetera, and then the company-- the countries that feed that kind of activity.

So it's-- and then on top of all that from the perspective of a US investor, the dollar is going to continue to weaken due to our twin deficits, our current account deficit and our fiscal deficit. And those are going to-- those phenomena are going to continue on a relative basis to push all non-US equities higher.

SEANA SMITH: Chelsea, you're also seeing opportunity in emerging markets. When you are identifying those opportunities, what are you looking for on a fundamental basis?

CHELSEA RODSTROM: Definitely. So a lot of investors now are talking about a frothy market in the US, valuations that are too high as a result, the decades-long bull run here in the US. And obviously, the compelling story is the valuations and performance among emerging markets, which are outperforming, and have been since October of last year. On a valuation's basis, the ends are trading at a 35% discount to developed markets.

That spread's even wider, as Tony mentioned, with China being such a leader among CMs and globally in its recovery. And that kind of ties into a lot of the other themes that we talk about, which are focused around millennials and consumption. If we look at the millennial class here in the US and the consumer class in the US, it's really dwarfed by China's, right? So there are over 400 millennials in China. That's bigger than the population of the US. That's an enormous opportunity set.

And when we're looking at high-growth names here in the US, the BATS-- BAT names coming to mind, most quickly-- sorry-- FANG names coming to mind, most quickly. We also see the BAT names in China. But there's a much wider opportunity set there. And we try to offer investors access through our Emerging Markets Internet and E-commerce ETF, as well as many of our other thematic products.

ADAM SHAPIRO: I hear 400 millennials and I think 400 million chai lattes in one order. Thank you so much Chelsea Rodstrom, Analyst at Global X ETFs, and also Tony Roth, the CIO of Wilmington Trust. Millennials, please forgive me.