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Market Recap: Monday November 16th

The Dow soared to a record high Monday after Moderna (MRNA) became the latest major drug-maker to announce upbeat data for its COVID-19 vaccine candidate, building on hopes that an effective inoculation will soon be available. Mark Lehmann, JMP Securities CEO and Matt Orton - Director and Portfolio Specialist at Carillon Tower Advisers, joined Yahoo Finance's Jared Blikre, Seana Smith, and Adam Shapiro to break down today's market action on Yahoo Finance Live.

Video Transcript

SEANA SMITH: Mark, let me start with you, this rally that we're seeing today on the heels of the vaccine news we got out this morning. How are you looking at the market just in terms of where you think we're headed for the rest of the year?

MARK LEHMANN: Well, obviously impressive. I love these Mondays. Every Monday seems to be better news on the COVID front, so let's hope we have more of that.

It's an impressive rally. I think it's orderly. You see the VIX dropping a little bit here. I think it's very in keeping with what we saw last Monday. I think we're going to see some people take advantage of this market before Christmas. You'll see a drove of IPOs between now and then. I'm going to watch how those get received by the market. We've seen great absorption by those stocks, great performance by those stocks. Those are some of the newer technologies, and we'll see given the value-growth shift that we've seen, how well received those are. That's what I'm watching.

ADAM SHAPIRO: Matthew, is it harder to find value stocks right now, especially as we watch some of the rotation towards value?

MATTHEW ORTON: You know, Adam, it's a great question because value versus growth is probably the top subject we've been talking with our clients about over the last week or so. And the rally that value has staged on the back of a lot of this COVID vaccine news has been very, very impressive, but we need to be mindful of value traps as well. There's a lot of companies that are very, very good that fall into the value bucket that likely could have longer-term tailwinds-- say material companies, industrial companies that are more leveraged to the economic reopen.

But when you see huge rallies in energy and financials especially down the market capitalization, that raises some red flags for myself. And when we talk with clients, that's something we tell them to be mindful of because bottom fishing in those areas could work for the short term but not necessarily for the long term. So to the extent we can find quality companies with improving earnings that fit in the value bucket, those certainly are looking a lot more interesting right now.

SEANA SMITH: Mark, how about you? How are you looking at the cyclical versus the progrowth trade that had been in favor going back to the start of the pandemic?

MARK LEHMANN: I think the valuation dispersion got so extreme that the stay-at-home stocks clearly kept working, and I think that was bound to come to an end. But let's remember that what we're seeing right now given the COVID reality is not going to change. I don't think we're going to go back to working 24/7 at the office. I don't think we're going to go back to traveling like we did once. I certainly won't.

And I also remind folks that the reason we're going to get out of this mess is because we have great innovation on the life-sciences side, and that innovation is accelerating, and you want to be there. Remember, less than three months ago Pfizer got replaced by Amgen in the Dow. If that doesn't tell you where the innovation is coming from, nothing does, and that's where I'm playing. Life sciences is really one you want to continue to play.

ADAM SHAPIRO: Jared, let me bring you into this because we're still, what, about 30 seconds to the closing bell? Is tech still having an outsized proportion of influence pulling up markets perhaps beyond the reality of what they should be at?

JARED BLIKRE: Well, that's an interesting philosophical question for 30 seconds. I'm going to get back-- I'm going to get back to you on that one.

But what I will say, it's pretty healthy to see the market internals. I agree with our guests here. This is looking pretty promising, but we've got to watch out for the financial sector and sometimes energy as well. These have just been dead money for so many years.

But heading into the close here, you know, I think it's instructive--

[CLOSING BELL]

--that not only is the S&P 500 making a record high. Also new equal-weighty S&P 500.

SEANA SMITH: And that does it for the trading day today. Again, all [INAUDIBLE] major averages holding onto gains. The NASDAQ, which was flat at the open, ending the day up just about 8/10 of a percent. The Dow closing at a record up just around 470 points as we shake out the final trades of the day. S&P also closing at a new record.

Jared, I'm going to send it back to you just in terms of some of the other outperformance that we're seeing today because that reopening trade coming back into favor. You mentioned energy there. Financials are also a huge outperformer today, some of the cyclical trade here. Investors finding a reason to buy.

JARED BLIKRE: Yeah, and we've seen the cyclical and the value trade really explode on certain days, especially last Monday. No different today except the gains are a little bit muted compared to one week ago.

But JP Morgan up almost 3%. Some of the foreign banks maybe on some merger news also up nicely. Citi up over 3 and 1/2% along with Wells Fargo. But it's really the regional banks. And getting a vaccine is kind of key toward easing credit conditions and also allowing banks to reclaim some of those loan-loss reserves that they put out there.

So we can take a look at the energy sector as well. Crude oil up about 3% today. Chevron up 7%. Exxon up 5%. These are big numbers. We saw them last Monday, but still, pretty impressive to see.

And you look at a stock like Schlumberger which really got pummeled in COVID as wells were closed up, not only in the Permian but other places. It's up 34% over the last 11 days. That's the November performance.

So you look at the sector action, and we'll again go to the November month to date. Energy is up 25%, financials 15%, industrials 15%, and it goes on. Even utilities, which is the biggest laggard, up 7%. So all in all, we've got the Dow up. It's actually having the best November since 1928. That's 92 years ago. Guys.

ADAM SHAPIRO: Mark, with Jared talking about energy being the big sector today and last week it was also big, we asked a guest in the last hour about the Saudi Aramco news, that they're cash strapped. And I'm just curious, is the push in energy's upswing right now, is that because the global economy is actually picking up steam-- we know that we're expecting better numbers out of China-- or is there something else at play? Were we artificially too low on energy?

MARK LEHMANN: My sense is we're not artificially too low, that we've had a decade of innovation in new forms of energy, and that's only going to accelerate the price comparison between traditional as well as new energy is obviously falling precipitously. And we're probably going to have a louder voice with the Biden administration about climate change and about the Paris Accord and everything around that.

I mean, look, Exxon Mobil was the most valuable company in the world a few years ago, and now it's not, and it's not even close, right? Tesla's got a bigger market cap now. And I think that's not where-- if you would have said four years ago with Trump taking office that Tesla would go up, you know, 10x, we'd be laughed off the stage, and that's exactly what happened.

And I just think you're going to find times when it's cheap. And I think your guest agreed, you want to be really careful because unless you see an earnings explosion, there's some big, big things on the balance sheet that just can't slide. And there's just not a lot of leverage in that model, and I just don't think you want to play there.

SEANA SMITH: Matt, the positive vaccine news coming obviously is helping investor sentiment, but of course we do have this record number of cases coming from COVID. It's happening day in and day out. With that in mind, when you try to make sense of the reaction that we've seen in the market, is there any reason to think that we're overbought, at least in the near term?

MATTHEW ORTON: You know, Seana, some of the technicals are definitely starting to look like they're a little bit overbought when you look at 10-day, 50-day moving averages and where a lot of the market is. We're moving into overbought territory.

But at the same time, I think it highlights the enthusiasm or I'd say how much energy there has been with investors putting money to work in some of these more beaten-down sectors. I'll say some bottom fishing has been happening that's been working to push some of these technicals up. But, frankly, we like to use opportunity-- weakness as an opportunity if we do get a sort of pullback in the market.

I think one thing that has not gotten a lot of attention has been the tremendously strong earnings season that we've actually had. Over 92% of the S&P 500 has reported earnings, and we are at a record level of EPS beat, and we've had a massive beat in terms of the actual earnings per share posted on the index. So that really shouldn't slide because companies have been increasing guidance. Company management has becoming increasingly more enthusiastic about their prospects going forward despite a rise in COVID cases.

So all of that points to the fact that this momentum upwards certainly should last. But if we do have any near-term weakness, we should use that as an opportunity. And that's why it becomes even more important to make sure as we're putting new money to work we're not falling into those areas that could be a value trap but instead we're positioning ourselves where there are long-term secular-growth tailwinds.

So like Mark had said, life sciences, biotechnology, that is a big growth area and some place that we certainly do favor. Small-cap growth is a great way to take advantage of that.

As you move up the market-cap spectrum, IT services. Semiconductors have a lot of exposure to digital revolution, the need for more and more chips, and also to have some embedded cyclicality within that.

So the one word of caution we give to our clients is that value does not mean cyclicality. You can still lean into cyclicality within growth or a core type of allocation without having to do any sort of bottom fishing in areas where you might not have long-term tailwinds.

ADAM SHAPIRO: So, Matt, let me follow up with what you said, and help me understand because you do this for a living. We ask you questions about it. But what I heard you say, it seems to me you should get ready for perhaps another dip because we're not at the end of the year. But there's so much money, new money, that's sitting on the sidelines that's going to come back into this market and given the earnings we've seen that 2021, it looks as if there's going to be a great deal of upside across all the sectors.

MATTHEW ORTON: It certainly seems that way. We are certainly very enthusiastic about where the market can go heading into next year. Like you said, Adam, a dip certainly is probably in the cards given how far we have rallied over the past couple of weeks, but that's perfectly healthy market behavior. It's using those dips opportunistically.

And, yes, earnings have been incredibly strong. And when you add in the backdrop of incredibly low interest rates-- I mean, the Fed has expressed that we are going to be pinned to the zero lower bound through at least the end of 2023. And absent any pickup in inflation or significant pickup in inflation, it's very unlikely we're going to see that change.

So valuations look different. And the fact that we have strong and improving earnings heading into next year along with improving investor sentiment, all of that spells a longer rally can continue and that any sort of weakness should be used opportunistically to keep getting in and reallocating within the market.

SEANA SMITH: Mark, how about you? When you take a look at the technical levels, when you take a look at the earnings reports that we're getting, when you take a look at what's on the horizon in 2021, are you as bullish as it sounds like Matt is?

MARK LEHMANN: Well, I remain bullish because I think the reopen trade is alive and well, and I think the news-- which was stunning, right, from the Pfizer and Moderna news. It's going to continue, and it's going to be on the therapeutic side. And I just think it's going to become a manufacturing and distribution issue and less about have we tackled this? We've tackled it. Now, of course, we're going into the dark, cold winter, and people got to put their masks on, and I think people long and hard will do that.

So getting back to the market, I think the markets have moved a lot. I think people feel like they've missed it for some people who waited for the bottom because, as we all know, the lights don't go on at the top and the lights don't go off at the bottom. But I think we're going to continue to see rates very low for very long, and that's a wonderful backdrop for the market.

I think you're going to continue to see innovation accelerate. I think you're going to see lots of companies try to access the public markets. You're also going to see a wave of, I think, M&A. That's clearly something we haven't talked about here, but that's going to continue to accelerate. Balance sheets are filled with cash, and there's funds who have raised a lot of money over time.

This is the best market globally. I think we've learned that. We have some ills that we need to cure, but I think once the president's installed in January and we continue to see good news on the vaccine and the therapeutic side, I think we're going to continue to see new highs.

And when you see the kind of dislocation we've seen over the last eight or nine months and there's been plenty of opportunities, it's time for investors to pay attention because over the short term we're going to see bumps. Over the long term, we are accelerating innovation. Tech and health care are merging into one. Finance and tech are merging into one. Energy and tech is merging into one. You're going to want to play those trends. Those are not going to slow down. It's accelerating.

And you'll find times when you can buy more stocks. That's what I'd do.

ADAM SHAPIRO: Jared, looking for one of those times to buy more stocks, I want to ask you an incredibly short-sighted question. Last week, Monday, we saw the pop from Pfizer, and then we saw it literally evaporate, you know, in the two or three days afterward. What about now? We got a pop from Moderna, but should I be expecting, if I'm an investor watching all of this, OK, I can take a minute to let it fall back a bit?

JARED BLIKRE: Well, I think these are different situations. Yesterday was a wake up-- not yesterday. A week ago was a wake-up call for funds that they were just positioned wrong most likely, and that's why we had that 14-standard-deviation sell-off in momentum stocks. That's not happening this week. There has been a lot of positioning changes. . And

If you look at the S&P 500-- I'm going to take a look at a three-month chart right now. We had drawn this line before. We got the breakout last week, and then we came down and retested the breakout area. So on a technical basis, this was perfectly normal and actually healthy.

So now we're a little bit overextended on the short-term basis, but we should be able to push through these highs even if we have to consolidate first. So I'm not expecting the markets to behave like last week, in other words.