Market Recap: Monday November 23rd

Wall Street rallied on Monday, adding to recent gains as investors weighed new COVID-19 infections. Jack Manley, JP Morgan Asset Management Global Market Strategist, and David Nelson, Chief Strategist at Belpointe, joined Yahoo Finance's Jared Blikre, Seana Smith, and Adam Shapiro to break down today's market action on Yahoo Finance Live.

Video Transcript

ADAM SHAPIRO: OK. Less than 5 minutes left in the trading session with the Dow up more than 1%. We're going to talk about all of this with the closing bell. And to do that, we invited into the stream David Nelson, Chief Strategist at Belpointe. He's joining us as along with Jack Manley, who is a JPM Management Global Market Strategist.

Jack, let me start with you. We didn't get the next round of stimulus. And we're not going to get it till next year. The market doesn't seem to care. But could there be a bit of a pause and a pullback before we get to next year?

JACK MANLEY: I think as long as the timing of the stimulus is still a little bit nebulous, there is still some hope out there that maybe we get some sort of baby bill. We start to really see the issues creep up if we don't see stimulus by, say, the end of January, sometime by February.

As things stand right now, consumers are still in pretty good shape. Savings rates are still up at the moment, but those things could start to deteriorate as we move into the new year if Congress doesn't kind of get its act together and get another round out fairly quickly.

SEANA SMITH: David, how about you? When will you start worrying if we don't see another stimulus package?

DAVID NELSON: I would say after the Inauguration. I think markets are content at this point. They understand that it's coming. Congress needs to get off their ass and actually do something.

There was a ripple last week when Mnuchin pulled the rug out from the Fed. But when you look into the numbers, you see that there's still $429 billion available out there if Congress just reauthorizes right now. And that's not happening.

There's still millions of Americans out there who work in close proximity businesses that need a pathway. They need to get across the valley. We know we're going to get across the valley. The market's telling us that. But we want to bring everybody with us.

ADAM SHAPIRO: So David, that 429 billion, roughly, that they took from the Fed, essentially, could go back into the economy. Is it going to go back into the economy? Wouldn't it need some kind of congressional approval?

DAVID NELSON: It would need congressional approval. And right now it doesn't look like it's going to happen. But markets are a forward-looking mechanism. So while it's tough for the economy, and it's certainly tough on those that aren't going to get the stimulus, the market's looking through that, and sees the cyclical trade as the best bet forward.

SEANA SMITH: Jared, I want to bring you in here because we saw markets within the last hour $10 trillion right around their highs of the day. It was after we got that headline that President-elect Joe Biden will be picking Janet Yellen as Treasury Secretary. What are some of the levels and some of the movements here that you're watching within the past hour?

JARED BLIKRE: Well, I think it's instructive to see what's happened in November so far. We have been sitting on some nice gains, but have gone essentially sideways for a few weeks now, even with the Moderna news, and the Pfizer news, and the AstraZeneca news this morning.

So here is the Dow. You can see just kind of treading water since earlier in the month. NASDAQ, a similar situation, S&P 500. But I just want to call attention to the seasonality here. This is a post that I got from the market here. And this is on the Santa Claus rally. So seasonality is pretty strong right now. And it's going to get even stronger.

So let's take a look at November seasonality. This is 1985 to 2019. And I'll just trace out. So this is for the month, going sideways as we have been. But right around Thanksgiving-- and this is Thanksgiving right here-- we start to accelerate. We are right here right now.

A potential stumbling block is the fact that we have a month end coming up. And we've had these incredible gains. And sometimes we see rebalancing. So we could see some selling of equities and buying of bonds. But December is looking pretty good right now.

So let's take a look at our heat map. This is the NASDAQ 100. And you can see the big tech names, FANG names under pressure, especially Apple, down 3%. Other ones off not so much, especially a lot less than they were the prior two Mondays when we got that incredible pain rotation into the value and cyclicals and out of momentum names.

And the big leader today is Tesla. We've been talking about-- well, actually, it's a line right now. But Tesla is up 6.4%. We've been talking about what they've been doing in the EV space.

And in fact, if we just take a look at that space real quickly here, we can see that we have some pretty big gains in other stocks as well. Kaixin Auto Holdings up 175% month to date. 55% this day alone. Guys.

[BELL RINGING]

ADAM SHAPIRO: All right. We have the closing bell. And as we wait for the markets to settle, I can let you know preliminarily the Dow is looking like it's going to finish up about 1% for the day. The S&P 500 is probably going to settle above half a percent higher. The NASDAQ about a quarter percent higher. The Russell 2000, we hit the intraday high. The Russell 2000 looking like it's going to be up almost 1.8-- let's call it 2%, because everyone's in a good holiday mood as we get ready for Thanksgiving and overeating.

Let's talk about overeating, because investors could do that with all the money sitting to the side. And Jack, what worries you most when we talk about the trillions of dollars that are still in money market funds and in savings accounts earning nothing, when people see markets going higher and they get worried about missing out?

JACK MANLEY: I mean, I think that that fear of missing out is definitely something that influences investor decision. And I hear constantly on all the calls, conversations that I have with our clients that they have this money on the sidelines. They don't know what to do with it. And I tell them what I was telling them months ago, which is that there's no better time to get into the market than now, or even yesterday.

The whole idea is not trying to time the market. It's trying to be in the market for as long as possible, because over the long run stocks move higher. And with valuations-- excuse me-- with interest rates as low as they are at the moment, there aren't a lot of other good places to park your money, especially when you consider that incorporating inflation.

A lot of these fixed income instruments, a lot of these cash instruments are effectively negatively yielding. I think that's a big problem, Adam.

SEANA SMITH: David, if your clients are looking to put money to work, are you bidding on the cyclical trade right now? I mean, some of the sectors here that are outperforming today with energy, financials, industrials leading the wire. Is there still reason to buy the outperformers that we have seen over the last seven to eight months?

DAVID NELSON: The epicenter makes the most sense at this point. Growth is the most expensive when there isn't any. And suddenly with the advent of a vaccine and therapeutics, like what Regeneron came out with today, suddenly other sectors of the economy are going to start to make some noise.

So it makes sense to move down the valuation curve to industrials. Energy is the best performer today. And even financials, as the yield curve starts to steepen.

And to Jack's point, the toughest thing for investors right now with all that cash on the sideline is to get back into the market. And how do you do that? And I would suggest that you're going to have to scale back in. Because if you're going to try to finesse your way back in.

What's going to be the trigger to do it? Is it going to be 10% down? I doubt it, because down 10% always feels like down 20. It has some kind of systematic approach. Put the capital back to work on a monthly basis. But one way or the other, you're going have to find a way to get back to your target allocation.

ADAM SHAPIRO: Jack, are there sectors-- when we talk about energy being high-- it was high last week. We're seeing oil today. I mean, oil's at about 42 and change a barrel, at least WTI futures. What are the sectors you're watching that you expect as this economy starts to roar again?

JACK MANLEY: So I think it's important to kind of draw a distinction between the stocks and sectors that are just downright too cheap-- they're oversold-- and those stocks and sectors that have longer term growth potential, even coming out of this pandemic. I mean, I look at things like energy. I look at things like industrials. And can I make the argument will things be better for the airlines a year from now than they are at the moment? Without a doubt, almost certainly. We are looking at an airline industry that's going to be more healthy a year from now than it is at the moment.

Will the airline industry be fully recovered to where it was pre-pandemic a year from now? That, I think, is a lot harder of a question to answer. I think even after we're all inoculated and this virus goes away, there is something of a hangover effect associated with the pandemic. People feel a little uneasy sitting next to strangers, taking that middle seat, especially on longer flights. I see a longer road to recovery there.

So some value opportunities, I think, certainly in energy and industrials. My favorite value opportunity that I think has longer term growth potential is in financials. David mentioned that steepening yield curve could be good for some banks as we move into the next few years.

Also important to remember that these banks are extraordinarily well-capitalized. The credit quality of their borrowers is still very high. This is not 2008 all over again. And that's, I think, the biggest long-term growth potential, at least from a cyclical perspective in the market exists.

SEANA SMITH: Jack, what about the fact that we've heard such a bullish sentiment from so many investors? Bank of America was out with a fund manager survey last week. It was basically pointing to the fact that at this point it almost seems like we're universally bullish view here from the majority of investors.

Does that give you pause at all just in terms of how that has historically played out in the past?

JACK MANLEY: I think it gives me pause over the next few months, because there are a couple of different competing forces out there. On the one hand, we just keep getting phenomenal, exciting news about that vaccine. And you have very low interest rates, which means you've got to put your money somewhere. And it's inherently better for risk.

But on the other hand, that vaccine is not here right now. What's happening right now is surging coronavirus cases, this third wave in the country as we move into the holiday season, as things get colder. This is likely going to get worse before it gets better.

And so at the moment, I see that this bullishness, maybe over the next couple of months, we may get punished a little bit. For I don't like to think tactically. I don't like to think over the next few months. I like to think over the next 12 months, 18 months, many years. And looking down the line further like that, this bullishness doesn't bother me a whole lot. I think we've got to go into equities, especially when you consider the prognosis for interest rates

ADAM SHAPIRO: David, those of us who are risk averse, though, listen, when you say things that could possibly pose hiccups for the future, you talk about rates on the long end of the curve rising high enough to suck money out of equity markets. And then you use a metric that if you had the 10-year actually, and it would have to go up 100 basis points to do this. But if it became competitive with the dividend yield of the S&P 500, that would hit the markets. That seems like it's going to take a long time for that kind of thing to happen.

DAVID NELSON: In all likelihood, yes, it will probably take a long time, but ultimately, it probably will happen. Inflation, they'll let it run, and they'll let it run up to a point. But at some point in time, the long end of the curve, which I don't think they're going to control as easily as the short end, those waves will start to arrive.

And then you have the competing asset class, because the biggest issue right now is where's the competition. Outside of gold, maybe Bitcoin. Where are you going to park your capital? And right now stocks are still the better asset class.

And to Jack's point about some of these industries all coming back, they're not all going to come back to the levels that they were. Airlines is a great point. I can't see business travel coming back to where we were pre-pandemic. We're certainly not going to do that.

The stay-at-home trade is going to work well. We're doing it right now. I can do my job just as easily inside the office or at home. I'm not going to travel to Los Angeles just for a business meeting.

SEANA SMITH: When you take a look at the risks out there, I feel like the most common answer is obviously COVID and the rising cases that we're seeing. There is so much uncertainty, especially over the next couple of months. But outside of COVID, what do you see as one of the biggest risks here to investors as we head into the new year?

JACK MANLEY: I think a lot of investors are looking at the markets right now and forgetting that there were a whole lot of other problems out there before coronavirus showed up. There a lot of things that we don't talk about anymore. I mean, we don't really talk about the trade war anymore. We don't really talk about the other sort of geopolitical problems that are happening really all around the world. I mean, you think about Brexit negotiations.

Those still don't have any real end in sight. And they're kind of bubbling away in the background because we're focusing on the more important things. In the immediate term, it was the election. Now it is the pandemic, and the ultimate vaccine. And I think there is a risk that once we come out of this, we're almost going to be blindsided by the fact that none of these things really went away. They were always kind of lingering in the background.

To me, that just means increased volatility in markets. But at the end of the day, markets are inherently volatile. That's what it means to be an equity investor. And so you have to look through the volatility. You have to realize that you don't want to try to time the market, again, to some of those earlier points, and really kind of set it and forget it when it comes to those longer term plays that I think our best for those longer term position portfolios.

ADAM SHAPIRO: Jared, we've said airline twice. And I've just got to go to you on this, because I was looking at-- I mean, there was the worry that United issuing those new common shares, 25 million-plus, was going to dilute that stock. But United wasn't the big winner among the airlines, but it was up today. It was American, American Airlines, of all the airlines, that's up over 8%.

JARED BLIKRE: Yeah. All that new stock, all that new issuance, well, now we've got more borrowed to short. And that could be a pain trade. So just throwing that out there But yeah, nice price action today.

American Airlines up 8%. Just look at what they've done in the month of November, up 20%. Still kind of going sideways here matching those highs that we saw earlier in the month.

But then also the cruise lines. This is Caribbean. They're up 32%, a similar story. So a lot of these stocks that shot up early on and then kind of sold off, they're right back up near their highs. And this is something to watch going forward. I agree with everybody's take that this has been dead money for a long time and it could be in the future, but these guys are moving right now.

ADAM SHAPIRO: All right, Jared. Real quick, David, I just want to ask you very quickly. Retail, we're going to get some big earnings tomorrow. Any expectations for the retail sector or are they still going to be taking it on the chin?

DAVID NELSON: I would be cautious here. There's a difference between a Walmart or even an Amazon, which is essentially a retailer, and a Macy's. Big box retail, some of these companies are not going to come back. They're just too challenged. The mall, in my perspective, as we know it, is dead.

ADAM SHAPIRO: All right. Jack Manley, JPM Management Global Market Strategist. Thank you. David Nelson, it's good to see you. It's been a while, my buddy.

DAVID NELSON: Been a while.

ADAM SHAPIRO: Chief strategist at Belpointe. I look forward to having both of you come back and join us. But right now, comingup.