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Market Recap: Thursday, December 24

Stocks rose Thursday morning as traders looked beyond new hurdles to key stimulus and spending bills in Washington. Crossmark’s Victoria Fernandez and Heritage Capital’s Paul Schatz joined Yahoo Finance Live to discuss.

Video Transcript

JULIA LA ROCHE: Well, we only have a few minutes as we get to the closing bell on this shortened holiday trading session. Just taking a look at the three major indices, all slightly in the green during this session. I want to bring in our guest as we head into the close. We have Yahoo Finance's reporter, Jared Blikre. Also joining us is Victoria Fernandez, Crossmark Global Investments' Chief Market Strategist, and Paul Schatz, Heritage Capital's President. Welcome to you both, Victoria, let's start with you, your reaction to the activity we've seen, the news we've gotten out of Washington, DC as we head into the close.

VICTORIA FERNANDEZ: Well, I think when you're looking at the stimulus package and how that's going to help us going forward, there was so much anticipation that we were going to have the stimulus in play before the end of the year, which was really going to help consumers put some extra money in their pockets and let that flow into the first quarter. We've had some weak economic numbers here in November and December and we had that weak handoff. So we were really hoping for some strength to come from there.

Having those pushed later I think makes the whole recovery trade push later into 2021, where we would be thinking a first half strong recovery, now that's looking more second half. I don't think it really makes the markets pull back. We see a very muted reaction today, even though it's a short trading day and low liquidity, because the market anticipates it will come at some point, now it might just have to wait a little bit longer.

JULIA LA ROCHE: And, Paul, I want to bring you in as well and you shared some notes about the Santa Claus rally, which usually begins today. So your thoughts, do you think we're going to see one heading into the final days of 2020?

PAUL SCHATZ: So what is the textbook Santa Claus rally is last five trading days of the year, first two trading days of the new year, in the grand scheme of things it's irrelevant. Most of the research that you do, Santa Claus is kind of debunked, yet we're supposed to see a very mild or a continuation of this mild drift higher. The S&P is certainly lagging everything else, there's no sex appeal on the S&P right now if you will. Santa Claus should call, we should see this mild drift higher into 2021.

There should not be a lot of fanfare next week. It should be a relatively quiet week. I would expect the small caps to have a little bit more of a push, but the whole idea that there's this huge run because it's the end of the year, data doesn't support the claim. I would be very concerned if the market rolled over next week. That would add further fuel to my fire that we're going to see somewhat of a short sharp downdraft in Q1, but let's not put the cart before the horse, we'll see what happens in early January.

JULIA LA ROCHE: All right, well, Paul and Victoria stick with us. we're going to bring in Yahoo Finance's Jared Blikre, to take us in to the closing bell. Jared, what are you looking at?

JARED BLIKRE: Well, I'm looking at the muted market action that we're having today. Let's go to the YFi Interactive and check out the price action, here is the Dow up 70 points or about one quarter of a percent, you see we briefly dipped into the red about an hour in the final trading hour here of this shortened day. NASDAQ a little bit stronger, up a quarter of a percent as well. S&P 500 up at session highs right now, but that's only about a third of a percent. Russell 2000, notably strong most of the week, down about a third of a percent here.

Now I've been looking at some stocks in the NASDAQ 100 and a former member, Alibaba, all day long, and we'll just check out the NASDAQ 100 first, Pinduoduo suffering-- not suffering, benefiting from Alibaba's antitrust woes over in China, that's up 9%, followed by Tesla, KLA, that's up 2% and then Lam Research. So some of the chip stocks contributing to the gains we're seeing here.

Notably to the downside, Moderna having a rough patch, down another 5%. Zoom having a rough month, that's down 2% and we'll just take a look at what it's done month to date, down about 21% or so. And looking at the sector action for today kind of an interesting mix, real estate and utilities leading the way higher as the 10 year T-note yield drops to the downside, energy the biggest loser off about seven tenths of a percent followed by industrials, that's also down about four basis points here. And here's the closing bell on Wall Street.

[BELL RINGING]

ADAM SHAPIRO: And it's a closing session, a shortened session here on Wall Street as we take a look where markets are probably going to settle, the S&P 500 is going to settle up probably around 13 points. Dow will settle up almost 80 points. NASDAQ is going to settle up almost 30 points. The Russell 2000, it will probably settle down almost seven points. And the sectors, just want to let you know that you're supposed to kiss under the mistletoe because it's green and all kinds of things at Christmas, only one sector in the red, that would be energy and nobody wants to kiss oil, right?

So as we take a look at where these markets are settling we want to go back to our guests, let's bring in Paul Schatz. Paul, I keep hearing people say that the S&P 500 is going to hit 4,000 as we get into 2021, forget the fact that things are kind of expensive right now. There's a lot fundamentally with this economy that is actually working despite the pandemic or is that a wrong assessment?

PAUL SCHATZ: Hi, Adam. Look, there's-- we continue to have the have and the have nots. It's been the same deal for the past few quarters, that you've got the companies that are rock and rolling and the companies that were previously on their rear ends, but now on the hopes that the vaccine is going to work people are going to get out and travel again.

My only cautionary tale is I'm going to get out and travel. I mentioned to you and Julia, I can't wait to get out and travel but I'm not the big ticket item. I don't have the Adam Shapiro money. The big business travelers are not going to be running out and I don't see the surge of conferences and corporate meetings in 2021. But I do agree, I do think the S&P will see a peak over 4,000 in 2021.

Before that, I think this dotcom era-esque greed and euphoria is going to get punished with some type of hit over the head during Q1. But I would say that's a decline to buy, it'll shake out the trees, it'll get rid of some of these late comers who think there's only one way in the market. But overall, yeah, I think that the economy is in a better spot with the more stimulus that will continue to kick in and the economy should be absolutely fine for 2021.

JULIA LA ROCHE: Well, Victoria, I want to bring you in to react to that and what are the risks that are going to be on your radar that could derail some of this in 2021, what are you paying attention to?

VICTORIA FERNANDEZ: Sure. So similar to Paul, we don't anticipate that everyone is just going to jump back in to where they were pre pandemic. So when we look at where we've come from March and April, the consumer and the consumption numbers have really been key to get this market back to where it is at this point in time and the continual new highs we're seeing.

So for us, the biggest risk going into next year is going to be that the fundamentals don't hold up because at some point COVID headlines are going to start to drift away. We've got the vaccine that's rolling out, there's going to start to be reopening, probably in the springtime. So we need those fundamentals there. We need manufacturing to continue to do well, we need durable goods in there. We need the consumer to continue spending.

If we don't see that, that's going to be a risk. That's why we really don't like betting on some of those reopening trades, the cruise lines or the airlines, because we don't anticipate that that's going to be something that's going to pay off. We do like that growth sector a little bit. We're weighted a little bit heavier towards growth stocks at this point in time. And so we would say, look in there, things that have to do with longer term trends coming out of COVID. Doesn't just have to be 5G, it can be other areas as well like retail and housing. Look and see even credit cards, see where you can find some opportunities there on pullbacks that we have.

ADAM SHAPIRO: Do you see opportunity by any chance, Victoria, with Tesla or I mean, there are some analysts who are saying that Tesla is going to fall drastically in 2021. What should we as investors look at?

VICTORIA FERNANDEZ: Yeah, so you know, historically when you look at companies that have been added to the S&P, over the 12 months following that addition, the stock really tends to come back and under performs the rest of the S&P. So we do not own Tesla. When you look at the balance sheet it's really not-- it doesn't fit into the thesis that we like to have that has low net debt, high cash flow. It just doesn't fit into that thesis for us. So we don't own it. But if it's a name you want to own, there's so many people that really don't care about the fundamentals and the balance sheets, they're just gung ho on the product itself. Then I think you wait a little bit, let that name come back, then you can add it into your portfolio. But it's not a name that we currently own.

JULIA LA ROCHE: Thanks. Paul, you had in your notes about potential rally killers. What do you think could derail this? What are the things you need to be paying attention to?

PAUL SCHATZ: So I just had this conversation three times this morning with clients, what could be on the horizon to hurt the market? Well clearly number one is if both Senate seats go blue in Georgia, that will change the tax policy, we'll get more stimulus, but I think I'll downgrade my opinion of 2021 and 2022 if that happens.

Number two, no one talks about what if China raises interest rates? You want to talk about throwing the currency markets into a global tizzy, that's a big one and that certainly could happen. I wouldn't rate it in a likelihood yet but if you want to say what could trip the market up, sure. And look, if the greenback, if the dollar begins to rally, that-- very few are positioned for that. So those three things, of course, the virus and the vaccine, but those are all known things. I don't think anyone would be shocked if something happened with the virus or the vaccine. China raising rates and the dollar rallying would certainly throw the currency markets and the credit markets into a tizzy in 2021.

ADAM SHAPIRO: Paul, a follow up to that though, it doesn't have to be China to throw things into a tizzy. I've been seeing leaflets throughout New York City about tax the rich, tax the rich, tax the rich. And if the Democrats were to win Georgia, would you see a move to do just that, capital gains, all of that?

PAUL SCHATZ: 100%. And I had a discussion this morning with a client who was pushing back on me that Biden is a moderate and they wouldn't raise taxes. And I said, if both seats go blue, which is probably about a one in three chance right now, I think in the first 100 to 120 days, they're going to raise corporate taxes, raise capital gains, raise income taxes on higher earners. And even though there will be more stimulus coming to quote unquote offset part of that, that's a longer term negative for the market. And I think maybe we still see S&P 4,000 but that would be a peak and perhaps a peak of significance in the midterm elections. So yeah, maybe Joe Manchin somehow goes from being a purple guy to maybe a light red guy if both seats go blue, but frankly I'm not putting my investment eggs in Joe Manchin's basket.

ADAM SHAPIRO: All right, we want to say thank you to Victoria Fernandez, Crossmark Global Investments' Chief Market Strategist. And Paul Schatz, regarding that Shapiro money, it'll get you as Studebaker which you can get for about $1,000 on eBay right now. All the best to you, Paul Schatz, Heritage Capital President.