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Market Recap: Thursday December 3rd

The three major indices rose after data showed new weekly jobless claims fell more than expected last week, even as businesses contended with myriad new stay-in-place measures as COVID-19 cases spiked.

Jay Jacobs - SVP, Head of Research & Strategy at Global X ETFs and Kevin Nicholson - RiverFront Investment Group Global Fixed Income Co-CIO, 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: Just about three minutes until the closing bell. Let's bring into the stream Jay Jacobs, senior vice president, head of research and strategy at Global X ETFs. Also Kevin Nicholson, RiverFront Investment Group Global Fixed Income co-CIO. Let me start with you, Kevin. You say you are risk on, even with this market pulling back slightly on that Pfizer news. Isn't it a bit expensive to be buying in right now? Shouldn't you wait for a bigger dip?

KEVIN NICHOLSON: Well, we've been risk on pretty much all year. And I think that going forward, you have a couple of things that are tailwinds for the market. It looks like that we're going to get some fiscal stimulus prior to Biden taking office on January 20th. That wasn't expected in the marketplace. And it seems like that, you know, Washington is finally starting to come to an agreement.

We know that we're going to get a vaccine. Vaccine distribution is being talked about now. And that's what's been priced into the market. And, you know, there is a positive earnings outlook going forward. And so, we think with-- you put those three things together, and we think that you're going to get a Santa Claus rally, especially if we get stimulus prior to Jan 1.

SEANA SMITH: Jay, what do you think? Do you think we'll still get the stimulus-- or do you think we'll still get a Santa Claus rally, even if we don't see some sort of stimulus before year end?

JAY JACOBS: Well, I think in order to get a strong rally without any stimulus, we have to see just a absolute crushing holiday spending season. I mean, 70% of the US economy comes from consumption. We've seen some early numbers that suggest very strong Black Friday sales on Cyber Monday. But the problem is we've seen a little bit of a decline in confidence among the consumer as COVID cases have risen heading into the holidays.

So in order to stimulate the economy without any sort of official fiscal stimulus, consumers have to take on that responsibility on themselves. I think so far, at least within the e-commerce space, we've seen a lot of strength. But this needs to continue for the next few weeks to continue to power this rally, heading into year end.

ADAM SHAPIRO: All right, Jared Blikre, we were looking at potential records until that Pfizer news. What are you watching as we head to closing bell?

JARED BLIKRE: Well, I'm just looking at the tape right now, and I want to go straight to the YFi Interactive to look at the price action over the last hour because it's been simply incredible here. We made new highs here, just about 315. And then 30 minutes later, we were making new session lows. It came back up to about 50% and sold the halfway back to make even more-- even newer session lows here.

In the grand scheme of things, we're talking about the equivalent of 200 Dow points. You look at a three-month chart. Still well within this upward rising trend here. So I think this is going to be kind of a one-off, maybe a small buying opportunity. But we're going to see more news like this going forward.

And we're going to get more hiccups in the vaccine distribution process. But I think the good news is going to outweigh the bad news, especially in this month of December. So long as we're climbing this wall of worry, nothing probably bigger to be feared. S&P goes below 3,600. That kind of changes the game here.

Let's take a look at what the stocks are doing. We got the NASDAQ 100. Facebook had been under a bit of pressure, now down over 2%. But we're still seeing some strength in the names that were leading earlier. Tesla up 4%. Now that's also kind of a safety stock, if you can imagine it a defensive play, so maybe not surprised to see it up even more on the news. But heading into the closing bell right now. So let's see where the markets settle, guys.

[BELL]

SEANA SMITH: And that does it for the trading day today. Again, you can see us closing right around the lows of the session. The Dow holding on to gains, though, up just around 86 points, as we shake out the final trades. S&P ending the day in the red, off just around two points. The NASDAQ, though, also holding on to gains. You saw the NASDAQ and the Dow both the outperformers for most of the trading day. It's a record close here for the NASDAQ that you're looking at 12,377.

Kevin, I want to bring you back into this. And as you see, some of the leadership in today's market has been some of those travel names, the names that had been beaten down. American Airlines one of the outperformers in the S&P. Carnival, Norwegian Cruise Lines also gaining today. Are you seeing any opportunity in some of those reopening trades, especially when it comes to travel or the headline that we got from Pfizer on a day like today proves that it's a little bit too early to be betting on some of those names?

KEVIN NICHOLSON: I think it's a little bit too early to be betting on some of those names. We-- there's definitely been a rotation into-- in the marketplace. And we have started to rotate our portfolios accordingly, taking a little-- having a little less growth-- growthy type names in the portfolio and adding a little bit of value. However, we haven't gone to those consumer discretionary names like those travel stocks that you mentioned.

ADAM SHAPIRO: So Jay, when you take a look at where we're headed with all of this, and you look at opportunities that we could be heading to, you talk about the Internet of Things and 5G. Should I be looking at traditional tech companies, or should I be looking at those who are going to be building out 5G? Because with the new administration, who knows what's going to happen with Huawei?

JAY JACOBS: Yeah, absolutely. Well, what we've seen is a lot of the network service providers and some of those telecom names really weren't the winners of 4G. You know, 4G was a astronomical launch forward from 3G, which was to allow for people to use their mobile internet to upload photos, upload videos, shop online, really engage in social media.

But the winners were not, you know, the AT&Ts and Verizon's of the world. They were actually the chip manufacturers and the device manufacturers. They were able to take advantage of this 4G infrastructure and launch completely new services that we never had before. So we think similarly with 5G, this is not a play on AT&T and Verizon again. It's probably a play on the chip makers that are making the chips that connect, you know, the new iPhone to 5G.

But also, what are the new companies and new themes that are going to be built on top of this 5G technology? Autonomous driving, which is going to require massive amounts of data being sent and transmitted from autonomous vehicles. Augmented and virtual reality, which is going to be, you know, immersive experiences either in shopping or gaming. These are the areas that right now, you know, just don't have the architecture to really be built on 4G. And an entire new world of technology can start to emerge when 5G is built out.

SEANA SMITH: Kevin, I want to ask you just about what we're seeing play out in the bond markets, and specifically, the 10-year. It's not too far from 1%. We've seen it well off the lows that we saw several months ago. How big of a threat-- or do you view it at all as a threat to equities and something that could potentially stop this upward momentum that we've been seeing in the market?

KEVIN NICHOLSON: No, I don't. I think that one of the things that you're going to see in the fixed income market is that the 10-year is going to be pretty range bound. I kind of see it as being about a 20-basis point range. And so therefore, once you get above 1%, it's only going to go up slightly. You're going to have the Fed more than likely step out on the curve with its buying program. And I think that that's also going to put a cap on how high rates can go.

And also, when you look across the wall at the negative yielding debt, there's about $16.6 trillion worth of negative yielding debt worldwide. Most of that is coming from Europe. And so, therefore, it's going to incentivize foreigners to buy treasuries because there's a big advantage still here in the US. And so, I don't think that you're going to get interest rates rising enough to dampen the equity trade right now because equities outyield the 10-year by quite a bit at this point.

ADAM SHAPIRO: You know, when I hear that kind of stuff, Kevin, I wanted to ask you. This huge amount of money sitting on the side that isn't earning any interest, even when we get above 1% on the 10-year, it's still not going to be earning a whole lot of interest. So are we going to see this rotation out of money markets and fixed income? And it's going to have to go to-- I can't imagine anything else other than equities, right?

KEVIN NICHOLSON: Right, I mean, when you look around, you're starting to get-- well, you have had asset inflation for quite a while. And that asset inflation has come in, you know, in the form of buying of bonds and equities.

But when you look at it and if you look at it on a relative basis, equities are so much cheaper than fixed income right now. A lot of times, we like to say that the multiples on equities have gotten outrageous, you know, trading 23, 24 times earnings. However, when you look at it on a relative basis to other assets that can be bought, that it's actually not expensive at all. And so, this is why we believe that the equity markets are going to continue to rally. And that's why we have been bullish for so long.

ADAM SHAPIRO: All right. We are going to keep an eye on these markets, but we want to say thank you right now to Jay Jacobs, the senior vice president head of research and strategy at Global X ETFs, as well as thank you to Kevin Nicholson, RiverFront Investment Group Global Fixed Income co-CIO. We look forward to when both of you join us again. Jared, as always, you keep us in the know. We will see you a little bit later on.