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Market Recap: Thursday, February 4

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Stocks rose Thursday for a fourth straight session as tech and bank shares advanced strongly. The S&P 500 and Nasdaq each reached fresh record closing levels, and the Dow also advanced. Shares of eBay jumped 5% and shares of PayPal added more than 7% after both companies reported fourth-quarter results and first-quarter guidance that handily beat estimates. Hennion & Walsh CIO Kevin Mahn and New Constructs CEO David Trainer joined Yahoo Finance Live to discuss.

Video Transcript

[MUSIC PLAYING]

ADAM SHAPIRO: A little over three minutes to the closing bell. Let's bring into the stream Kevin Mahn, he is Hennion & Walsh CIO, also David Trainer, the CEO of New Constructs. Good to have you both here.

David, let me start with you, because you pointed out to us the stock trading mob ran out of runway with Tesla. We were talking about GameStop. But with Tesla, you really think they ran out of runway with Tesla?

DAVID TRAINER: I mean, ran out of runway, ran out of interest, same with Netflix, same with Peloton, same with Pinterest, Snap. These are all stocks that are trading at levels that are drastically disconnected from fundamentals, same with DoorDash. There's really not many analysts that'll make a straight-faced argument that the valuations of any of those stocks make any sense.

And so this is a long-standing trend. It's a phenomenon where the self-directed trader is, you know, like anyone with a hammer that everything looks like a nail, and so they feel like the best way to influence the market is to trade, trade, trade. And they're not really yet up to speed on the fact that it's not just about trading, it's about doing some research and having some insight.

And that's why we're seeing these things for a sustained period of time pushed away from fundamentals. All the while, Wall Street's cheering on the sidelines, because they're making big money IPO'ing these stocks and doing-- and feeding on all the order flow. So they're there-- you know, they love it. Where I think the big risk at the end of the day, though, is that these self-directed investors get left to hang out to dry when the stocks return to levels that reflect fundamentals.

SEANA SMITH: David and Kevin, stick right there. We want to bring in our markets reporter Jared Blikre for a closer look at some of these movers into the bell. And Jared, what are you watching?

JARED BLIKRE: All right, I'm watching the markets at session highs, or close to it, right now. We've got the Dow, S&P, and NASDAQ each up about 1%. The Russell 2000 doubling that, up about 2%. We just took a look at the NASDAQ 100, so I'm going to dip into the Dow here, which is-- was outperforming earlier.

We can see Apple up 2 and 1/2%, almost, Microsoft down about 1/2%. But some of the standouts here, we got Visa up nearly 4%. Travelers, and American Express, and Cisco each up over 3%. And speaking of traveling, that travel trade really working well today. Southwest Airlines up 5%. Also seeing Live Nation, that's up 4.8%.

Some of that also coming as we just got word that legislators in California are looking to pass a law to reopen the theme parks. Not sure why that takes the state legislator, but there you are. And so we can see SeaWorld is up 9 and 1/2%, Six Flags up 6%. That's rather axiomatic there.

And also what stands out to the downside, AMC, one of those Reddit-based stocks, that is down 20%. Some incredible volatility that we're tracking there. And just rounding things out, let's take a look at the sector action for today as we head into the bell.

Only materials is in the red, and that says we have a higher dollar. But financials up over 2%. Tech at a record high. XLK, that's up 1 and 1/2%. And industrials up 1%. Those are the outperformers.

And then looking at the banking sector, which has really been on fire, lots of green there. Wells Fargo's up 3%. Here is the closing bell on Wall Street, guys.

[BELL RINGING]

[GAVEL BANGING]

SEANA SMITH: And that does it for the trading day today. Again, all three of the major averages closing in the green, Dow and S&P up for the fourth day in a row. Russell 2000, like Jared was just pointing out, the small-cap index, is really the outperformer in today's market, with the Russell 2000 closing up nearly 2%, up just around 1.8%.

In terms of some of the leadership that we're seeing in the market today, sector-wise financials, what Jared was just discussing, technology, and industrials leading the way. Also getting to the bond market, 10-year yield closing at its highest level in 11 months. We've got a jam-packed hour here for you, a couple of earnings reports that are set to break here at any moment. Peloton, Snap, and Pinterest all set to report their quarterly results after the bell today.

We want to bring back in Kevin Mahn, he's with Hennion & Walsh, Chief Investment Officer there, and David Trainer, he's the CEO of New Constructs. And Kevin, let me just get your thoughts just on the market action today and some of the buying activity that we've seen over the last four trading days.

KEVIN MAHN: Yeah, I think it fits into three of the potential rotation trades that we're closely monitoring for 2021. First being smaller-cap stocks starting to outperform larger-cap stocks given the excessive valuation that large-cap stocks are currently trading up with a PE north of 30 right now. International stocks, notably emerging stocks, outperforming US stocks.

And then that potential rotation from growth-oriented stocks to value-oriented stocks. Certain sectors that are outperforming today, like financials, are generally value-oriented in nature, and that's starting to hint that maybe that's where the pockets of growth opportunities will be in 2021. But of course, we cannot forget about some of those technology names like Apple and Amazon that continue to innovate and continue to drive the economy forward.

ADAM SHAPIRO: David, I'm curious, because I know that we invited you to talk a lot about the GameStop phenomenon, but when we look at the major tech companies and the earnings that we have seen from the Apples, the Amazons, the Googles, I mean, if you're a risk-adverse investor and you got the cash to buy an expensive stock, wouldn't those big tech names be the way to go?

DAVID TRAINER: Yeah, I think so. Look, I mean, those guys make real money. I mean, that's the difference between some of these other stocks we're talking about that don't make money.

But Amazon, and Facebook, and Google, look, they've got strong, defendable franchises. They're impressive businesses. Now, are they getting expensive? Yes. Are there better opportunities? Yes. But they're a whole lot less risky than sort of these retail frenzy stocks, no question.

SEANA SMITH: Kevin, just taking a step back and looking at kind of the bigger themes at play in the market at this point, we talk about all that speculative trading action that we've seen over the last couple of weeks, but we also have the stimulus talks--

DAVID TRAINER: Yep.

SEANA SMITH: --happening down in DC, the COVID outbreak, although the numbers are getting a little bit better. I guess, what do you think are the dominant themes at this point that the market is watching the closest?

KEVIN MAHN: Certainly additional stimulus was at the top of the list. We saw the initial jobless claims report come in right now today at a two-month low, that's positive. But let's look at earnings too. Fourth quarter earnings are really impressive thus far, with 82% of companies that have reported thus far beating earnings estimates, and 76% of those companies beating revenue estimates.

Seana, if that 82% beat rate holds, that'll mark the highest beat rate going back to 2008. So one way to improve that PE ratio, prices coming down or earnings going up. If we can continue to see earnings growth, that could also create some more attractive investment opportunities.

ADAM SHAPIRO: David, is it possible to take a look on those chat forums, at Reddit, on where the aggregation of the individual investors are talking and what metrics they specifically are looking at when they're considering a stock?

DAVID TRAINER: You know, I think they're looking at chatter. I don't think there's any fundamental metrics involved. And look, I've looked at some of these chat rooms, and I've been in discussions. I've had some one-on-ones with some of the Tesla bulls. And look, fundamentals don't enter into it.

And I think a lot of times they don't always even know what fundamentals mean, and largely because let's face it, it's not necessarily Wall Street's best interests for them to know what fundamentals mean, because if they did, they probably wouldn't be taking the enormous amount of risk they're taking by pushing these stocks up so far beyond where fundamentals make sense. So it's almost ignorance is bliss for Wall Street.

And the end game, though, is that ignorance will not be bliss for the individual investors. And you know, there are technologies out there that provide high-quality fundamental research at a super low cost that could help the individual investors out. And this is something we think could be disruptive to Wall Street, because we should be at a place where they don't just have to trade to influence markets, they can also act on good information.

ADAM SHAPIRO: But to follow up on the first question I asked you, and it's in regards to Tesla, basically flat today, but it closed at $849 a share. Those retail investors, I mean, are they looking at the fundamentals when you talk about Tesla?

DAVID TRAINER: No, not at all. I mean, they don't-- oftentimes I've seen people not even understand what fundamentals are. I mean, you know, the stock price at $800 implies that Tesla is going to own, like, 150% of the entire electric vehicle market by 2030.

I don't think anybody will make a straight-faced argue that that's going to happen, especially when you see in Europe that their- their market share has dropped, like, I don't know, their fifth or sixth or seventh place in dropping, right, where people are ahead on-- or other firms are farther ahead. And then you see GM really leaning into electric vehicles, finally, right?

You know, the idea that Tetra's going to take over-- Tesla's going to take over the world and beat out all of these incumbents who already have manufacturing expertise that Tesla's not able to match, right-- I mean, don't forget how many promises Elon Musk made about production of vehicles that he never met. His manufacturing capacity is a real problem, not to mention the fact that the ratings for the cars have dropped way down. Consumer Reports has put them at the bottom of the list. I mean, it's kind of coming apart for Tesla.

SEANA SMITH: All right, guys, stand by. We want to get to some breaking news. Peloton is out with its earnings reports. Ines Ferre has those numbers for us. Ines.

INES FERRE: And Seana, it's a beat on the top line and also on the bottom line with Peloton's fiscal second quarter revenue coming in at $1.06 billion. The estimates were for $1.03 billion. It's boosting its full-year forecast. Also, as far as adjusted earnings is concerned, those came in at $0.18 a share, and the Street was expecting $0.10 a share.

Meanwhile, also Peloton is seeing its third quarter connected fitness subscribers that are coming-- that will come in at 1.9 million. The estimates were for 1.93 million. However, the shares are under pressure, because Peloton is saying that it can't keep up with demands. Profits are-- will be squeezed because of this. Investors in this earnings report, we're going to look for any commentary that has to do with supply chain issues, especially those high-end Bike Plus.

Also, remember that last year the company had announced that it was buying Precor, it's an equipment provider with factories in North Carolina, also in Washington, to try and help with the supply chain issues. And also any further commentary, of course, whether this at-home fitness trend will continue beyond the pandemic. But right now we're seeing that shares are under pressure in after hours. Seana.

ADAM SHAPIRO: Ines, thank you. We're going to go to Jared, because in the aftermarket Pinterest is up more than 10%. They had a beat on their earnings, right?

JARED BLIKRE: That's right. Pinterest doesn't have those supply problems. Let's take a look at the numbers here, because we got big beats on all the key metrics here propelling that stock up 10%, as we're seeing in early trading after hours. So for the fourth quarter, revenue came in at $706 million. That's up 76% from the prior year. Estimate was for much lower at $645.9 million.

Monthly active users, key metric here, is up 459 million. That is a total that's up 37% year-over-year. Estimate was for lower at 448 million. Adjusted EPS, they swung to a profit this quarter. That was expected, but higher than expected, $0.43 versus estimates of $0.33.

Adjusted EBITDA coming in at $299 million versus estimates of $223 million. And their margin, EBITDA margin, 42% versus 19% year-over-year, so getting that up nicely. And they did provide some guidance. They see first quarter revenue to grow in the low 70% range year-over-year. And then fourth quarter US revenue should be about $582 million, up 67% year-over-year, driven by increases in average revenue per user expansion.

They also ended the quarter with about $1.76 billion in cash, cash equivalents, and marketable securities, so nice cash-- cash position there. Excuse me. And then a quote from the earnings statements here, "Q4 capped a remarkable year of growth for Pinterest. Continued product innovation, along with execution and an earlier and longer holiday season, helped us deliver 76% year-over-year revenue growth heading into the new year. As we start 2021, we'll be building on this momentum by continuing to invest in the success of our advertisers, as well as first-class Pinner experience around the globe."

Let's just take a look at what the stock has done recently here. And we can see intraday, that is-- let's get this. Let's do a year-to-date chart. This has been one of the high flyers. This is actually going to be one year here. You can see that we just broke out of this trading range that we've had over the last few months, and you've got to think going to be building on that momentum into the trading day tomorrow, guys.

SEANA SMITH: All right, thanks, Jared. We want to bring back in our panelists on this. And Kevin, let me just turn it to you. Just in terms of some of these names, both Peloton and Pinterest, they have been outperformers during the pandemic. Investors have really kept finding reasons to buy these names. How are you looking at these two investments once we get to this point, because the reaction that we're actually seeing to these both are better than expected reports are very different when you take a look at the stocks?

KEVIN MAHN: Yeah, I guess it just adds to that 82% beat I spoke about earlier, which is just endemic that the economy is growing. But with these two particular name, Peloton in particular, I think that's more related towards concern with what happens to Peloton once Americans and the rest of society across the globe starts to leave their homes and go back to work again. In other words, will their sales stay as high when individuals start returning to gyms or other forms of exercise beyond just working at home in their respective houses?

So that would be a potential concern going forward. But that strength in earnings continues. I just think back to Apple, once again, having their most profitable quarter ever with over $100 billion in sales for the first time. That's staggering. $100 billion in sales in just three months.

And I think there are certain themes that are going to continue to resonate in the new American economy emerging from the COVID-19 pandemic in areas such as revolutionary technologies, such as artificial intelligence or cybersecurity, in e-commerce, and of course, in health care, notably biotech. So those are three thematic areas that we continue to look at for attractive growth opportunities ahead.

ADAM SHAPIRO: And let's wrap it up, though, with you, David. And I'm curious, regarding Pinterest, a colleague once said, I don't get Pinterest, but apparently a great many people do because the revenue was up.

DAVID TRAINER: Yeah, you know, look, Pinterest's valuation, it's another one that makes no sense. To justify around $84, $85, a share, they have to have about 16 billion monthly active users. So that's, like, double the population. And that's assuming, you know, improvements in their--

ADAM SHAPIRO: Of the globe.

DAVID TRAINER: Yes, that's average revenue per user has got to go up from where it is now. So look, that's just based on some fairly straightforward math using a reverse discounted cash flow model, which is what we apply for every analysis. And that's, again, this is about getting back to fundamentals.

No one's going to make a fundamental case for Pinterest. They're going to make a case that the stock's going to go up because oh, some top line number goes up or the momentum is there, but the fundamentals make no sense. You know, they've got a limited amount of competition for what it is they do, search engines, et cetera.

There's really not a lot of a moat around this business. They've got difficulty monetizing all these users. And again, 16 billion monthly active users is what's required to justify the current stock price. So, you know, good luck with that.

ADAM SHAPIRO: All right, and you're going to get the final word on that one. Thank you so much, first, Kevin Mahn, Hennion & Walsh CEO, David Trainer, CEO of New Constructs. Good to have you both here. We'll be right back.