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Market Recap: Thursday, November 5th

Stocks jumped Thursday to extend a rally from a day earlier, as traders honed in on the outcome of the U.S. election, with several key states’ results still hanging in balance. Steven Blitz, TS Lombard US Economist , Sylvia Jablonski – Direxion Managing Director of Capital Markets joined Yahoo Finance's Jared Blikre, Seana Smith, and Adam Shapiro break down today's market action on Yahoo Finance Live.

Video Transcript

SEANA SMITH: For more on this, we want to bring in Sylvia Jablonski. She's the managing director of capital markets at Direxion. We also have Steven Blitz, a US economist at TS Lombard, and our very own Jared Blikre joining the conversation.

Sylvia, let me toss it to you first. This rally that we're seeing for the second day in a row, still so much uncertainty in terms of what's going to happen when it comes to the presidency. Is there any feeling out there that the market might be getting a little too ahead of itself?

SYLVIA JABLONSKI: Hi, Seana. I think what's really interesting is that, you know, this machine that is the market seems to have reacted fairly well to the situation that we're currently in. And that seems to be this perception that we'll have a divided Washington, which will mean probably no to low regulatory issues for the big tech firms. The corporate tax issue perhaps will fall to the wayside. And perhaps there's fiscal stimulus that comes. And whether it's a smaller number than we hoped for, it will probably still come.

So some of the big regulatory stuff got pushed to the side. I think the fiscal stimulus is coming. And, you know, maybe the uncertainty about who is in office if Washington is split is less of a concern. So I think a lot of the rally comes, really, around just how large corporations will be impacted by policies.

ADAM SHAPIRO: Stephen, is it possible, though, that those who are betting or driving the market higher because they like, say, deadlocked government are forgetting that Joe Biden, should he win this election, did lots of deals, as we discussed yesterday with another guest, with Mitch McConnell. And they'll probably do more deals going forward.

STEVEN BLITZ: Yeah, and I think, you know, you have to be a little careful here. I think first off, I think the market's up because, let's face it, everybody celebrates when they know their taxes aren't going to go up, especially with what was being forecast in what was really a-- you know, a document on the Biden website that was really meant to hold the progressives in to vote for him.

So, yes, I think that it's a mistake. On the one hand, no, we're not going to get the big Green Deal, the multi-trillion, multi-year tax increase and spending increase on infrastructure. But I think it's also a mistake to believe that you're back to Obama, McConnell, where nothing's going to get done. And I think McConnell understands that he's got to make some gains in two years.

Biden's a one-term president so he knows he's got to make-- the campaign for 2024 begins January 20. And he wants to position the Republican Party as being a good cooperator and with a perspective that's going to really support a Republican candidate in four years, whoever that Republican candidate happens to be. So it's not a 011.

SEANA SMITH: Steven, we're just closing in on the closing bell right now. We're taking a look at a rally on our hands. All three of the major averages in the green.

[BELL]

Right, that does it for the trading day today. Again, the Dow closing up just almost 600 points as it rallied into the close. The S&P up over 2%. The NASDAQ, that was the big winner the majority of the trading day, closing in the green, up nearly about just over 2 and 1/2%.

I want to bring in Jared Blikre. Jared, you're closely looking at a lot of those technical levels, the fact that we're seeing all 11 of the S&P sectors move higher today. What do you make of today's action?

JARED BLIKRE: Well, I think it's constructive. We've had this incredible four-day surge here. And we went over the intraday charts before the closing bell. So let's go over some longer term ones on the YFi Interactive. This is a three-month chart of the S&P 500. And you can see we're in a trading range here from about 3,600 all the way down to 3,200.

And as we've approached this upper area here and a lot of market technicians are kind of drawing some trend lines, this is going to be perfectly straight, but this would be an ideal place for a pause. Now we could get a catalyst that sends it up a little bit more, even a breakup. But I think it's going to need to be a big one. And well, we could have some on the horizon, especially related to the election. So we'll wait for that.

We could also go to the downside here pretty easily. I do want to point out, though, that it's been a great day for the Russell 2000 and for some of that value and cyclical plays because it is at a nine-month high. We haven't seen this high this price level since February. And I think that's going to be an important breakout to watch.

Also, the transports were strong today, up 2 and 1/2%, marching up towards its October highs. And then we got the bond market. The bond market has kind of found a floor here at 75 basis points. And the bond market has been kind of in a trading range, too. We got to take a little bit longer look, but going all the way back to April, even though we've been trending up here, for the most part, we've had a ceiling around 90, 95 basis points.

Finally, I do want to hit the US dollar. That's been a major factor here. And this is also a year to date chart, but you can see we're at the-- approaching, at least, the bottom end of this range. So everything's in a trading range, and we could reverse.

But looking at today's price action, nice to see these big cap tech stocks really doing well again. And also the leadership, where we had so many sectors contributing to the point advances today, the gains today. Materials, tech, financials, industrials, communications services all outperformers. Only energy to the downside was in the red, and only by 3 basis points.

ADAM SHAPIRO: Sylvia, when-- thank you, Jared, by the way. Sylvia, when you talk about seeing a move towards growth from value, when we get whatever the stimulus looks like and we have such low interest rates, is there a chance that investors could misread what they see in a company's balance sheet? Things might look a lot better on the growth side than when, in fact, they truly are?

SYLVIA JABLONSKI: Yeah, I mean, that's certainly possible. But what I-- you know, what I sort of think will happen is that the fiscal stimulus will flood the market. And that will prop up even some of the small cap names, as well as the technology and the growth names. And, you know, money is pretty much free to borrow. A lot of these companies I think even prior to stimulus have pretty good and strong balance sheets and they're quality companies.

So investors, right now with the uncertainty of whether it's the election or the coronavirus or whatever it might be, you want to look at companies that have growth potential, but also have quality. And I think sort of regardless of stimulus, if you strip out the numbers, some of the top names leading growth really do have that. And it fits the bill. So, you know, continue to focus there, is probably where we're going to see investors going.

I also think that with fiscal stimulus coming into the market, I totally agree with what Jared said. We could have a breakout up or down, depending on what happens with the election and also with the virus. But once things settle down, 2021, more fiscal stimulus in the market, it sort of feels like we have this sort of artificial floor that will help the broad market recover for years-- for a few years to come, at least. You know, we have to pay this back eventually. But in the few years to come, I would expect some positive momentum in growth and broad-based.

SEANA SMITH: Steven, I want to bring you back into the conversation and just really turn to what we heard from the Fed today. Because nothing there that we've gotten from the Fed was groundbreaking. But I think one thing that did stick out to us was the fact that Fed chair Jay Powell's tone, I think when it comes to the economy, was a little bit more cautious than what we have had in the past. Concern there about the virus and the pace of the recovery. How are you looking at all of this?

STEVEN BLITZ: Well, I think there's a couple of things here. I think one is that the Fed is telling all we can really tell everybody is if things get worse, we are there to help. And we will support the markets. We'll support the economy. They'll never admit they're out of ammunition, but they'll say they're out of ammunition anyway. And that's really what his message was.

And his caution is coming from looking at Europe, which seemed to be, if you go back a couple of months, you know, they were all at the beach and at the bars. And everything was fine, and they're making fun of the Sunbelt in the US, and that they were so smart in the fall. And look where they are now, you know, and they're starting to shut down. And that's how quickly it can turn.

And, you know, if it turns that quickly and you're getting rid of the stimulus and the CARES Act is starting to run off, there's not as much excess savings as there was a few months ago, then suddenly, the economy can get very weak very quickly. And it's a bit-- to look at the 30 odd percent increase in Q3 and believe that's sort of a normal recovery kind of 30% with that momentum just barreling through, going forward in the next several quarters, he's telling you, it's a little bit of fool's gold.

But I think the most important thing he mentioned, which is not the question you're asking-- I appreciate that. But he said that they had a long discussion about asset purchases. And what they were really talking about, thinking about what Brandon had said a while ago, is that if the 10-year and the 30-year start to go up, they will shift the maturity structure of what they owe, which is, right now, that's purposely neutral.

But they will shift the-- they will shift it up-- out, I should say, in terms of its maturity. And they will hold down basically the 10-year so there is a yield cap. We don't know where it is. We don't know when it is. We don't know-- we know how it can be done. But he kind of basically said that's what they talked about.

ADAM SHAPIRO: OK, so easy money for a while. Sylvia, when we talk about money and stimulus, you know, investors like to know what's going to pop. And you're pointing out that some of the mega tech related names like Apple, Nvidia, Google could see some benefit because we're all stuck at home. But I wanted to ask you more directly. It's time to start buying for Christmas and Hanukkah and the holidays. And buying the GI Joe with the kung-fu grip is going to help some companies, whether it's a tech game you're buying for your kids or something else, right?

SYLVIA JABLONSKI: Yeah, I think-- look, I think that going into the end of the year, I think that, like, Q4 numbers are going to be a lot more interesting than Q3, where, for tech, I think, like, for Apple in particular, the iPhone 12 and the Max Pro 12 and all that stuff, those numbers are going to be looking very good. I think all of the purchases that we've made to work from home, whether it's tablets, laptops, media equipment, whatever it might be, there's been such a pop there, everything from using things like Teladoc to Pelotons and things like that.

So I just think that, you know, whether it's working from home or, like, this new, flexible, hybrid world that we live in where we have happy hour on Zoom, or we're working in an office part-time, using our laptops at home, whatever it may be, kids learning from school, like, all of these cybersecurity, cloud, actual technology companies like Microsoft, Apple, and then, like, CrowdStrike and the Twilios, they just have a lot of tailwinds behind them right now. And there's no resolution from COVID.

So I think that, you know-- I don't think that's going to go away. I do think that there's going to be this transformation, societal shift that stays. And to your point, you know, coming into year-end, these are also just really good gifts to buy. So there's consumer spending, fiscal stimulus, and perhaps no more regulation for tech. I see some of the trend continuing.