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Market Recap: Tuesday, November 10th

Stocks were mixed Tuesday as investors reined in an initial wave of optimism over a promising vaccine candidate. Tech shares remained under pressure, and the Nasdaq dipped further after Monday’s losses. Greg Staples, DWS Group Head of Fixed Income and Keith Lerner SunTrust Advisory Services Chief Market Strategist, join Yahoo Finance's Jared Blikre, Seana Smith, and Adam Shapiro to break down today's market action on Yahoo Finance Live.

Video Transcript

SEANA SMITH: We're looking at a mixed market, with just around two minutes left in the trading day. Dow, the only major average on track to close in the green. We want to bring in our all-star panel. We have Keith Lerner, chief market strategist with SunTrust, Greg Staples, head of fixed Income at DWS Group, and also our very own Jared Blikre. Keith, let me kick it over to you first. I know you've been bullish now for quite some time. How are we thinking about the market in light of the vaccine news we got yesterday and yesterday's massive rally?

KEITH LERNER: Well, I think what we've seen over the last week is just a big release of tension, some less uncertainty on the cold front as a whole and some election uncertainty. And as you may recall, heading into the election, we were telling our clients to use the uncertainty to move into the market or to add to stock. So we're still positive.

I think on a short-term basis, we've had a really nice move here in the last week. We're up 8% or 9%. We've seen the average stock do much better-- some rotation out of tech. I think we'll probably start to settle into more of a short-term range. But, overall, as we look forward to the next 12 months to show, we're still very positive.

ADAM SHAPIRO: Greg, we have about 20 seconds to the bell, but we'll pick it up on the other side. But you say this is the optimum outcome for the election. Can you give me three reasons why very quickly?

GREG STAPLES: Because you've got the White House with a little bit more stable in terms of trade policy. You've got presumably a red Senate. Your previous guest notwithstanding is probably the Republican state Georgia, which would be a tempering effect. And you've got a House that's a little more moderate, so probably less in the way of higher corporate tax.

[RINGING]

[HAMMERING]

SEANA SMITH: Green, up 252 points. S&P and NASDAQ ending the day lower. Jared Blikre, I want to bring you in. You're looking at this rotation here that we've seen in the market over the last couple of days continuing today where we see a lot of those big tech names under pressure with the NASDAQ off more than 1%.

JARED BLIKRE: Yes, they have. And you can see the disparity just in. The results of the major indices now. So we've got the Dow up 260 points, not quite 1%. NASDAQ down 1.3%. S&P 500 just slightly underwater, 14 basis points, and the Russell 2000 knocking it out of the park again, up 1.86%. And you look at the two-day price action in the Russell here. And actually, let's go to a seven day, because that's how long this rally has really been going on since last Monday.

12.89%. This is going to be good for the best November, at least, on track for the best November in the history of the Russell. And you'd have to go back to 2016 to see the second best. And I think that says a lot too. You talk about rotation, yeah, we have nice internals right here. So the S&P 500 equal-weighted has been advancing nicely. It was up 62 basis points today.

We've got broad participation. You look at some of the market internals, like advance decline lines. The S&P 500 closed at a record high in terms of breadth and advance decline line. The New York Stock Exchange might be there, as well, might be tied. But nevertheless, we're seeing this rotation is inflicting a lot of pain on some of the portfolio managers and hedge funds and maybe individual investors, but this is what happens.

Anybody who wants to participate in what usually happens at the end of the year in December and November-- that's a melt up rally-- needs to get their ducks in a row right now with as much information as they can. I think that's what's happening. So, unfortunately, some of the big flyer, high flyer, Zoom, that's off another 9% today. You look over the last two days, 24%. That hurts, but we're seeing it make up in other areas.

And I don't think this continues forever. We're going to have to see the big guys participate if we want to get to record highs and extend beyond. But it's been when you have a breakout like this and then you come back and test the prior breakout level, as we've done today in the S&P 500, that's perfectly normal. And I'm not looking too negatively at this price action right now.

ADAM SHAPIRO: Jared, thank you. Greg, I want to bring you back in. And I put you on the spot. In 20 seconds, give me your dissertation, you know, with the three [? reason. ?] But I did-- there was something you pointed out that has gotten lost in the election about some of the fundamentals that may help this market drive even higher as we go forward. And that was the jobs number last week. What does that tell you about what's going on in this recovery?

GREG STAPLES: You know, it's funny because it did get lost in the headlines. But the jobs number last Friday was an absolute blowout. One full percentage point decline in the unemployment rate. And the demographics were really strong as well. 1.3% decline in black unemployment rate, 1.5% decline in the Hispanic employment rate. 2.2 million Americans got a job last month that they didn't have before.

Ultimately I think the market's going to be driving on an economic recovery. It's going to grow on earnings. And this sets the table for a nice recovery in 2021. So we're really pretty positive. And the amazing thing is it did it in the face of increasing COVID and also no stimulus. Everybody said the economy was going to slow down once the July supplemental unemployment fell off. It fell off, and we still did OK. Services and leisure that gained 600,000 jobs in the last two months. So the momentum is pretty strong for a 2021.

SEANA SMITH: Keith, we just heard Greg mentioning the fact that we still don't have stimulus. What is the market expecting at this point if we don't get some sort of deal over the next couple of months? Could we expect to see a sell off?

KEITH LERNER: I think you might see some choppiness. But to the point is I think people now don't realize that the economy can move forward, you know, without stimulus, and it has. It won't be as fast as if we get the stimulus. But we still think a package is likely coming. And the market will look through that. And also, just seeing the end of the other side of this pandemic I think will allow investors to look to the other side as well. So, again, I would really focus less on the next 3%, 4%, 5%.

If we're early into this economic cycle, as your guest just discussed, which we think we are, we think we probably have multiple years to go. Then the [? lying ?] trend should be positive. And the earnings story is so underappreciated. We're seeing earnings rise at a very strong clip, the strongest since 2008. And on the other side of this, companies are going to be leaner, meaner. And we think profits rebound a lot quicker than people have anticipated. And so far, it has surprise to the upside. And we expect that to continue into 2021.

ADAM SHAPIRO: So for many year, we've all thought, you know, tech, tech, tech. What other sectors besides tech because we're seeing money come out of tech right now? What other sectors should people then pay attention to going forward?

KEITH LERNER: Yeah, well, one thing earlier this year where we were definitely more focused on just growth, we are more bullish now. We still like tech. But in the short term, we think it's going to continue to take a step back to places like industrial. Look at industrials today making another relative high that we haven't seen in about six months. Material sector is also acting very well. That's all good signs for the global economy.

You know, we've been underweight financials for some time. We're starting to see improvement, not only in price trends, but in earnings trends as well. So we still have a bit of a barbell. But we're starting to inch more towards more of the cyclical side of that barbell exposure.

SEANA SMITH: Hey, Greg, I want to ask you just about the 10 year, because right now, we have yields rising once again getting closer and closer to that 1% level. Is there a level that you're looking at where the 10 year could hit that then he gets a little bit worrisome for equities?

GREG STAPLES: I think 1% is probably a good touch point. The point is if it's done because of good solid economic reasons, we can go through 1% and through that. If it's done more because of fear or some other reason-- too much debt-- that it's going to be an issue. Also, the reaction function from the Fed is pretty important.

We think that they're willing to let the 10-year get above 10% without stepping in and doing some yield curve control. Again, if it's for the right reasons-- nice jobless claims print, nice GDP print, et cetera. If it starts to rise with weaker economic data, they're going to step in and probably do a little yield curve control and press it back down below 1%.

ADAM SHAPIRO: You know, when we take all of that into consideration, Greg-- and I know you guys can't talk individual stock. I pulled one up in industrial Caterpillar, which is, actually, it was flat today at the close. But we're all expecting an infrastructure bill-- might not be as big as it would have been. You know, we're expecting a stimulus bill-- might not be as big as it would have been with a split government.

All that money's going to have to flow somewhere. So when we look at the sectors, I'm trying to find the argument as to why it wouldn't-- you know, industrials go higher and manufacturing go higher. And I can't find the argument right now that they won't.

GREG STAPLES: I think Keith makes a pretty good point. I think that the interest-- the previous stimulus, unfortunately, a lot of it was imported away. The people who got those supplemental paychecks went to Walmart, and they bought stuff imported from China. I think a good infrastructure that's targeted can actually help the US industry help US industrials. So it's a positive case.

SEANA SMITH: Hey, Keith, [INAUDIBLE] we saw the market get so excited yesterday on the heels of that news that we got from Pfizer. But there's still lots of questions out there. There's uncertainty around the distribution of the vaccine, also some of safety questions. We've been talking to doctors over the last couple of days. We still have a lot of questions just about the efficacy and really getting the whole picture, I guess, is a better way to put that. How do you expect the market to react if we do get anything that's a little bit worrisome on that front?

KEITH LERNER: Well, I think to your point, we've had a nice upside move. You could see us give back some. But I think the other thing that remember is, this isn't the only vaccine or therapeutic in the world. There will be others. And hopefully we'll get some-- some more good news on that. But to your point, you know, everyone's feeling really good. I know like, when we added equities into the election, there was a lot of people thinking that we were somewhat crazy to do that because there was so much uncertainty.

Now, we're getting clarity. That means your expectations are a bit high. So you could be set up for a little bit disappointment. But, again, I think the underlying trends are still positive. But I wouldn't overly focus on the short-term hiccups, which are the admission price to being in the market. I really focus on these broader trends, which in our view for the economy, for the earnings, and for the market is still positive.

And then just a last point. If rates move up, even if rates went above 1%, the equity risk premium-- the earning yields compared to the 10-year treasury-- is still in a bucket when we test this out. Historically we're on a one-year basis. Stocks have outperformed by fixed income by a wide margin.

ADAM SHAPIRO: So Keith, we had a guest on last hour, Steve Sosnick, who pointed out that so what if we go above 1% with the 10-year yield. But I did want to ask you, when you look in the rearview mirror and you point out that the S&P 500 has been up more than 10% over the past six days since World War II, that's only happened 12 previous times. What is that telling you about where we're headed?

KEITH LERNER: Well, the big picture when you see big momentum-- studies of big moves up in the market, that often scares people. And I must say that might mean the market's getting a bit stretched in the short term. But when you test these things out, they're actually very bullish when you look at six months to 12 months higher.

And even like yesterday, we had 70% of stocks in the S&P make one-month month highs. Again, short term, that often leads to a consolidation. But the risk-reward when you look at 12 months is very positive as a whole. So I would say don't fear momentum. Momentum historically is a good omen when you look out six to 12 months out.