Market Recap: Tuesday, October 5

Stocks advanced on Tuesday as technology stocks recouped some losses from Monday. Simeon Hyman, ProShares Global Investment Strategist, and Kristina Hooper, Invesco Chief Global Market Strategist joined Yahoo Finance Live to discuss.

Video Transcript

SEANA SMITH: Just about a minute here until the closing bell. We have Simeon Hyman, ProShares Global Investment Strategist, and Kristina Hooper, Invesco Chief Global Market Strategist here to help us break down today's action. Let's take a look at where things stand here in the final minute of trading. You're looking at gains across the board-- Dow up 331 points, off the highs of the day, S&P still up just over 1%, the NASDAQ up 1.78%.

In terms of some of the outperformance that we're seeing, some of those mega cap tech names are rebounding today back in the green-- Netflix the outperformer in the NASDAQ 100 today, Amazon in the green, Alphabet, Apple, Facebook-- some of the names recouping some losses from yesterday. Energy also an outperformer today-- Exxon, ConocoPhillips, Chevron among the winners today, and then we're also seeing some of the names tied to the recovery, the economic recovery, among the outperformers as well.

[BELL RINGING]

ADAM SHAPIRO: Two down, three to go. Let's see where the markets are going to close on this Tuesday, second day of the trading week. And we see, as John was saying, that we are in the green-- bit of a recovery after a couple of the previous sell-offs that we've seen. Dow will settle at about 312, 313 points in the green, S&P 500 up about 1%, NASDAQ up about 1.25%. Real quick, some of the laggards today on the Dow included Merck, International Business Machines, and Caterpillar-- maybe they were waiting for that infrastructure bill.

Let's get to the guests and talk about all of this. And I'm going to start with you, Kristina, because you remain positive for year-end S&P. What's driving you to believe that we're going to recover some of the losses, if that's how you define being positive?

KRISTINA HOOPER: Well, there are a variety of reasons, but let me run through some of the top ones. First of all, the economic recovery and expansion continues. We actually got some really good data on COVID-19. Infections are down significantly in the US, and they're also down significantly globally. And that's very, very important.

We also got news last week about a new therapy that can be administered via pill. That makes it a lot easier to treat COVID-19 for those who have contracted it. In addition, we are also seeing a continued very accommodative Fed. Even once it begins tapering, this is going to be an environment that I believe will be very supportive of risk assets, especially since Jay Powell has decoupled tapering from rate hikes. So yes, we're likely to see tapering soon, but we're unlikely to see rate hikes as quickly by any stretch of the imagination.

SEANA SMITH: Simeon, I know you have your eye on some of the potential headwinds out there-- supply chain issues, the disagreements down in DC, also, of course, what we're seeing play out just in terms of inflation going forward. But do you agree with Kristina, is there still reason to be optimistic in the final couple of months of the year?

SIMEON HYMAN: Yeah, I think so. I mean, look, it's not a surprise that the word, stagflation, is coming back into everybody's vernacular. Energy prices are going up, we have these cargo ships stacked up on both sides of the coast, shortages of everything. I'm waiting for a double oven that's probably never going to get here. And those prices are going up.

But as we were just discussing, the core news is good. ISM manufacturing, ISM services came in strong, durable good orders strong, retail sales strong. So is there going to be a little bit of inflation? Probably. Are rates going to go up? Just with tapering, almost absolutely. I mean, that's the point of tapering-- to let the long end normalize. But will there be a contraction of economic activity? Very unlikely. The economy's likely to remain pretty strong.

ADAM SHAPIRO: Simeon, let me follow up on stagflation. Some of us are old enough to remember as kids in the '70s what it looked like. And the economic picture today though is so much different-- we have more jobs than we have people to fill them. Even if inflation were at 5%, my recollection in the '70s was, you know, inflation around 8% to 12%. So what does stagflation-- what would it look like today? And those who are holding off investments because of it, what are they missing?

SIMEON HYMAN: Well, that's exactly the point. It's so unlikely. And I'm just old enough to remember a can of soda going from $0.25 to $1 in a very short period of time. We're not anywhere close to anything like that. When people talk about persistent inflation beyond the Fed's target, you're talking about, oh, maybe we'll have 2.5% or 3%. We're not talking about the double-digits that we had in the 1970s.

And many of the things that caused that, some of the structural pieces-- yes, we have a little wage growth right now-- we had unions, lots more unions, back then. And that really solidified and cemented those that cycle of inflation that could really cause those rates to be pretty high for a long period of time. Look, the Fed is going to let it go to 2.5% or 3% for a little bit. It's a symmetrical target. But it's nothing that will likely derail the economic recovery that's driven by the strong results we're seeing, and, to the earlier point, some good news on the virus front as well.

SEANA SMITH: Kristina, let's take a look at some of the outperformers today-- big tech recouping some of their losses, the NASDAQ 100 actually closing at 1.4%. That's its biggest gain since August. Are you seeing reason to buy some of these names that have been beaten down over the past several trading days? Or is this still a little bit too early to buy into these growth names that were the outperformers at the start of the pandemic?

KRISTINA HOOPER: Well, it's unclear what October holds. I have a big question mark in my mind-- could it be the ugly sequel to September? I don't know. Certainly what we've seen thus far is that any time there is a sell-off that investors are quick to move in and find opportunities. So I would assume that we're likely to see more volatility going forward as we anticipate the Fed's tapering announcement. And so that creates an environment where investors can dollar cost average on down days in areas where they would like to and where they're interested in adding exposure. This is probably not the only sell-off we'll see for October.

ADAM SHAPIRO: And, Kristina, deep in your notes there was something that brought a smile to my face, which is the possibility that the Biden administration may ease up on the China trade tariffs that have been-- $1,300 is what it's slapped on the average American family. What sectors would benefit from that, Kristina?

KRISTINA HOOPER: Well, certainly, consumer discretionary would benefit. But in general, I think it would just be a positive for the US economy. We know it's created something of a drag, and we also know, especially for lower income Americans who are feeling much of the pain that comes from higher prices, it should also help alleviate some-- just some-- inflationary pressures as well. So I think that the removal of tariffs, which would likely be very gradual, would just be a positive overall for the US economy and stock market.

SEANA SMITH: Simeon, when we take a look at what can move the markets over the next couple of weeks-- we're going to be going live to DC in just a minute to get an update on the debt ceiling-- but how much of that-- how much of that risk could you think has already been priced into the market?

SIMEON HYMAN: I don't think the market ever really believed there's a debt ceiling risk here. The odds of any sort of default or real risk there I think is pretty low. We're in this environment that, yes, inflation is going to be there a little bit, rising rates are going to be there, but economic growth is going to be there, and we probably aren't going to have a real problem with the debt ceiling.

And when you put that into the mix, sure, you saw a little bit of pressure to the longer duration equities, but I'll highlight the outperformance of small caps as one of the sort of surprises, if you will, to folks-- not really surprised to us. I mean, at this point they're trading at $0.50 on the $1.00. The only caveat there is there has been historically some sensitivity to those rising rates because there's a lot of leverage in small caps.

So you know, one way to play that is with higher quality small caps, perhaps dividend growers or other quality screens so you can take advantage of the valuation opportunity of small caps with the economic growth, but not quite get the downside of some of the high leverage that you see in the broader Russell 2000.

ADAM SHAPIRO: The other thing, Simeon, with small caps is we sometimes see that rotation out of big tech towards small caps. And a lot of people have been talking about rising interest rates might precipitate the rotation out of big tech. Is this getting too wonky? Should average investors pay attention to interest rates and what's happening with big tech to make a play in small caps?

SIMEON HYMAN: It is worth taking a look at. And by the way, one of the things that you can take a look at is the maturation of the technology sector. So the biggest thing that stocks have going for them is they grow. Bonds, fixed coupon, interest rates rise, inflation, bad-- price going down. But stocks have growth.

And very interestingly, technology, quietly in the last several years, has become the highest contributor of dividends to the S&P 500. Those growing dividends are one of the greatest bulwarks against inflation. So I don't think it's too wonky. And if you're a little worried about your tech exposure, think about the tech companies, the big dogs that have been paying and growing their dividends over the last 5 to 10 years as, perhaps, a way to adjust your exposure so you don't quite have all of your tech relying on earnings that are way, way out there in the future.

SEANA SMITH: Simeon Hyman and Kristina Hooper, always great to have both of you. Thanks so much for hopping on with us.