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Market Recap: Wednesday, December 29

In this article:
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The S&P 500 and Dow Jones Industrial Average each soared to records on Wednesday. Shawn Cruz, TD Ameritrade Senior Market Strategist and Charles Lieberman, Advisors Capital Management Chief Investment Officer joined Yahoo Finance Live to discuss.

Video Transcript

ADAM SHAPIRO: All right, we're going to be ringing the closing bell in roughly one minute to help us make sense of what has happened in the trading session today. We're going to talk after the bell with Shawn Cruz, TD Ameritrade Senior Market Strategist, and Chuck Lieberman, Advisors Capital Management Chief Investment Officer. They are on standby to help us make heads or tails of what happens next. But let's take a look at where we're setting up.

We had gone positive on the NASDAQ. But look at that, back in the negative territory. Probably going to settle after the bell off about 12, 14 points. The S&P 500, though, it was over 4,800 roughly two or three minutes ago. But now it is pulling off of that gain, now up about 8 points.

You got the Dow, though. The Dow was up almost half a percent, still well above 36,000. But we've got the Dow also off of the session. Highs we saw just moments ago as we set up for the closing bell.

Real quick, just want to take a look at some of the laggards in the Dow today. You got Chevron Corporation, Verizon. We were talking about that stock being flat but always paying a dividend. And then Boeing is the big laggard today on the Dow. Here's the closing bell.

[BELL RINGING]

[GAVEL POUNDING]

[MUSIC PLAYING]

All right, put a fork in it. We've got a closing session on this Wednesday. The Dow is going to settle up about 90 points. S&P 500 is going to be up about 6 points. NASDAQ will be down about 15 points. Let's go to the panel and talk about what we're witnessing here. Going to start with you, Shawn.

Let me start with something very specific. This was Tesla. We learned that Elon Musk sold another billion dollars worth of stock. And I guess he's got a big tax bill he's going to be paying. What's this message he's sending, if he's sending a message to investors?

SHAWN CRUZ: I think maybe, initially, when we heard that he was going out there and selling stock, there was some sort of a panic. Does he know something? Or is something in the offing? Or is this pretty much a signal that this is going to be the top or the top soon for Tesla?

And I think now everyone gets, look, he's got a lot of options tied to his compensation for being there. He had a lot of those options actually get exercised, which created a sizeable tax bill. And he had to sell some of that stock to meet that tax bill that he owes. I think everyone sort of gets why he's doing it, and that is making the market a little bit more comfortable with the idea of him having to go out there and sell what is a pretty sizable chunks of stock.

ADAM SHAPIRO: Chuck, you made me look a lot smarter than I truly am in our last hour when I asked a guest about who said, keep your eye on muni bonds, beware of bonds. And then I said, but you want to look at short duration, short maturities, right? I'm curious, why would an investor right now, given the volatility that's coming in the bond market, want to even put their toe in that water?

CHUCK LIEBERMAN: Well, if you want to preserve capital, a place to put it is in short-term bonds. They're insulated from rising interest rates. They shouldn't go down very much in value. They'll also mature fairly soon. So, again, they go back to par.

So it's pure capital preservation. It's not going to generate much of a return. Yields-- short-term yields are actually quite low, as you know. So it's really purely capital preservation.

ADAM SHAPIRO: But if I'm preserving capital, I'm going to get burned if I really think inflation is going to burn hot. And that's the expectation, isn't it?

CHUCK LIEBERMAN: That's exactly right. So nothing in life is free. There are trade-offs. And you have to figure out exactly what you're trying to accomplish with your portfolio. So to the extent that you want pure capital preservation, short-term fixed income is the answer. To the extent you want return or yield, there are other ways to do it. There's some nice, high-yielding equities that are very attractive longer term.

There's more upside in the stock market by far than in the bond market. The bond market is likely to produce a negative return in '22 after producing a negative return in '21. So it's all a matter of which risk you're willing to take, you're comfortable taking, and what you're trying to accomplish.

ADAM SHAPIRO: Shawn, when Chuck says nothing is free, I think of that song, you know, "Money For Nothing." And I don't think the woke crowd will let me do the full lyric. But you get where I'm going with this. And you say, OK, we got this rising rate environment coming, so keep an eye on financial stocks today to see how they react to what could be coming down the pike. Looking beyond today, what's your prediction for the JPMorgans of the world and the other financial stocks?

SHAWN CRUZ: Yeah, I really am looking at what's going on with inflation expectations. And also, the extent that any sort of variant-- I think Omicron now is-- the general consensus is not going to be a severe variant. In many cases, it's actually turning out to be fairly mild.

But the question is, what does this mean? Is there going to be another variant that will be resistant to any sort of previous immunities? Anything like that. That, to me, is going to be the big overhang for a lot of these economies, especially when you look around the globe. And at the end of the day, these financials, they need some vibrant economies, a lot of activity, in order to perform well at an operating level.

But the other thing is, if you want to keep an eye on inflation expectations, right now, inflation expectations are relatively subdued, if you think about it. They're sort of in that middle 2%, 2.5% or so level. If you look at what's going on with oil, I'm watching oil as maybe the first shoe to drop in terms of maybe inflation expectations starting to rise again. And that can induce some volatility into the fixed income market, I think, across the board. And that is, you see a pretty tight relationship with what's going on with the price of oil and also inflation expectations. So you see oil start to take off again. I would think that would also then cause some of those inflation concerns to rise, and that would be the first shoe to drop that would induce some of the volatility in the bond market you're talking about.

ADAM SHAPIRO: Chuck, you're advising clients to take a look at specific health care stocks, inflation be darned. I won't say damned. But the health care especially, not necessarily the pharmaceutical stocks, but those that have gotten, you know, perhaps overlooked because of the pandemic. What's your expectation for some of those?

CHUCK LIEBERMAN: Well, I'm basically making a play on a reopening of the economy. I see the economy as bouncing back very nicely. Coronavirus, Omicron is certainly a concern. But I expect those cases to continue to rise near term and then crash by the middle of January. Much has happened in South Africa. Omicron is much more contagious, but it's also far less deadly. It's actually mild. And therefore, the situation should improve rapidly. And with that, we will have a solid economy with inflation pressures.

So the health care REITs, which is what I'm focusing on, are very attractive. They suffered during the pandemic as people pulled family members out of nursing homes. But, of course, the population continues to age, so more people are going in. And these companies own real estate. And in an inflation environment, that's the kind of asset you want to own.

Higher inflation increases the nominal value of the real estate. They're financed with mortgages, which inflation destroys the value of. So that makes the REIT stronger on a balance sheet basis. And on an income statement basis, you get the same kind of effect. Rents go up, and costs don't go up as proportionally because the biggest expense they have is the interest on their debt. So that tends to be fixed. So these companies should benefit both from a secular trend, as well as a cyclical improvement with rising rates and rising inflation. They're major beneficiaries. They should be major beneficiaries in the year ahead.