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Market Recap: Wednesday November 18th

Stocks fell Wednesday afternoon, reversing earlier gains after new data from Pfizer (PFE) helped momentarily stoke investor confidence that an effective vaccine will become available in the coming months. John Stoltzfus, Oppenheimer Chief Investment Strategist and Matthew Luzzetti, Deutsche Bank Chief U.S. Economist, joined Yahoo Finance's Jared Blikre, Seana Smith, and Adam Shapiro to break down today's market action on Yahoo Finance Live.

Video Transcript

JARED BLIKRE: Let's go straight to the charts. And taking a look at the Dow, you can see how the losses have really accelerated over the last hour. And not any one particular catalyst or news item that appeared in the last hour that I'm seeing, just in general, we have all this lockdown news, and that could be contributing to it. But if you take a look at, for instance, a three-month chart, you can see we're still consolidating near those highs after breaking out in the Dow and the S&P.

So back to the Dow, kind of failed at $30,000 once again, not too troubling, but we want to see what happens for the rest of the week. Similar story around the S&P 500. Let's take a look at some heat maps. And we got the NASDAQ 100 showing some red here. It looks like the big cap guys are selling off into the close the most, although energy is still the most down for the day. One of the outstanders here is Tesla. And we are seeing that up 10% right now.


SEANA SMITH: And that does it for the trading day today day. Again, some selling into the close here, as we shake out the final trades of the day. The laggards, the energy, utilities, and health care among the worst performers here when we take a look at the sector action, pointing to some of that broader market selling that we've seen over the last couple of hours. For more on this, we want to bring in John Stoltzfus. He's a chief investment strategist with Oppenheimer. We're also joined by Matthew Luzzetti. He is Deutsche Bank's chief US economist.

John, first to you, when you see this type of selling into the close, the market, I think, over the last several days has been leaning towards more some of those positive headlines. What do you make of today's action and some of the weakness that we're seeing.

JOHN STOLTZFUS: Seana, thanks for having me on the show. I got to say where we are today, we think the market has really been in a celebratory mode since Election Day and rode through it again last week. And I think the idea now is people are beginning to consider taking some profits ahead of expectations that taxes related to capital gains could rise in 2021.

I also think there's the consideration of the transition in COVID to post-COVID, even with the resurgence. All the vaccine news tells us there is a post-COVID ahead, transition in the presidency, transition within market cap growth and value. There's a lot of excitement here. And the gains have been substantial if you consider that on a year-to-date basis, with all the trouble we've had, the S&P 500 up around 11%, 10.43% year to date.

You've got infotech up over 30% year to date, discretionary 27, consumer service-- communication services, 17%, materials, 13. Even industrials up 7.7, well, over 7%. So there's an opportunity for profit taking. We don't think it's a big deal yet, but we do think January 5, that runoff in Georgia, is a big day for the markets here.

ADAM SHAPIRO: Matthew, I'm curious, no one ever got poor taking profits when markets were high. What should an investor, who is looking at maybe pulling a little profit out today, if they're going to try and not necessarily time the market but have a time-based strategy, be looking at next? Is it the December FOMC meeting? Is it the virus and the distribution of the virus? Or is it the January 5 election that could determine control of the Senate?

MATTHEW LUZZETTI: Yeah. Thanks very much for having me. I think from a fundamental economic perspective for the US economy, we're of two minds right now. One of which is, in the near term, with a lack of fiscal stimulus likely until after Inauguration Day, and with COVID cases, both case growth and hospitalizations at record high levels, we think consumer spending really comes under some pain here in the next several months. We see sequential declines in consumer spending. The real economy kind of stalls out here a little bit, and the labor market also stalls out.

Now, we have to distinguish that, I think, from Q2 and likely beyond, where we've got a better news, particularly on the vaccine front, from Pfizer and Moderna, promises to deliver a hundred million doses of the vaccine each during that period. It suggests that we may be able to bring forward some of the consumer spending and rebound in services that we were expecting to see later in 2021.

I think, critically, the fiscal outlook helps to bridge the gap between those two. We don't think you get a lame duck bill. We think the next point that you get a fiscal stimulus package is after Inauguration Day. But as you noted, that January 5 election outcome is critical to that. We think we have a divided government. We think Republicans will win in one of those seats. And, therefore, we get a smaller fiscal package. But if Democrats somehow win both, you are in a situation where we could see a $2 trillion- plus package legislated in 2021.

SEANA SMITH: John, do you think a smaller fiscal package, do you think that will be enough just to meet what the market has been expecting?

JOHN STOLTZFUS: Yeah, I do, Seana. I think a smaller fiscal package is digestible. It's the big one, particularly related to the size of the fiscal packages that we've had to put in as rescue packages because of COVID, right on back of all the stimulus that we had as a result of getting out of the GFC, or the Great Financial Crisis.

It's a little bit much to think that the market won't get into a bit of a tizzy, trying to consider a massive stimulus package. But a small one, I think, is fair, and I think it'll digest that. It'll still likely tip its hat somewhat and decline somewhat with that, but I don't think for long because then it will look for the recovery process that we believe is ahead.

ADAM SHAPIRO: Matthew, if we see the economy return to pre-virus level of activity before the end of 2021, which are the sectors that investors should want to position themselves for that rise?

MATTHEW LUZZETTI: Yeah, you've had a very different recovery and downturn than we've had in the past. You've seen housing data we got again this morning, which was solid from housing starts, basically at pre-virus levels and above on some metrics. We see CapEx has already returned to pre-virus levels. Both the decline was very shallow, and the recovery was very rapid there.

At this point, it's mostly about the services sector for the consumer spending. That's the one category that remains well below previous levels. We think will continue to lag, as it's going to take some time for households to get confidence to either go back out for traveling, or go out to restaurants or movie theaters. A lot of these are in hospitality categories. Those are the things that really should start to pick up and get back to pre-virus levels of activity, as we have the vaccine brought on board, we get more people vaccinated throughout the course of 2021.

SEANA SMITH: John, how are you looking at the travel and leisure sector? Because I think some of our guests come on and say that this sector has been so beaten up over the last several months. They are trading at such a discount to where we were heading into 2020, that maybe now is the time to buy. How are you reading that? Do you think it might still be a little bit too soon from an investor's perspective?

JOHN STOLTZFUS: I think from an investor's perspective, it might be a little too soon. They may be better off waiting for a pullback on any disappointment in terms of adaptation of the vaccine. I think we're pretty sure we're going to get a vaccine here by year end, that it will begin to be distributed. And with that, the big question will be how quick will people be to have access to it, as well as to accept it and take it.

We think that-- However, that said, we think that leisure has a good opportunity to come back, but it will take some time. The effects of COVID-19, whether it's social distancing or wearing masks, and the fact that it had the potential, which was realized tragically on the people who passed away from this illness, it's serious enough.

So we think they're going to be slow to get back into the cruise ships. We think they're going to be slow to do a lot of heavy business travel. And-- and in terms of personal travel, we think it'll come back modestly. Perhaps in the second half of next year, if the vaccine is well distributed and well adapted, you could see a real big jump up in those areas, in terms of improving prices.

ADAM SHAPIRO: Matthew, we're seeing some really good earnings, for instance, Walmart and Target. But I'm curious as we go into the holiday season, with the spike in coronavirus cases, could consumer discretionary take a hit, just when everybody's expecting people to be spending a lot of money? And could that hit stocks as we get ready for first quarter earnings after we get through the holiday season?

JOHN STOLTZFUS: Yeah, I think a lot of the surveys that we see-- Gallup was one, and others-- are suggesting weaker spending around the holiday season than we've seen in the past several years. And certainly that makes sense in the context of still pretty elevated unemployment, we're still at 6.9% unemployment. We've had more than 20 million households lose the additional benefit that they've seen from the unemployment benefits.

So you still have a labor market which has deep scars, is, you know, in a pretty deep hole, income which-- which is depressed, and a lot of near-term uncertainty about job prospects, given the COVID pace growth and the return of restrictions. So I think it shouldn't be too surprising if we see some underperformance in consumer spending metrics over the next several months.

My own view is that that is not really factored into consensus expectation today. The consensus still thinks 4% real GDP growth plus for Q4 makes sense, still thinks 4% plus for consumer spending growth for Q4 makes sense. I don't think that's factoring in the sequential decline we are likely to see in November and December for consumer spending.

SEANA SMITH: Matthew Luzzetti and John Stoltzfus, always great to have you on the program. We'll talk to you both soon.