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The market is waiting on a stimulus package with baited breath: Portfolio Manager

Brandon Pizzurro, GuideStone Capital Management Portfolio Manager of Public Markets joins the Yahoo Finance live panel to discuss today’s market action.

Video Transcript

AKIKO FUJITA: Let's bring in our markets guest for the hour. We've got Brandon Pizzurro. He's GuideStone Capital Management's portfolio manager of public markets. Brandon, let's start with what we're seeing in the market today. We were talking about session highs early on in this-- or we were talking about highs, record highs, in the session earlier on.

And now, we've sort of seen that sentiment turn a bit negative here. Not to make much of just one day's move, but it feels like there was some concern about the stimulus deal getting across the finish line and that being big enough to be able to have an impact on the economic recovery, especially at a time when we've seen the data point to a bit of a slowdown.

BRANDON PIZZURRO: Yeah, good morning. Thanks for having me. You're absolutely right. This whole fiscal stimulus wrangling has really drawn out, and we're getting to the 11th hour literally in order to try to get this thing over. You know, over 8 million Americans fell into poverty since the summer here as of November.

And that is really just one of the key things that's weighing on the issue here. That K-shaped recovery, I know people like to assign letters to recoveries, and that's one that really seems to have taken hold, is just getting exacerbated. People's checking accounts are getting depleted, and they certainly need that. And the market's really waiting on that with bated breath.

ZACK GUZMAN: The other thing that we're watching play out here, Brandon, is the fact that Tesla is getting added to the S&P 500 here. Shares there up again. Normally, things like this wouldn't necessarily move the stock. We've known this was coming for quite some time. You could have said the same thing about Tesla's stock split earlier in the year, but both times, you just see there's nothing holding this stock back. But what do you make of the larger market implications of the addition to the index and what investors might need to brace for there?

BRANDON PIZZURRO: Sure, I mean, this is a big one. And it seems as though perhaps the S&P is top taking this inclusion. It certainly has broad implications for all of the passive investors out there. You know, it's going to be about a 1 and 1/2% wait. It's even estimated to increase the overall vol of the S&P 500. So generally speaking, inclusions are something that people pay attention to. They think about, and then they don't think about it the day after the announcement. But this is certainly one that people are watching, especially with the surge in that stock over this year.

It also has a lot of implications for active managers that actively manage around benchmarks. With this inclusion, it's kind of like an Apple or Microsoft that's almost hard to ignore. So certainly ripple effects as you get into 2021 here.

AKIKO FUJITA: There also seems to be the concern of just the size of Tesla going into the entry of the S&P 500. 1/2% to 1.6% weighting of the index itself. You look at the stock. We've seen some big, you know, volatile swings here. What does that indicate in terms of the kind of swings we're likely to see in the S&P 500 overall once Tesla is included?

BRANDON PIZZURRO: Sure, so I mean, overall market fragility has certainly increased even since we hit our market lows back in March. So when you have these type of names that perhaps may or may not be kind of a darling of the retail favorites, I know some of the big sell side shops have pretty low price targets on that name.

So when you think about the inclusion, you think about just kind of the broad-based investor base that will have a piece of Tesla when you look at those that hold passive investments, that's something that I think creates additional volatility and concern and kind of hand-wringing and just creates that active-passive debate even further. We, of course, land strongly on the side of active management, but it's something that will continue to be debated.

ZACK GUZMAN: On the topic of active management, where are you seeing the best opportunities right now? Because we've also been seeing the theme of maybe this rotation away from growth stocks into cyclicals happening over the last few weeks. I mean, is that expected to gain more steam in 2021 in your mind? And where are the opportunities if so?

BRANDON PIZZURRO: Sure, it's certainly been something everyone's been talking about for probably two years now. When are we going to get that cyclical rotation and get that turn? You know, small caps are outperforming large caps by over 600 basis points this month alone. It seems that perhaps the tide has turned, and that cyclical rotation has taken place. One thing I always caution people, though, is that whatever is working is really getting momentum risk. And momentum risk is something that you can't predict or time.

So as you saw the momentum crash not that long ago, again, whatever is getting bid up will continue to get bid up, and then that creates the potential opportunity for a pullback. So while we're cautiously optimistic about this cyclical rotation taking hold, small caps, emerging markets doing really well, it's something that you do have to monitor and keep in mind that just because it's working now doesn't mean it's going to work into perpetuity. You could have said that about large growth stocks, and that's gone on for quite some time. But it does seem like we are finally ripe for that inflection point.

AKIKO FUJITA: There's a number of other themes that we've heard emerge going into 2021. Emerging markets one you mentioned, but the other one is energy. We had a guest on yesterday who said that he believes there will be a bounce back, not just because of oil, but also because, increasingly, when you look at some of these big energy companies, there is a move into renewables. I'm curious how you're looking at that space right now, the ability to bounce back once things start to open up again, if you think there is a case for energy right now, going into 2021.

BRANDON PIZZURRO: You've seen a bit of reflation there. You know, energy is such a small component to the benchmarks these days, just as it's kind of receded into the background. But when you're talking about triple digit earnings growth, the potential for triple digit returns, I guess, depending on some of these stocks that have been left for dead, it does make sense to have some energy exposure just, by and large, kind of the feast and famine that is the energy sector, the swing factor there. It's something that perhaps you have exposure to, but generally speaking, we're underweight across our portfolios because of other opportunities that put the capital at higher and better use.

But it's something to watch. You would think that 2%, 3%, 4% of an index can't be a swing factor, but in certain markets and even in certain years, if you have just a ripping triple digit rally, then that can certainly be something you should have paid attention to.

AKIKO FUJITA: Certainly right about that. Brandon Pizzurro, GuideStone Capital Management's portfolio manager of public markets, good to talk to you. Have a good weekend.