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Markets higher as states explore economic restart

Yahoo Finance’s Alexis Christoforous and Brian Sozzi break down the latest market action with Crossmark Global Investments Chief Market Strategist Victoria Fernandez.

Video Transcript

BRIAN SOZZI: Let's stay on the markets now with Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments. Victoria, always good to see you here, especially on this Monday morning. The markets-- the markets are in major rally mode. But you know, I wrote this morning in a story that this is essentially being driven by five big cap stocks. Are you worried that we're seeing negative breadth in so many areas of the S&P 500?

VICTORIA FERNANDEZ: Well, Brian, I would like to see the breadth be a little bit stronger. Obviously, we have four or five names that are really driving everything going right now. We've got these same names that are going to be reporting this week. That's $4 trillion in market cap just out of these four or five names that we have.

And if you look, S&P is down about 17% from those highs. But if you do an equal weight, you've got stocks down about 28%. So you definitely have a few names driving that.

But maybe use this as an opportunity. These names are going to continue to do well once we come out of the situation that we're in with the shutdown. so maybe find opportunities if you see a little bit of pullback to add to some of these strong names, because I think they're going to continue to do well.

ALEXIS CHRISTOFOROUS: Hey, Victoria. I want to talk about volume, trading volume. Does it indicate to you that there is this conviction when we have the big drops, and conversely, the big rallies? Are a lot of people participating?

VICTORIA FERNANDEZ: You know, Alexis, so many people want to cash back at the end of March. We saw it here at Crossmark. I know when we talked before, we also had people opening up accounts. So it wasn't just that people were scared and going to cash. They were trying to find opportunities to invest.

And I think we're going to see that going forward. People have put cash on the sidelines. It's there, ready to be invested. But I do think we have to be cautious going forward. We never thought that we were going to have a V-shaped recovery. We've always looked at it more as kind of a W recovery with some volatility and between the second and the third quarters. So I think you're going to have some people that have the opportunity to come into the market. And we'll see that volume grow as trends start to move towards the economy opening back up.

BRIAN SOZZI: Victoria, you've liked Apple. But do you still like Apple here off of this report this morning that they might delay some of their iPhones about a month? If that is delayed, that is potential hundreds of millions of dollars, if not billions of dollars, in potential lost sales to Apple.

VICTORIA FERNANDEZ: Yeah, the story here I think really goes between the demand and the supply. And that has been a big debate that we've been having ever since February and March, that it's not just one or the other. It's both.

I think what we saw in this report is, yes, they are delaying some of the phones that are going to be coming out. But the supply side of that is still pretty strong. It doesn't look like there's any issues with their supply chain components. So it's all going to be a demand story.

If the economy starts to open back up, if consumers start to go back out and make their big-ticket purchases-- which I don't think is going to happen immediately, but it will start to grow in the second half of the year-- then I think Apple, with a company that has that much cash on their balance sheet, that strong position that they're in to weather any kind of volatility, it's a name I think you can still invest in for the long-term. There will be volatility in the short-term.

HEIDI CHUNG: Hi, Victoria. It's Heidi Chung here. We do have a Fed meeting this week as well. I wanted to get your thoughts on what we could expect from that.

VICTORIA FERNANDEZ: Sure. Heidi, you know, it's not just the Fed this week, right? We had BOJ that came out this morning talking about increased bond purchases that they're doing. We have the Fed. And then we have the ECB as well. So a lot of central bank movement this week.

I don't anticipate that the Fed is really going to come out with anything new this week. They had that meeting back in April. There are so many different programs that they have put in place at this point to really support the economy. And honestly, I think that's why we've seen the markets go higher, not because really of much of anything else.

So I think they're going to support what they've done, talk about how they're going to keep rates low for an extended period of time, and really just kind of set the groundwork for the next couple of quarters of status quo on their part-- unless they add to the facilities they've already put up, which they could in the high-yield component or more on the municipal side.

ALEXIS CHRISTOFOROUS: I'd love to get your thoughts, Victoria, on GM saying today it's going to suspend its dividend. You know, we saw companies suspend dividends during the Great Recession, but not with the speed at which we've seen companies do it this time around. I guess the question for investors is, do you think they're going to reinstitute that [INAUDIBLE] after the pandemic?

VICTORIA FERNANDEZ: Yeah, I don't think it'll be immediate. I mean, when I talk about what I'm concerned with coming out of this pandemic and out of the economic shutdown, it's cap ex by corporations. It's demand by consumers. And I think companies that have taken that dividend back are going to be slow to offer it again until their balance sheets are stronger.

And that's going to take a while. They've had a huge hit, especially the auto industry. So I would be surprised.

But you know, it's interesting, because you have that on one hand. But on the other hand, you have companies that are increasing their dividends. You've got P&G, J&J, Qualcomm. Other companies have come out on the other side of that. So I really think it's not going to be something across the board as to what happens with dividends. It's going to be very company-specific.

BRIAN SOZZI: Victoria, but isn't there a problem in that? Now, with no dividends, the market and investors have so much reliance on the Federal Reserve to drive higher stock prices. That's a big problem.

VICTORIA FERNANDEZ: It is a big problem. And I think it's very similar to what we saw previously. With all of the QE that we had 10 years ago, you look and see how the market and how investors react with the slightest hint that the Fed was going to take that punchbowl back at all. The markets did not like it at all.

And I think we're now in that same situation. We're going to have the same issues with the market having quite a bit of volatility, not being happy with the Fed pulling that back. That's why I think at this meeting this week, they're going to really state that things are going to stay the way they are for an extended period of time, keep those rates at that zero lower bound for at least the next couple of quarters.

BRIAN SOZZI: All right, let's leave it there. Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments. Always good to speak with you.