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Markets higher after Trump creates stimulus confusion

Kathryn Kaminski, AlphaSimplex Chief Research Strategist, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss what's moving the markets around Wednesday's opening bell.

Video Transcript

ALEXIS CHRISTOFOROUS: Taking a look at the market, up, up, and away, at least for now. Dow is up about 350 points. We've got the NASDAQ up 120, and the S&P gaining about 40 points. Let's talk about it with Katy Kaminski, Chief Research Strategist at AlphaSimplex.

Katy, good to see you. What do you attribute this nice strong rally to today? Is it really all about Trump's tweets about stimulus?

KATHRYN KAMINSKI: I think it's just back and forth. I mean, from my experience and what we've seen, the honeymoon period that we saw this summer is over. The markets are basically flinging back and forth based on small amounts of news, small amounts of sentiment.

And we really think the only thing that's certain going forward is uncertainty until we actually start to see some sort of resolution. And because we have an election impending, and because we're living in a pandemic, and because there's so many things on the table out there, this uncertainty is just going to keep going until we at least feel some sense of resolution. And that's a sad thing to say, but it really is the way we've seen markets moving over the last month or so.

BRIAN SOZZI: Katy, one thing that is certain amidst all this uncertainty is the start of earnings season in about a week and a half. How brutal do you think commentary from corporate America will be? What pleasant things do they have to say? In many respects, we have probably slipped back into a recession, and we're still-- we're only weeks away from a very contentious end to election season.

KATHRYN KAMINSKI: Yes, that's a good point. And let me just put some perspective here from the cross-asset universe. The things that we watch as leading indicators for what could be happening in industry or the commodity markets, we have seen some preliminary moves in oil that may be indicative of more weakness in demand is something that is going to leak into what we see in earnings season and also projections into next year.

One positive sign has been an increase in value in copper. So I think that we're kind of following several different signals that could be leading indicators of where businesses are going. And earnings are just going to be confirmation, as well as planning for next year being confirmation of how serious this problem might be.

ALEXIS CHRISTOFOROUS: Katy, I know you're also watching the gyrations of the US dollar. What's your take on the action so far?

KATHRYN KAMINSKI: The US dollar has been a wild ride for the last two, three months. We are expecting the theme of the weakened US dollar reflationary pressure on many assets, particularly commodities, and this inflation tolerance theme that we've seen from the Fed to continue. Although we saw a massive reversal in that in September, there are indications that that continues to move in the direction of a weaker dollar, increased commodity prices.

And today is just in that theme as well. We see the dollar weakening a little bit today. So we're expecting that theme as stimulus comes through later on this year to possibly continue to move in that direction.

BRIAN SOZZI: Katy, we have a mix of your longer-term investors, short-term traders. If you're a short-term trader out there, how can you invest with success ahead of the election? What trades would you put on? And what trades wouldn't you put on?

KATHRYN KAMINSKI: Well, I think the more interesting trades are clearly going to be things in-- that are more connected to demand and fundamentals. So looking at the commodity markets has been interesting for us, looking at the interest rate curve as we see steepening potentially indicating more stimulus. I think the equity markets is a tough call, because let's just be honest, all year this year nobody has been able to really make sense of some of the moves that we've seen. So I think for us, if I was going to think about the equity markets, I would be looking at the VIX, because the only thing that's certain is uncertainty this year and right now.

BRIAN SOZZI: Katy, longer term, can investors earn above average returns if there is, in fact, a blue wave?

KATHRYN KAMINSKI: That's a tough question. I really don't know. We're going to have to see how that plays out.

ALEXIS CHRISTOFOROUS: What about outside of US equities right now, Katy? I mean, you talked about commodities. But what else are you looking at? What else should investors be focused on right now?

KATHRYN KAMINSKI: Well, outside of the US, we have seen EM currencies not being quite as strong versus the dollar. Some of these commodities are also impacting demand. Oil has been an interesting one, because it was connected to a view that there's been reduced demand in Asia post the COVID reopening. That's kind of an early indicator for us that shows that this impact on our businesses and-- for next year could be starting to come out in the data and starting to come out in numbers.

So from our perspective, we're even more skeptical outside of the US, Europe included. If you look at how the euro has been bouncing back and forth, it's strengthened quite a bit, but the ECB had to come in. So I'd say it's really not necessarily there's no shiny stars out there right now across global markets either.

BRIAN SOZZI: Katy, relatively speaking, where would you be more inclined to put money-- in Europe or emerging markets?

KATHRYN KAMINSKI: Oh, that's a tough one. I think Europe is looking a little bit better. I know there's look-- there looks to be some resolution and some easing in terms of concerns about Brexit. EM is also recovering some as well.

But we've definitely seen that is not necessarily-- not necessarily clear at this point, so very mixed in terms of our signals. The signals that we're measuring are slightly stronger in Europe than they are in Asia. But the US, and NASDAQ in particular, has been more of a stronger theme for us over the last few months.

ALEXIS CHRISTOFOROUS: Katy, are you getting the sense that investors are just going to sit on their hands and stockpile some cash until this election is behind us, until we know whether or not it's a contested election?

KATHRYN KAMINSKI: I definitely agree, because I think there are two types of people, people who are reacting all the time, maybe even day trading and trying to buy the dip when you see things revert, and that's how you feel on a day like today. And then there's people who are just saying I throw my hands ups, and I'm just going to wait, because I have no idea where this is actually going to move.

ALEXIS CHRISTOFOROUS: All right, Katy Kaminski, thanks so much for joining us. We appreciate your time.