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Markets inch higher with earnings, stimulus as the top of mind for investors

Shawn Cruz of TD Ameritrade joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss what's moving the markets around Wednesday's opening bell.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, want to dive into the new trading day now and go around the bell with Shawn Cruz of TD Ameritrade. Good morning, Shawn. The market not doing much of anything here in the early going.

I guess we're mixed with just some modest losses for the Dow and the S&P. But what do you make of earnings season so far? Things are just starting to ramp up, and I mean, so far you have to admit these numbers have been pretty good.

SHAWN CRUZ: They have. And I think right now the market, I think, is more or less fairly priced. And the reason I say that is although we are getting some headline-driven volatility, if things are coming in as we're starting to get some of the actual fundamentals, the trade-off of which is nice for a change, as things are coming in if there was a drastic difference between what the market was expecting and the numbers we were seeing in general, I think you would have a lot more overall volatility and probably a little bit of a pullback, especially if it was disappointing.

We have seen that out of a handful of names. IBM, I think, was one that surprised some people. Netflix also having a pretty strong pullback. But by and large, I think a lot of these earnings that we're getting are being well-received. And it's always nice when you go through that period where you're just getting multiple expansion, the market was rallying quite a bit this year.

You're starting to ask yourself, is this really getting too far, too much-- too far, too fast? I don't think that really is what the market is interpreting the data that we're getting, at least for now, from these companies. And I think it's a lot more about the forward guidance as well. And the companies that haven't been able to guide well are also the ones that usually get hit the hardest.

BRIAN SOZZI: Shawn, what we saw from Netflix last night, is that going to be-- do you think it's indicative of what might be to come from these COVID-19 trades-- Zoom, Slack, DocuSign, even Microsoft, where these companies had all this demand pulled forward in the first half of the year, and in the back half of the year growth starts to slow, and they start to issue cautious comments on next year and the stocks go down?

SHAWN CRUZ: I find-- I actually really think that was interesting, and I certainly agree, a lot of pull through. Maybe Netflix is expecting to get about 3 million new subscribers every quarter, more or less. Instead, they are getting-- they are getting 10 million a quarter, 15 million a quarter earlier on this year.

But if you think about that and they say, look, you should maybe expect some year-over-year growth to be lower next year, I think about that to say they put on 25 million new subscribers the first half of this year. If they put in 24 million new subscribers in the first half of 2021, that's negative growth for them. They're actually down from where they're at a year prior in terms of net new ad.

So I think it's one thing, to me, to focus on the business models. And what a lot of these businesses are based on is the subscriber fees. And that's why we value them bringing so many users on is the stream of cash flows that creates moving forward. So now I think for Netflix or some of these other companies, it really won't maybe be a little bit more focused on pricing strategy instead of user growth strategy.

And that might change how we sort of view these companies and how we try and put together some sort of an outlook or an expectation where we're not just worried about them piling on users, we now want to see their ability to really monetize on that base, because that's usually comes later on in the game for a lot of these companies. But think of companies like Slack, Zoom especially, they're having to go from all right, we've got the users. Now, we need to really focus on our monetization strategy. That's going to be a little bit of a challenge for management. I think it's something investors are going to start to focus in on a little bit more.

ALEXIS CHRISTOFOROUS: Shawn, does the DOJ antitrust suit against Google change your feelings about exposure to that company right now? I mean, it looks as though lawmakers are really coming for big tech. Does that change your view about, you know, growth possibilities for these companies? And would you scale back your exposure to them because of it?

SHAWN CRUZ: So I don't know that that is really something you want to start moving on just yet because there's a lot of details. I think a lot of people are still trying to figure out exactly how this will impact their businesses and their business practices. You are also going to have to think about is there going to be some sort of a settlement reached? What is the ultimate end impact on these businesses, by and large?

If we want to take a look back and say, well, where have we seen this elsewhere before, think about when we started hearing about Facebook and Google getting some of these antitrust suits out of Europe. Everyone was asking themselves, well, is this it, should we just pretty much completely clip any sort of growth or any revenue from Europe off of their models because they're going to be so inhibited moving forward? That ended up not being the case.

I don't think this is necessarily going to be exactly like that, but I think you don't want to get ahead of yourself in hitting the panic button and getting out of these companies. Because these are still some massive companies, and they're innovative, so I'm sure maybe there will be some changes to how they have to conduct themselves moving forward, but I don't think the businesses are just going to sit there, take it as it is, and then just sort of let the businesses start to stagnate. There will be a response from them on the strategic side as well.

JARED BLIKRE: Hi, Shawn. I want to get your take on the bond market and, for that matter, currencies as well. We've got the 10-year T note at multi-month highs here. The dollar's at-- at least the DXY is at six-week lows. What do you make of this in light of the current environment? We've seen some rotation into small caps. Do you see this continuing? What's your projection?

SHAWN CRUZ: So yeah, I actually think that rotation into small caps has been pretty interesting. If, like Dr. Gottlieb says, we are maybe two weeks away from having to put our own restrictions back in place, small caps is probably not where I would want to be. I think a lot of this, though, is in some of the stimulus talks, and that is we're probably going to be-- we'll eventually get something, and it'll probably be in the magnitude of trillions, not hundreds of billions.

That would be one, I think, maybe a little bit of an explanation for weakness out of the dollar, but also yields moving higher. And so yields didn't really move higher-- if you want to just bear with me and let me overly simplify this-- because your growth expectations are moving higher or your inflation expectations are moving higher. And right now I certainly don't think it's because of growth. If you actually look at inflation breakevens, inflation breakeven rates are actually climbing higher. So I think that what that story is telling you is some sort of stimulus, probably in the magnitude of trillions, weakening the dollar, but also driving up inflation expectations, and that's why you're seeing yields move higher as well.

ALEXIS CHRISTOFOROUS: All right, Shawn Cruz of TD Ameritrade. Good to see you.