Markets lower after S&P 500 erases 2020 losses

Yahoo Finance’s Alexis Christoforous and Brian Sozzi break down today’s market action with Belpointe Chief Strategist David Nelson.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, let's take a look now at the market action. We saw that futures were lower heading into this session, and the Dow is now off more than 300 points to start the day.

Let's say good morning to David Nelson. He is chief strategist at Belpointe. And, David, always good to see you. We're also joined by Jared Blikre and Brian Sozzi. So, David, just what do you make of this incredible, incredible ride, I guess I'm going to call it, the market's been on? I mean, yes, we're lower today, but this is after having clawed its way back from those March lows despite all of the challenges that the economy and the world is facing right now. Why are we able to rally?

DAVID NELSON: It's pretty historic, and we can certainly debate, you know, whether or not the rally has come too far and whether or not valuations have exceeded expectations at this point. But what isn't up for debate is the fact that we're here, and we're above the 200-day moving average. We're actually starting to live there. And the slope of some of these averages is actually pointing north.

The last couple of weeks, maybe the most astounding move that I've seen is this, you know, rush from one side of the lifeboat to the other side of the life boat, dumping your COVID stocks, dumping those large-cap secular growers to pile into financials, industrials, and some of the more cyclical names. Today is giving it back some at this point, but stocks are saying right now that, you know, this comeback-- this comeback, whatever it is, is real and that we've likely seen the bottom.

BRIAN SOZZI: David, I'll put this question to you. Do you think what we're seeing in markets is the Trump re-election rally? If I count six months forward-- which we all know the market likes to count six months forward. That brings us to December. And to your point, the economy is, in fact, coming back to some extent. Is the thesis here economy comes back and somehow the president gets re-elected and the tax rates stay lower?

DAVID NELSON: The tax rate is a big part of it, but I don't think it's the bigger part of the rally here. This is more about the fact that we've kind of gotten control over what we were looking at.

Look, we know now, Brian, that April was the economic bottom. Clearly it had to be the bottom because we were at a virtual standstill. We came to a halt. This wasn't a recession that came about because of excesses in the economy or some mistake by government. A meteor hit the Earth, and now we're coming back to life. And one by one as communities go back to work, economic activity starts to pick up, and we start to get this rally.

I'm sure Trump would like to put, you know-- see a better economy. It paints a better picture for him, and it increases his election chances. But this is more about people going back to work and medicine getting a control of this virus.

ALEXIS CHRISTOFOROUS: Hey, David, you know, we saw some new data from Robintrack, which takes a look at Robinhood, the app, and they're finding that retail investors are running into this market, that it's really the retail investor, not the institutional investor, that has been driving the rally. Yet on the other side of the coin, we see that investors are remaining pretty cautious. They're actually keeping a significant chunk of their assets in cash. I just found something from Deutsche Bank saying money-market assets remain at financial crisis highs at $5 trillion. So what do you make of those two bits of data that seems to paint a, you know, controversial look at how-- at sentiment from the retail investor right now?

DAVID NELSON: It's a nice way of putting it, very controversial. It's very confusing. I think there's been a lot that's been confusing here. Some of the brightest minds on the planet were probably caught off guard by this. You saw, you know, some brilliant investors like a Warren Buffett sell his airline stocks at the absolute bottom. Some other large hedge-fund managers underinvested. Professionals like myself underinvested at the bottom, and slowly but surely the market has dragged us back in.

The retail investor has been, you know, piling money into the market to a certain degree, but it's the institutional money that drives things in the long run. Make no mistake, a lot of institutions put a lot of money and a lot of capital back to work in the last couple of weeks.

BRIAN SOZZI: David, I got a text from a friend last night who's not in financial services asking me for five stock picks. I didn't do it because that's not what I do. I'm just-- I'm not that guy. But I took a step back. I'm thinking, wow. You could see a lot of retail investors start to come back in this market and not do the right research, not do the right thing. Do you think this is starting to become a sucker's rally?

DAVID NELSON: Maybe in some things for sure. Look, we're going to have a retrenchment at some point, but even if we had a 10% correction from here, it's not going to take us back to the March 23 lows. I think that's been taken away at this point. We're not going to go below that at this point.

I think for professional investors like myself, we have to looked at 2021 because we have no earnings to really look at in 2020. And this rush from one side of the boat to the other is understandable. We hid out in those large-cap secular-growth names for good reason. They had the strong balance sheets. In some cases, companies like Netflix and Amazon and others actually benefited from this shutdown.

But as the country goes back to work, you're going to have to start to go down the valuation curve and start to look at some of those things like industrials, even financials. Financials today, even with the run that they've had, they're still a significant discount to the market as a whole.

ALEXIS CHRISTOFOROUS: Going over to Jared Blikre now for a look at the markets. Jared, I see we're lower across the board. What's driving us down today? because yesterday we saw some of those stocks that were beaten down because of the pandemic-- the travel, airline, hotel, cruise liners-- were actually rallying. So what's the story today?

JARED BLIKRE: Yeah, we're seeing those very same travel-related stocks down considerably, some of them. But given the magnitude of the rise and especially since we have an FOMC announcement tomorrow, not a big surprise.

So let's sort by performance here, and we can see the standouts. Hertz is down 28%. I believe it was paused for volatility already. And United is down. Air-- excuse me. American's down as well about 7%, 7 and 1/2%.

But just looking at the broader market, here's a NASDAQ 100. We can see those big megacap names like Apple, Alphabet, Facebook, Amazon. Those are all outperforming today, a stark reversal from what's happened over the last three weeks. So a little bit of a defensive posture here. Those high-flying industrial names and also financial names like JPMorgan and Boeing, American Express that have done well over, say, the past 18 days now since the leg of this last rally began, those are underwater right now.

And this is taking a look at the Dow over the last 18 days. We can see Boeing is still up 84%. American Express up 40%. Travelers similarly. So it goes on from there.

Just taking a look at the sector performance today, we'll see health care is in the green. Tech is outperforming but slightly underwater here, then communications services.

To the downside, we have energy as the worst performer. Crude oil is off about 2% or 3%. No particular news that I'm seeing since yesterday, but we did see crude punch above $40 for the first time in months, and so I think we're just seeing a little bit of a pause here before we head into tomorrow's meeting.

ALEXIS CHRISTOFOROUS: Yeah, probably a healthy thing too. All right, thanks, Jared.

Hey, David what do you see as the biggest threat to this market now? Is it a second wave of the virus? Is it, you know, tensions between the US and China starting to bubble there in the background? What do you see as the thing that could trip us up?

DAVID NELSON: It's really all of the above, and the number one at the top of my list is the election itself. Look, I don't care which side of the political aisle you live on. I think we can all agree that this election is going to be the most divisive in a generation. As we approach November, you're going to see huge swings in sector performance. You're going to see rushes in and out of health care, depending on the polls. You're going to see rushes in and out of energy. You're going to see even big-cap tech will be controversial.

China, big, big issue for us because now it's not a question of if. It's now just a question of how fast. We're in the early stages of decoupling our economies. And, frankly, both candidates right now are trying to paint themselves as being more tough on China, and I think that resonates with the American public as a whole.

And finally is the virus. You just brought up. You know, we could have a resurgence. I was just looking at some data this morning. 12 states right now are reporting an increase in the infection rate. That'll give the market some pause here. And we'll rush back and forth from one side of the lifeboat to the other. And I think in the end, investors are going to find somewhere sitting in the middle is going to be the best place to be.

ALEXIS CHRISTOFOROUS: All right, David Nelson of Belpointe Asset Management, always good to see you. Love the guitar in the back. Hope you're going to get to play it at some point.

DAVID NELSON: OK. Thank you so much.