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Rebecca Felton, RiverFront Investment Group Sr. Portfolio Manager, joins Yahoo Finance’s The First Trade with Alexis Christoforous and Brian Sozzi to discuss what's moving the markets around Tuesday’s opening bell.
ALEXIS CHRISTOFOROUS: Let's go "Around the Bell" now with Rebecca Felton of RiverFront Investment Group.
Rebecca, good to have you here. Is the market setting itself up for failure? I mean, it seems like the two sides are still pretty far apart on a stimulus deal? If tonight's deadline comes and goes, what happens to the stock market?
REBECCA FELTON: Well, good morning, and thank you for having me. I think it's a very fair point that, perhaps, there is a little bit of fluff this morning as we anticipate, perhaps, a stimulus bill today. We know that stocks would be positive if we do, in fact, get it. But the good news is is earnings are coming in better than expected by and large. And we're seeing revenue beats, earnings beats. And some of the guidance that we've heard from companies has been positive. And the dividend trends are good. So there's certainly fundamental support, even if that needed stimulus doesn't get done by this afternoon.
BRIAN SOZZI: Rebecca, frame for-- frame it for us. Let's say this afternoon, no stimulus plan, deadline comes and goes, where does the market go?
REBECCA FELTON: Well, I think that you could see a sell-off. You know, we are watching it closely. You have to accept that the market is expensive here. But you also have to believe that as we have moved through this earnings season, you've seen earnings estimates move higher. And I think that that fundamental basis can continue to keep the market at at least these levels, if not a little higher. From a risk management standpoint, you've got probably the same technical levels drawn as most people maybe, 6%, 7% below here. But that even in and of itself wouldn't be enough for concern at this juncture.
ALEXIS CHRISTOFOROUS: Rebecca, we're seeing investors pull out of those big cap tech stocks that have been the leaders for this stock market of late. Where are you putting money to work right now? And do you think that the rotation out of big tech is getting a little overdone?
REBECCA FELTON: Well, we're still overweight, in full disclosure. In the majority of our portfolios, we're still leaning into tech, specifically software services. But we've also got a little bit of an overweight in industrials. When you think about maybe infrastructure plays in either administration, we also continue to favor consumer discretionary as well as health care. So we're still pro-growth. We haven't really gone full tilt into that value trade, as some are thinking, just because we prefer to take a wait-and-see attitude.
BRIAN SOZZI: Rebecca, the news out this morning on Google potentially violating antitrust law, does that-- does that hit the reset button on big tech? Do you think that will lead to a sell-off in some of these names that haven't had to deal with this stuff before?
REBECCA FELTON: Well, arguably, and regardless of who wins, we could expect to see further scrutiny and regulatory issues for some of these larger tech companies. But given that we are doing this type of hit through the means that we are, the growth curve for all of these companies has accelerated. So if you look at it from that standpoint, you're going to probably see a little bit of a balance. You may see some rotation again. But we are sticking with some of these large cap tech names at this juncture.
ALEXIS CHRISTOFOROUS: You know, yesterday, we actually saw one of the few sectors that rallied was the airlines, which had been down or all the obvious reasons. What's your take on these travel stocks that have been hit so hard by the pandemic? Do you own any of the airlines? And what's your outlook there?
REBECCA FELTON: We are overweight in some of these types of industrial discretionary areas that are COVID plays. But for the most part, we're still neutral to sort of wait and see. Because if we did see a spike in viruses, I know I think Hawaii has opened back up for travel. So there's optimism, if you will, about the expectation that we would rather see a firmer ground there and true turns in those trends.
BRIAN SOZZI: And Ines, optimism to kick off this trading session, strong start of the gate for the major indexes.
INES FERRÉ: Oh, definitely, with the Dow up about 100 points. And if you just take a look at some of the Dow components, you can see PNG up more than 1% after a strong, strong quarter. We're also taking a look at some of the NASDAQ players here. You've got Facebook up more than 1%. And also the sector action with financials leading the gains along with energy and materials, you've still got health care and utilities. Those are gaining the least this morning, Brian.
ALEXIS CHRISTOFOROUS: I'm taking a look right now, guys. I'm actually bringing up some of the homebuilders because we got that housing number out this morning. Housing starts rebounded a bit, maybe not as strong as expected. But those building permits were up about 5% That's a pretty strong indication that business should be good going forward. Rebecca, what do you make of the homebuilding stocks? I just pulled up Lennar up about a quarter of a percent here right now. But is that a good bet? Do you see that as being an area of growth for this market?
REBECCA FELTON: Well, we've certainly seen strong consumer sentiment and the the trends as it relates to the consumer has been positive. That NAHB index is at pre-pandemic levels. So we believe that that is a positive area to be simply because that is one of the most, I think, long-term positive signals that you can get in terms of the consumer. And with the consumer being, what, 60% or so of GDP, we think that these are really positive and exciting trends to see.
BRIAN SOZZI: Rebecca, we're really going to test all your knowledge here today. On consumer staples, we just talked to Procter & Gamble CFO Jon Moeller this morning. They said this is not some form of new normal. You know, consumers are out there spending more on a sustained basis because of the pandemic. As you take a step back, look at those consumer staples stocks, are those some of the riskless stocks you can own in this type of market? Strong demand, dividend paying-- sure, they're richly valued, but the fundamentals look great.
REBECCA FELTON: They do look great. I don't know that anything would be considered riskless here. So you would have to have some, I think, you would be remiss to be underweight them. Neutral would be a good place to be simply if nothing else as a buffer if we did hit some resistance in the near-term. We know that those stocks typically are going to act as somewhat of a buffer and defensive. So we are somewhat neutral in that sector. We are not overweight yet.
ALEXIS CHRISTOFOROUS: I would love to get your thoughts-- we'll go back to tech for a moment-- on the chip sector. We got a deal today. Intel going to be selling its NAND memory unit to a South Korean chipmaker. I guess Intel trying to focus on its core products there. Do you like the chip space? And if so, anybody in particular there?
REBECCA FELTON: We are preferring pay technology still in I'm sure what everybody believes is a crowded trade, that software and services. We are, again, somewhat neutral semiconductors, simply because of the volatility that ensues anytime you hear noise about trade concerns and even an economic flattening. So we're still sticking to those recurring and consistent earnings and revenue streams in software and services over semiconductors at this point.
BRIAN SOZZI: Rebecca what keeps you up at night with the election coming up so close?
REBECCA FELTON: I think that the concerns about a contested election and any uncertainty-- because at these levels, from a valuation standpoint, we know that the market doesn't like uncertainty. And if we think back to 2000 when we know that we didn't know the outcome of the election until mid December and the market I think sold off 10%, 12% against a backdrop of a market that was already negative that year. But that would be of concern I think if we had some sort of contested election or unknown outcome for an extended period of time.
ALEXIS CHRISTOFOROUS: We've talked to lots of experts recently about the Biden economic plan, the Trump economic plan, many of them pointing to Biden's proposed tax raises as a reason to sort of rotate money out of certain sectors in this market. What do you think about-- would his tax proposal really be a negative for the stock market going forward?
REBECCA FELTON: We believe it could be. Because you're talking 9% to 12% potential hit to S&P 500 earnings. And you also could see companies perhaps ship jobs overseas again. So I think that it is something to keep in the back of our minds at this juncture. But the way the market has been moving with the poll data being the way it is, some would argue that the Street seems comfortable with a Democratic sweep at this point.
ALEXIS CHRISTOFOROUS: All right, we will all be waiting and watching. Rebecca Felton of RiverFront Investment Group, thanks for being with us.