Markets open in the green on treatment hopes, economic reopening plans

Amanda Agati, PNC Chief Investment Strategist, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss the latest market action.

Video Transcript

ALEXIS CHRISTOFOROUS: PNC's Chief Investment Strategist-- Amanda, always good to see you. Thanks so much for being with us. What do you make of this market action?

I mean, we could be, if we hold on to these gains, could have our second weekly gain for the stock market. At the same time, we're seeing the number of coronavirus cases rise, the number of deaths rise. Is there a disconnect here between Main Street and Wall Street at this moment?

AMANDA AGATI: Oh, absolutely there's a disconnect. I'm wearing my green today in honor of this big rally at the open here. I really hope that it does last. We have been fairly skeptical, though, unfortunately, of this pretty significant rally we've had over the last couple of weeks.

Today, it's really a sell the stay-at-home basket, and buy the go-outside basket. That's what we're seeing in terms of market action. You know, Amazon, Walmart, Zoom, Peloton all down. And what we're seeing is the consumer value oriented names-- Coors, Kohl's, and even the cruise lines rallying.

So I think what I would say is, you know, I'd love for this rally to hold. We're skeptical, because it really hasn't been a broad-based rally. Breadth continues to be fairly narrow. Correlations continue to be very high.

And frankly, the only thing that the market cares about is virus data-- the path of the virus, the cresting of virus cases, and certainly the leaked news from Gilead about a potential way to treat it. And so it's amazing to see that the market is shrugging off, you know, really horrific-looking GDP numbers, really negative earnings revisions, PMI data. And so the path forward continues to be governed by the trajectory of the virus.

I think the key question for us, and why we're skeptical of this rally, is when does the market start to refocus on the fundamentals? The start of earnings season was this week. And so this is a good test to see whether the market will ultimately refocus on those fundamentals.

BRIAN SOZZI: Yeah, Amanda, I'm wearing my dark gray, because the news out of corporate America is just-- it's a downer. It's just-- it's not good news. But are you surprised-- our earnings season, to your point, we had Uber come out last night, pull its guidance. You have Shake Shack out this morning saying sales fell off a cliff in the latter parts of March. They're furloughing 1,000 workers.

But the stocks aren't falling off a cliff. So does this earnings season even matter?

AMANDA AGATI: It really doesn't seem as if Q1 matters all that much. You know, it really is backward-looking at this point. And really, the focus of the pain in terms of the economy and earnings is really going to hit in Q2. So while Q1 earnings growth estimates are somewhere in the neighborhood of down 9, Q2 is expected to be down 20. And so what matters is not so much Q1 results, but the guidance and the path forward.

For us, you know, we're kind of kitchen sinking, assuming Q2 is going to be bad. And so zooming out to say, all right, what does the rest of the year look like-- certainly the market is thinking we're going to have a really sharp snap back in the second half. Earnings growth for 2020 is looking to be down about 8%. I think all things considered, if that number held, that's actually a pretty good result, given how kind of challenged, as you said, corporate America looks at this point.

But zooming out even further, 2021 is now sitting at a plus 18% earnings growth rate. That's just massive. And so huge snap back. And so for us, if the trajectory of earnings growth continues on a path higher, as it is for 2021, it just really confirms for us that this isn't permanent demand destruction here in the short-run. It's just pushing out growth from today into tomorrow, or really in this case, next year.

BRIAN SOZZI: Amanda, do you think this market trades as if-- on the assumption that the entire US economy reopens for business by the end of May?

AMANDA AGATI: That's an unanswerable question. I would love to be able to give you a precise answer. Given the rally into the open here this morning, you have to think that that's part of it. But I think that just leads to more skepticism on our part.

We're just not ready to fully reopen. Even the guidance that came out last night from the administration doesn't suggest that. If you zoom out even further and look at what Germany is doing, they are starting to reopen, but it's not all going to come back online once. Schools are going to come back in phases. And big public gatherings, in the case of Germany, aren't going to be feasible until the end of August.

And so even if we start to come back online here, it's going to be a new normal. It's not going to be back to normal.

ALEXIS CHRISTOFOROUS: How true that is, Amanda. Do you think, though, that given the market activity lately, that investors are just too optimistic here? Thinking OK, yeah, we're going to get the economy back up and running. And when it does, it's going to be this V-shaped recovery.

And are we just setting ourselves up for another disaster, where this market is going to set new lows?

AMANDA AGATI: Well, I don't think that we will set new lows. But I do think it's very possible that we could retest some of the lows. I'm an inherent optimist as well, and so I would love to see us work through this next quarter fairly efficiently, and then start to get back to that new normal, or business-as-usual. I'm not convinced yet, based on kind of watching the virus data and the path of the curves, that it will ultimately be a V-shaped recovery.

The challenge is-- and we've been looking at the data lot this week-- the challenge is that in the US, there may actually be multiple curves to watch. So while the national average in terms of virus cases and data may start to flatten, we have fairly major cities across the country that really aren't at that peaking or flattening stage. They're just starting to see cases rise-- Dallas, Atlanta, LA even.

And so the challenge is going to be, are we looking at one curve? Or are we actually looking at multiple curves? And I think if the market starts to realize that this is going to come in waves, I think that may create some choppiness for the market over the next few months.

ALEXIS CHRISTOFOROUS: I think that's an excellent point. I think for sure there are going to be some waves. Let's get to Jared Blikre now for a look at what's happening. Jared, I see green on my screen. Dow up more than 2% right now.

JARED BLIKRE: Yes, it is. That's good for 539 points, and 2.3%. NASDAQ lagging here today. And if I can just pull-- looks like my screen is stuck, so might have to do without that. But yeah, NASDAQ is up as well. And the Dow is up 2.4%.

And we're looking at financials, industrials, and energy really leading the show today. And if we take a look at the heat map here-- good, it's working again-- we can see kind of a mixed picture in tech. It had been leading over the last few days.

Today we're seeing the 10-year T-note yield bounce about one basis point. Not under as much pressure. It's been down 11 basis points this week, approaching that critical resistance point, or support point of 0.6%.

You can see Apple is down here about a third of a percent. Procter & Gamble down about 2/10 of a percent. But Walmart, that should be-- it's coming off a record high, so that's down 1.3%.

And then let's take a look at the NASDAQ. We have Gilead leading there. We had seen-- we've talked about that as well. Chip stocks have been doing very well as of late. Although they're not the front runners today, we're seeing home builders, regional banks, retail names, and transports-- they're kind of stealing the show today.

And you can see when we sort by performance in the NASDAQ, Gilead up top, Expedia, Marriott, American Airlines, Wynn-- so a lot of these top names today are those stocks that have been beaten down the most. And if we look at the sector, we can see financials and industrials and energy leading. Energy up today, even though crude oil is trading with a 17 handle. Haven't seen those prices since 2002, as you noted. And then materials and real estate also outperforming.

To the downside, staples, health care, and communication services and tech. So the leaders of the week kind of not participating as much today.

ALEXIS CHRISTOFOROUS: All right, thanks for that, Jared. Amanda, Jared just mentioned oil around $17 a barrel. Are you invested at all in the sector? And what looks attractive to you right now there?

AMANDA AGATI: Well, we do have some exposure there in portfolios. But I will characterize the energy sector, really across most market capitalizations, as being a bit of a dumpster fire. That's a technical term for you.

You know, it's been a tough slog for the energy sector, even before the coronavirus situation hit. You layer on top of that the OPEC Plus price war, and it's just a multiple whammying effect here impacting the energy sector, and frankly, the value chain related to it-- so industrials, materials, and even the lenders with big energy exposure in their books. And so the challenge going forward is not just about what the coronavirus kind of drop in demand is causing, but it's really kind of a broader, more secular story. So we're very picky and choosy about the types of energy exposure that we do have in portfolios.

And frankly, you know, sort of this fake production agreement that we got over the weekend, last weekend-- I don't count this as the OPEC price war being over. This is merely a stalemate. We're nowhere near back to levels prior to the OPEC price war in terms of demand.

It looks like daily demand in the month of April is dropping to the tune of 30 million barrels per day. We have a production cut agreement in the neighborhood of 10, or just shy of 10. It's not solving the problem. And I think you're obviously seeing that in the price of WTI declining pretty significantly.

The other thing that's challenging here is that the price of WTI is nowhere near the break-even for North American shale, which is something like 45. So we have a long way to go here with this story.

ALEXIS CHRISTOFOROUS: Yeah, being picky and choosy in this market-- pretty sound advice. Amanda Agati of PNC, thanks so much for being with us.

AMANDA AGATI: Thank you.