Markets slide after 3-day rally
Tom Stringfellow, President and CIO of Frost Investment Advisors, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Heidi Chung to discuss how the coronavirus is impacting the markets.
Video Transcript
- Let's bring in Tom Stringfellow, president and CIO of Frost Investment Advisors. Tom, good to see you here. In terms of the market, do you think what we've seen leading up to this session is just a sucker's rally?
TOM STRINGFELLOW: I really do. Call it a sucker's rally or a relief rally. The data that we had from both the Fed and the administration was extremely positive. I want to say it put a stopper on what we would call the bottom of the market, or I hope it's the bottom of the market, it was certainly a traumatic 16 days to get there. But what we're seeing now I think is a testing of the highs and the lows in trading in a range. So yeah, I wouldn't be caught up in what we've seen in the last three days. Today is what I'd expect, which is some sellers taking profits. There's probably a few algorithms out there that are focusing on doing the same thing. But I believe we're probably in a trading range now until we start seeing some real hardcore evidence of containment and earnings visibility.
ALEXIS CHRISTOFOROUS: And, Tom, I read your note this morning, and you talked about having to brace for significant drops in GDP for both Q1 and Q2 at least. There hasn't been much talk yet about the housing market and how all of this may ravage the real estate market. What are your thoughts?
TOM STRINGFELLOW: Just look at the recent housing data. Right before this started really hitting the market, I was looking at some of the housing stocks, looked at the spider for housing XHB, and I looked at it. It looked like it was actually firming up. We had low interest rates, we had strong permits, housing starts. We're at the beginning of another rally here until it all fell apart, and all of a sudden all home shoppers stayed in their own houses. So I don't think lower interest rates are going to spark anything right now. It's not going to be until we can actually get people comfortably outside looking at houses and talking about building. So I think it does do some damage to the housing market, but I still don't think it's a long-term issue, as long as this thing is contained and identified in the same amount of period as we saw overseas in Asia.
HEIDI CHUNG: Hi Tom, it's Heidi Chung here. So going back to the markets really quickly, I want to get your thoughts on energy. We have WTI here flirting with $20 a barrel, so I want to get your thoughts on what is next for this market-- the oil market, specifically.
TOM STRINGFELLOW: Well we saw this about five years ago, but nothing as traumatic as this. I'd say that for me, the issue has been really a matter of getting the Saudis and the Russians to stop fighting over a turf warfare now. But with the slowdown, we've seen dramatic drop in manufacturing, dramatic drop in transportation, commodity prices, all of that speaks to a slowdown in the economy. There's nothing right there that says support for oil prices, unless we can get a support via production cuts. And until we see that and hear that discussion from overseas and the OPEC nations, I don't know how we're going to get much support in oil prices. Short-term it's certainly tough for the energy companies. You're seeing some lay offs. You're seeing a few companies shut down. You're certainly seeing a slowdown in drilling. But short-term, I don't know if there's an upside for the energy industry.
- Tom, I certainly share your concern on the incoming economic data we're going to get over the next couple of months. As a result of that, do you think we go back and retest the lows on the S&P 500 and perhaps break slightly lower?
TOM STRINGFELLOW: Definitely possible. Definitely possible. I still take a lot of encouragement from the fact that before all of this hit, we were in fairly decent shape. And in fact, we saw actual turnaround in earnings at the beginning of the year, which we had not seen last year. The market was getting a heck of a rally last year when we were still in negative earnings growth territory. As we got into this year, it looked positive. The problem now is obviously we just have no idea conviction of where earnings are going to go, and so that could get more angst than what we've seen so far. So if you get another emotional rally, we could certainly test the lows in the past, but I think we've gotten some inkling of where they could fall.
ALEXIS CHRISTOFOROUS: Tom, where do you see some glimmers of hope in this market right now-- some opportunities, given this backdrop?
TOM STRINGFELLOW: Well I'd say in the near term, health care certainly, consumer staples certainly, grocery stocks certainly, apparently toilet paper stocks as well. It's interesting just looking at the grocery chains and the supplies that are supposed to be on hand, getting the supply chains back in order is interesting. But I don't see much in terms of some of the financial stocks. We've got issues on the financial side just with the lack of spending these days. What is positive is probably technology stocks-- the work at home stocks today.
ALEXIS CHRISTOFOROUS: What are you hearing from clients right now? Are they hesitant to not only jump into this market, but those who are in this market, are they hesitant to remain in? Are you seeing them cash out and say, you know what, I'd much rather hold on to cash until there's a little more clarity here?
TOM STRINGFELLOW: Very bifurcating. We've certainly seen some clients that want us to get on the sidelines, want to move to cash. I think that's a natural reaction from the trauma we've seen in the markets. But conversely, we've seen clients that de-risk where we can, but let's be ready to buy. In fact, start nibbling. We're going to add some opportunities. When I just looked at some of the charts and some of the multi-year lows we've seen on some of the companies, there's a lot of buying opportunity if, indeed, one, you look at more than the next quarter or two. As long as we've got a two, three, four, five-year time frame, there are some interesting buys in the markets today.
- Tom, before we let you go, in terms of President Trump, the political talk went to the back seat with good reason, but do you think his leadership during this crisis boosts his re-election chance and that is good for the markets next year?
TOM STRINGFELLOW: That sounds like a great politician. Yeah. We can go in lots of different directions. I would say that what's going to drive the market is confidence in that we're going to be able to contain and define the virus. And at that point, I look for consumer optimism to hit again, positive, I look for earnings to start growing. All of those are positive for the markets. From a market perspective, I'm relatively indifferent on which way the political scenario goes. I believe that capitalism is well, we just need to get a re-footing.
- All right, Tom Stringfellow. And I echo your view on toilet paper. I haven't seen TP in the stores for about a month. We'll leave it there.
