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Markets volatile as virus, stimulus concerns grip investors

Yahoo Finance’s Alexis Christoforous and Brian Sozzi break down today’s market action with AdvisorShares CEO, Noah Hamman.

Video Transcript

BRIAN SOZZI: All morning long we've been having this debate with various strategists with regard to President Trump's comments on him not agreeing on a peaceful transfer of power. And there's mixed commentary out there with regards to market risk. How disturbed have you been by this commentary by the president, and what type of market risk does a contested election represent?

NOAH HAMMAN: It'll make it challenging. It will increase the volatility. I'm actually not too worried about what he says, right. This isn't the first controversial thing that he has said. And he's very good at it, relative to attracting some attention. So I'm less worried about that.

I think everyone wants to see how things are going to work out. And hopefully, it's not so complicated. I'm really-- regardless of how it works out-- I hope it's very definitive. I hope, you know, there's not a problem, there's not a challenge, and it doesn't go to the Supreme Court. But people and investors are bracing for volatility.

BRIAN SOZZI: But Noah, should it be priced into the market at some component? I would argue right now, this type of risk is not priced in. All we have seen is what I would call a mini-correction the past few weeks.

NOAH HAMMAN: I would agree. And it's in part why we're suggesting to get your portfolio ready now for the election, right, looking at cash, maybe even looking at hedging your portfolio with short equities because it could be a risk. But I would say headline risk-- don't worry about that.

What we saw this year was the fed going into the marketplace. And when you see real dollars and you see real action, react to that. That's slowed down. We know we've got some volatility coming up. Now is the time for investors to get themselves ready.

ALEXIS CHRISTOFOROUS: OK, so you say you're focused on getting your portfolio election-ready. What does that mean, exactly? And are you maintaining that large cap valuation position?

NOAH HAMMAN: So it means safety, right? Cash, ultra duration, short cash, treasuries, probably not taking corporate credit risk. And we are going to hang on-- I'm not going all to cash. So we're hanging onto some stocks. Probably hanging onto the value positions.

We've seen a big run up in the tech space, right up almost 15% to 20% this year. S&P is probably about break-even today. But it's really been the Russell 1000 down roughly 15% this year. Those are probably the stocks that we feel like will get hit least. So that part of the portfolio I'm hanging on to.

So familiar stocks for you guys, like Verizon, we love. It's one of our top holdings in our value equity ETF. Bank of America is another position that we like in there, and some good consumer staples, like Hershey's and Hormel. I'm not selling those positions. I continue to dollar cost average to them after we see what happens with the election.

BRIAN SOZZI: And again, we'll reiterate, Verizon is the parent company of Yahoo Finance. Noah, give me three reasons why you like Verizon.

NOAH HAMMAN: Communication, work from home content, and probably a ton of advertising. And that's probably just in the short term. So they're a good strong company. They're building a great infrastructure for 5G. There's a lot of things to love about Verizon, including this network, and you guys being on Verizon Fios now, which is super cool, not just online.

So it's been a top position for us for a while. I think I've mentioned on this show before, the double line team, which runs our equity portfolio, they've loved it for a long time. So they see a lot of upside. And they have a very unique view into valuation stocks, for sure.

ALEXIS CHRISTOFOROUS: I'm looking at Costco today. So they blew it out of the water with their latest earnings report, yet the stock is down nearly 3%. I know they've yet to embrace curbside pickup delivery. Is that what's got investors down? Why aren't investors rallying around Costco today?

NOAH HAMMAN: I don't know. It's a good question. Hopefully, it's not something about curbside, more just what the numbers were going to be. I think people are expecting bigger numbers from the Costcos, and the Targets, and the Walmarts, and the Amazon-- all the firms and the big company, big box retailers, that have benefited in this challenging environment. As you guys had mentioned earlier with the small cap index getting below its 200-day moving average, it's been the small companies, whether they're public or not, that have struggled so much.

So you saw a little bit of that, I think, with Zoom here recently. Maybe, you know, people pulling back from the growth they've seen in that stock price. It wouldn't surprise me to see the same thing happening with Costco and the other big box retailers that have benefited in this environment.

ALEXIS CHRISTOFOROUS: You know, is the stay at home trade sort of dissipating? I mean, we found out today, durable goods orders, right-- these are orders for big ticket things like refrigerators, and stoves, and dishwashers-- rose just 4/10 of a percent. Street was looking for a rise of 1 and 1/2 percent. And yesterday we saw a surprising uptick in unemployment claims for the week. So do we need to start reassessing the stay at home trade?

NOAH HAMMAN: Maybe in some areas. I mean, again, think about the environment we're in, where a lot of people are out of work or have been furloughed and they're not getting the extra cash that might help you make that decision between buying a new fridge or repairing the fridge that you have. And so it's not surprising to see challenges there.

I'm still going to keep my eye on, well, One Verizon, Zoom-- all the work from home companies that are new to the space that could continue to see business. Even after we hopefully-- fingers crossed-- come up with a solution for this virus, I think Zoom will still be in online learning and online trading, and online meetings will still be very popular.

But I think right now, bigger ticket items-- you know, things like refrigerators or even you've seen that in the home space-- it's going to be a challenging decision, depending on what happens, especially, you know, relative to what politicians are going to decide to help the Americans who do need help right now.

BRIAN SOZZI: You're a friend of the show, Noah, so I'll toss you this hot potato. I have heard this week that some of the sell-off we're seeing in bank stocks is over concern that a president Joe Biden would pick Elizabeth Warren as the next fed chief. Have you heard that? Would you agree that's what's pressuring bank stocks? And what would a Federal Reserve Chief Elizabeth Warren mean for the markets?

NOAH HAMMAN: It would mean a lot tighter regulation and a lot more aggressive oversight over those businesses. And so does that provide earnings pressure? It definitely does. And while I'm on record, in fact, on this show, saying I think a Joe Biden presidency is probably not great for the market, it doesn't mean that it's not great for the economy. Doesn't mean it's not great for America.

But I think whether it's Elizabeth Warren being in a new position or just the new administration, it's going to be challenging. It's probably not going to be positive for the market. That's going to be OK. The market's going to see its ups and downs. But does it mean that as an investor, get yourself ready and brace for it.

ALEXIS CHRISTOFOROUS: Noah, what areas of the market are you just simply staying away from at the moment?

NOAH HAMMAN: It's a good question. Probably the smaller cap space. I think those smaller companies and their access to credit and growth are going to continue to struggle, though you can sort of hand-pick some companies there in terms of looking for M&A opportunities and things like that for bigger companies who want to try to expand their revenue growth and aren't doing it through their own organic growth.

But for right now, staying pat with large cap value, some of the stocks that I mentioned before, and just about everything else. And you wouldn't get rid of all of your tech positions. But as you guys mentioned earlier today, you're seeing some pullback there. And I wouldn't be surprised to see more of that. So stay in core with blue chip large companies for now.

BRIAN SOZZI: Noah, we have a lot of active traders that watch this program every morning. For that group, what type of trades do you think they should put on ahead of the debates?

NOAH HAMMAN: You know, we think it's time to hedge. There's lots of hedging tools out there. We have our own two short equity ETFs. One's technically driven by the Dorsey Wright team, and the other is very fundamentally driven with a forensic accounting approach from the Range or Alternative Investment team. It's a good way for investors to build their own kind of simple long short strategy.

In these volatile environments, when you think of what institutional or hedge fund type investors do, they're trying to protect from those losses. I think everyone knows when you lose 20%, it takes 25% just to break even again. So protecting on the downside is important. There are tools out there-- whether they use ours or some other firm's products-- that can make it easier for you to kind of manage that volatility as well.

So for those that are more traders and a little bit more aggressive and comfortable with it, shorting might be a good opportunity.

BRIAN SOZZI: So when you're watching the debates, can you give us, let's say, three things that people should watch for? Are you going to get more bearish after the debates or start buying this dip we've seen in the markets?

NOAH HAMMAN: I am going to still stick with my plan, I think, right now with the debates. And I say that in part because I'm going to probably watch it for more entertainment than I am substance. It's going to be a big show. There's going to be a lot of shocking statements. And I'm going to try to not react in my portfolio to that.

So I'm going to still probably keep paring down as we get closer to the election. And then we'll see what happens from there. I'm not worried about missing some big run-up. We're still near and not that far from all-time highs. So I'm not worried about leaving a ton of money on the table.

I'm more worried that it could be another 10%, or another 20%, or even more decline. That's what I'm bracing for. And I'm going to try to filter out the noise, and a lot of it's going to happen when these debates start.