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This is no longer our grandparents’ or parents’ stock market : Strategist

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Ryan Nauman, market strategist at Zephyr, joins Yahoo Finance Live to discuss the meme stock boom and outlook on the market for the months ahead.

Video Transcript

ALEXIS CHRISTOFOROUS: A frenzy of buying of AMC stock triggered several trading halts today, with meme stock traders fueling a surge in that stock of more than 100%. The manic trading activity comes despite a report that a hedge fund had sold its stake in the movie theater company. Here to talk about those meme stocks and the market at large is Ryan Nauman, Market Strategist at Zephyr.

Ryan, good to have you here. I want to start with the activity we're seeing in AMC today. We're also seeing a little bit of that bleeding over into Bed Bath and Beyond, another so-called meme stock. How much of a threat is this kind of trading to the broader stock market?

RYAN NAUMAN: Alexis, first, thank you so much for having me on. It's such a fascinating question. And really, you know, it's been a fascinating story this whole year are the meme stocks. And to me, I don't know if it's so much of a threat to the markets. It's more of a learning experience.

And my biggest takeaway from this year is that this is no longer our grandparents', or for that matter, our parents' stock market. Now, investment professionals, they need to start focusing more on looking at alternative data sets, you know, rethinking their investment thesis to consider this growing cohort of retail investors. These retail investors, because of day trading, and for the most part, because of this virtually free money that we've had from the Fed since the pandemic, that their voice is getting much larger due to social media, and they need to be considered when we are coming up with the investment thesis moving forward.

And that's what we're seeing with AMC. AMC, the executives there, they're rewarding this retail cohorts with perks due to their fantastic run this year. I think they're up nearly 1,400% year to date, and they're getting rewarded for it. That's what we're going to see moving forward. And investment theses need to consider that moving forward.

ALEXIS CHRISTOFOROUS: What do you do with a stock like an AMC, GameStop a couple of months ago, Bed Bath and Beyond today-- is there a place in one's portfolio for stocks that are deemed, meme stocks?

RYAN NAUMAN: You know, for me, I don't have the heart for it. But it's for younger investors who they can afford to take that risk on. And they're younger, they have longer time horizons-- you definitely have to have a stomach for it, because it's going to be volatile. And moving forward, I personally think fundamentals are going to take over a little bit here moving forward as interest rates rise.

You know, money's going to get a little bit more expensive. So there's going to be some more volatility here. But I really think it has to depend on your goals and objectives. And can you afford to lose that money that you're really gambling with, investing in some of these meme stocks? You know, you have the fear of missing out, you're shooting for the moon here. So I personally-- you know, you've got to be careful with these meme stocks. But if you have the time, you have the money, you might be able to include them in your portfolios.

ALEXIS CHRISTOFOROUS: I want to talk about the broader market now, and the idea of the economic recovery, and just how much of that has been priced into this market. What do you see as a major driver or major catalyst for this market in the next three to six months?

RYAN NAUMAN: Yeah, that's a great question. And you're exactly right-- I do believe markets have priced in this economic recovery. It's interesting-- you know, we're up nearly 12% year to date for the S&P 500. However, over the past month, we're relatively flat. So a lot of this performance gain-- the stellar performance gain for the year was in the early part of the year. Now all of a sudden, we've kind of been flat trading in a range recently.

And moving forward, markets are looking for new drivers. And I think it's really going to boil down to three things-- fiscal policy. When is the Fed going to really start talking about tapering their asset purchases? And we might get more answers here this week with the jobs report-- I'm sorry, that was monetary policy.

Two is fiscal policy-- you know, the American jobs and Family Plan. Is it going to pass Congress? If it does, at what amount? You know, that's going to have a great impact on taxes, which could be a potential drag on the economy moving forward. And then the final one is inflation. Is inflation really transitory, or is it more permanent that a lot of investors are concerned about? Those are the three topics that I'm really looking forward to-- looking at as drivers moving forward.

ALEXIS CHRISTOFOROUS: And which sectors would you see benefiting the most from the things you just ticked off? When the Fed finally starts to pull back on all of that stimulus, are you going to be making moves in your portfolio?

RYAN NAUMAN: Yeah, I think it's important to look at fundamentals moving forward. As yields rise, money is going to be more expensive. It's not going to be as free or cheap as it is now. So focus on financials. I think yield curve's going to steepen, financials should benefit. With inflation still a concern, even though I do believe it's transitory, it should be a concern for investment portfolios.

Look to small caps. Small caps tend to perform well during inflationary periods. And I still think economically sensitive sectors like materials, industrials, energy-- I still think energy has room to run, those value sectors should perform well. And those are the ones that we're looking at moving forward.

ALEXIS CHRISTOFOROUS: All right, Ryan Nauman, Market Strategist at Zephyr, good to see you. Thanks for being with us.