Binky Chadha, Deutsche Bank Chief Global Strategist, joins Yahoo Finance Live to discuss how the stock market is faring amid the pandemic and outlook for economic recovery.
JULIE HYMAN: Let's talk about tech stocks. Let's talk about momentum and what's been going on in this market. Binky Chadha. Is joining us now, chief global strategist at Deutsche Bank. Binky, it's great to see you. I want to get into tech stocks. But first, I mean, I got to spare a word for the memes, I suppose, this morning.
And at your level-- because I know you're thinking about all of this as a very high level, sector by sector. But how are you thinking about the meme stocks, if at all? Are you getting questions from clients? Are you thinking about them as an asset class? How is all of this factoring into your work?
BINKY CHADHA: Hi, Julie. Good morning. And thanks for having me on. You know, we think basically-- and this is not a new view. Basically, we've thought that since the bottom in the equity markets last March, you know, the role of the retail investor more broadly, basically, has been absolutely key to, you know, driving the market, explaining its resilience, explaining elevated vol. Because a lot of the participation is basically happening through the options market.
But you know, our view has basically been that this is all really about-- if you want to call it that-- immobility at home and working from home leads to, basically, trading from home. This has been happening in the US, but it's also been happening elsewhere across the world. And I think, you know, one of the most striking things that you want to keep in mind is that basically the participation of the retail investor in US equities has been very, very closely followed-- of course, inversely the COVID timeline.
So one of my favorite charts is looking at an Apple mobility index, looking at the Apple mobility index for the US. You know, you invert it, and you overlay whatever your favorite measure of retail participation in equities is. I have two, whether you take basically the call volume of small traders, or you look at the net open bullish position of small traders. And there is a very striking correlation. So I would argue that the participation is following the script and the thesis that, as markets reopen, retail participation is going to come down.
Of course, the very recent sort of spike is pretty notable. But we tend to think about it as really a flash in the pan as opposed to a change in the trend.
MYLES UDLAND: And there we saw the opening bell on this Thursday morning. We see markets a little bit lower to get today's session underway. You know, Binky, something we talked about a lot on this program a couple of weeks ago-- and it has kind of fallen out because of meme stocks and other things. But it's really valuations. And what's driving valuations? And what has ultimately kept valuations for the overall market, the aggregate level, pretty flat over the last several months or so? I'm curious how you guys are thinking about valuations in the context of earnings that continue to get revised higher, but a market that on a historical basis is still not cheap by any means.
BINKY CHADHA: No, it's not. And in terms of equity valuations, I mean, I think the few points to keep in mind are, number one, they are unambiguously high. There's really no debate there. But I think it's also important to keep in mind-- which would be my second point-- that valuations typically tend to be high at this stage in the economic cycle. And we remain very much of the view that, as far as valuations are concerned, it's very feasible, and indeed, it's our baseline view that you will get a soft landing, so to speak, of valuations, assuming that the inflation risk remains exactly that, a risk, which is not really part of our baseline.
And the reason to think that is there is an issue about what you think the equity multiple was given the huge revisions that we are basically having to earnings. But whatever you thought the multiple was on January 1 of this year, keep in mind that basically earnings have been growing very, very robustly. And I would say year to date, are already basically up by about 20%, even if you're using sort of a trailing measure. And the market's up less than that. So multiples have already come down by about 10%. Now, I would say that they've got quite a ways to go, but we continue to expect very robust earnings growth.
So a soft landing in valuations is, number one, very possible. It's our baseline. And this is not really a typical relative to history-- where over and undervaluations basically take on average about three years to work themselves out. So as long as growth remains strong and the earnings remain strong, valuations will come down.
BRIAN SOZZI: Binky, this euphoria that we're seeing in these meme stocks, do you think that will eventually spill over into the broader markets and send the markets higher? Because it doesn't look like that's happening right now.
BINKY CHADHA: No, I don't think so. I mean, I think that this is the second sort of episode which is getting really a lot of attention. But the first one passed. Yes, we did have a pullback.
But I would say, you know, if you look at a measure of retail participation, it basically peaked in the third week of January and has been coming down in a noisy manner. And so, yes, there are upticks as we keep coming down. But if I look at the current level today, we are talking-- retail participation is sort of at the levels of last summer. And so there's no reason to believe that it should not pass, basically.
JULIE HYMAN: Binky, great to see you. Binky Chadha is chief global strategist at Deutsche Bank. Be well.