Rotation trades will be the hardest for investors to figure out: strategist
JJ Kinahan, TD Ameritrade chief market strategist, joins Yahoo Finance to discuss market volatility and moves in the bond market.
Video Transcript
MYLES UDLAND: Let's talk a bit more about everything going on in the market these days. JJ Kinahan joins us now. He's the Chief Market Strategist over at TD Ameritrade. JJ, always great to have you.
JJ KINAHAN: Hey, Myles.
MYLES UDLAND: Let's start with how you guys are seeing this rotation and how it's changed positioning, if at all, within portfolios, as you guys can see over there.
JJ KINAHAN: Yeah, certainly. So I think you brought a great point there in your intro in terms of that 10:00 hour and that last half hour of the day, because the market really has had trouble holding after the first half hour. So I'm really interested today as we see the S&P futures up 40 points to start the day. You, have to remember, though I think some of this is because of yesterday's close. S&P's fell 18 points really quickly into the close yesterday. So I'm sort of taking that off the top, if you will, almost looked like a sell program coming in there.
What I really think we're going to see from the market overall is going to be this continued volatility. I don't see any reason why we don't see VIX continually between 23 and 30. I think for the next month or so, people are still trying to figure out what to do with the money. As you guys did a great job of showing just now, all these tech stocks that worked so well last year, had amazing years overall, we're starting to see a little bit of a, hey, do I really want to continue with them and what's next? And I think the reopening trade is probably one of the hardest trades people have to figure out going forward, because there's so many mixed messages.
There's a message of, hey, will the whole world-- personally, I'm a little worried about the third quarter GDP. The reason I say that is because when everybody gets the vaccine, we get this herd immunity, I think there's going to be such built up demand to not work, if you will. Productivity is off the charts as everybody's been at home, working a lot more. People are going to be so anxious to go outside. Everyone's got so much vacation time built up. I think you're going to see many people just say, I'm taking some time off, I'm going outside, I don't really care about anything else.
So third quarter GDP is something I do worry a little bit about, to be quite honest with you overall. And I think the market's trying to figure out, how do I play that in? Does that mean people are going to use airlines? Are they going to stay local? So again, there's a lot going on and a lot going on within portfolios at the moment.
JULIE HYMAN: Well, JJ, the people who are trading on TD, at least last month, what's interesting is they were looking to buy some of these stocks that were falling, right? You guys saw buyers of Apple, of Qualcomm, of Palantir, and Tesla. And so that implies that at least they didn't, I mean, who knows how much they were getting in and out of this stuff. But there is a little bit of an implication there that they thought these were still medium or longer term good holdings.
JJ KINAHAN: Absolutely, Julie. It's interesting, our IMX came out yesterday, and again, it measures clients' exposure to the markets by measuring what they actually trade. And so, it's interesting to me, a pattern that we've seen in the past really, is when there's a little bit of disruption in the market. Apple sort of comes to the top. One stock that also tends to come to the top, retail traders just love every time it sells off, and that's Tesla. So we saw it not only last month, we saw it in the last couple of weeks. As these stocks got hit, again, our clients continue to come in to buy those two stocks in particular. The FAANG stocks, Apple being one of them, along with Tesla and Microsoft, tend to be stocks in terms of disruption, where our clients really like to buy them.
The interesting thing about what our clients did last month, and you guys are nice enough to have me on talking about this every month, if you remember, in January, our clients came out of the gates buying in 2021. We saw, in February, our clients took 10% more exposure to the market, even though the S&P's were only up about 2.7% for the month. So we're continuing to see this-- 2021, people want to buy things they want to hold them perhaps longer term. But certainly the Apples and the Teslas of the world usually fall in that category overall.
We saw some of the names, as you said, that we don't normally see. Qualcomm, haven't seen that in quite a while, our clients are buying. Palantir, been in and out of there for the last little while. But the other side of that equation, on the sell side, Julie, what was interesting is Zoom Video, was one of the stocks that our clients wanted to sell, along with the vaccine makers-- Moderna, Pfizer, Novavax. Those were three stocks that our clients sold also. So I find it interesting that, thank God they came up with the vaccine. But as these companies put all their energy into the vaccine, I think our clients are saying, OK, what's next? How does your stock rally from that point?
BRIAN SOZZI: And JJ, what is also interesting, I would argue, is that during this tech sell, the S&P 500 has hung tough. The Dow transports have hung tough. Why do you think investors are holding on to stocks in those sectors? And are they right for doing so?
JJ KINAHAN: Well, you know Brian, I think a couple of interesting things about many of the S&P 500 stocks that were not tech related didn't have the same type of rally that we've seen related to technology. The other thing about it is, again, financials theoretically should be performing very, very well right now. They're doing pretty good, especially as we continue to see the rate pressure. You said in the opening, and I agree with you, it seems hard to believe that rates don't continue to sort of bounce it from here, that hitting this 1.6 on the 10-year the other day, hard to believe that we're just going to fade from that point, that we won't at least go back up and test those kind of levels and maybe continue higher.
So theoretically, the financials should do well under those circumstances. And I like the boring analogy, let's face it, financials have hit every single headwind against them for the last few years. And what they've done really well is make money during that time by extra fees, et cetera. Well now, if rates go higher, I would think that a lot of that just goes right to the bottom line because they cut expenses pretty well, they have fees, they've done well without it. Now the spread that they can actually do traditional banking functions should be something that would help them pretty significantly if we can continue to see his 10-year go higher.
The one thing that I also find interesting is that we didn't see a lot of sales of the dividend paying stocks. I would have thought that we would have saw a lot of people sell there and we didn't. So that's, I think, the next area where we're going to see some more pressure, is if these rates continue higher, people might say, you know what, some of these stocks that I've held on because I could get capital appreciation and some yield, we'll see if those, some utility stocks that have a 3% yield, et cetera, we start to see pressure on those if rates go back up at 1.7.
MYLES UDLAND: Yeah, interesting, JJ. And then you think about some of those dividend payers. A lot of them will fit into these sectors that are cyclical winners in a reopening trade. So it all kind of gets melded together in a, certainly an interesting time in the markets now. All right, JJ Kinahan, Chief Market Strategist at TD Ameritrade. JJ, always great to get your thoughts. We'll talk next month.
