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Sectors to watch as Biden heads to the White House

Yahoo Finance’s Alexis Christoforous and Chris Versace, Tematica Research CIO, discuss sectors to watch amid a Biden administration.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back to "Yahoo Finance Live." We have stocks kicking off the holiday-shortened week with a pretty nice rally. Tech stocks having a beautiful day as well, as you can see there in the NASDAQ composite, now up about 1 and 1/2%. I want to stick with the markets now and bring in Chris Versace. He is CIO at Tematica Research. Chris, good to see you. Why did the market come back with this voracious appetite for US equities today?

CHRIS VERSACE: Well, I think it's a number of different things, you know? When we take a look around, you know, treasury secretary or soon-to-be Treasury Secretary Yellen is talking about going big on stimulus. Of course, the market really likes that. It means that interest rates are gonna be low for a period of time. We're seeing potentially further progress in the Biden stimulus plan or the $1.9 trillion that will put, you know, $1,400 checks in people's pockets. He's talking about a $15 minimum wage that would do more of the same, spurring consumption, which as you, and I'm sure most of your viewers, know is about 2/3, directly or indirectly, of the US economy. So there's a variety of things that are happening on that front.

And I think, too, there's a little bit of a [SIGHS SHARPLY]. The past uncertainty on a number of fronts might finally be fading. And I think people are looking forward to, you know, perhaps a coming together, if you will, of the American people and things in several months improving.

ALEXIS CHRISTOFOROUS: Where now earnings are starting to ramp up here, Chris. What are your thoughts on the bank earnings that we got today? It seems as though, when you look at the health of the banking sector, they've been holding up pretty nicely throughout this pandemic.

CHRIS VERSACE: You know, you're absolutely right. And, you know, I was kind of bracing for comments over what the renewed lockdowns were doing, but it doesn't really seem to be hitting them yet. I do think, though, as we migrate through the rest of the earning season, that we are gonna see, unfortunately, some sectors kind of feeling the pain of that. You know, most notably anybody looking for a rebound in retail, per se.

But really stepping back too, though, I think when you talk about this overall earnings season, there will be some sectors, like I said, that have to adjust their earnings down. There'll be some that have to adjust up. But overall, Alexis, to really see a pronounced move higher here, we need to see overall earnings expectations start to move higher for 2021. And, you know, the first quarter, it tends to be a little early for that. But we need to see how the Biden plan translates into higher earnings over the next two, three, four quarters so that consensus expectations for S&P 500 earnings start to move higher, you know? And I say that because the PE multiple is pretty far stretched. So to see any further upside, it's got to come on the earnings front.

ALEXIS CHRISTOFOROUS: What are clients telling you right now? How are they repositioning their portfolios with a new administration in the White House?

CHRIS VERSACE: So it sounds like we want to talk about some sectors that investors might be wanting to pivot into or look as a result of the new administration. You know, when we take a look at it, there are a number of different fronts. I talked about, you know, consumer-focused stocks that could see a lift. We're also going to see infrastructure potentially get a lift as well. It's pretty well known that the US infrastructure has a D-plus rating from the American Society of Civil Engineers. And the Biden camp has talked about putting people to work to rebuild US infrastructure. There are various forecasts for that, some as high as a $4.5 trillion need.

But when we think about companies that could benefit from that, we're talking Caterpillar on the equipment side, Martin Marietta, U.S. Concrete on the material side, Granite Construction, Dycom, for example, as well. There's also the green initiative. And I think that would bode well for a lot of the solar and wind companies, everybody from First Solar to Sunrun, for example. Electric vehicles are likely to get a boost as well. So, of course, Tesla, but also some of the other companies, major autos that are starting to pivot their business into that. You know, at CES very recently, GM made a big show of that. And I think that they will clearly be a company we'll watch over the coming quarters on the EV front.

And then, finally, one other area, of course, that people are waiting to see what happens is gonna be on the marijuana and cannabis front. And I would argue that while the Democrats might be more inclined to be more lenient and forgiving for that, you know, the real key is going to be, to see, excuse me, financial and banking reform so that those companies can actually tap into the financial system. But those are some of the areas.

Others are the extension of rural broadband, which should be good for a number of equipment companies, as well as those companies that actually lay the cable. So here we're talking about know Nokia, Ericsson, Alcatel Lucent, Cisco Systems, for example, as well as even some of the component companies in Corning, for example. And then we want to talk about the companies that actually build out the networks. And that brings us back to Dycom.

JARED BLIKRE: Well, Chris, Jared Blikre here. I just want to round out the discussion with potential headwinds that we could see. We're all talking about the vaccine, but, you know, we have seen positioning in the US dollar get extreme on the short side. We're also seeing rising interest rates. Anything that you see on the horizon here? I also want to mention that the Citi euphoria/panic/greed model is probably at record highs right now. Is the market due for some kind of a pullback? And how do you see it evolving if it does?

CHRIS VERSACE: Well, I would say, Jared, that I think the market is probably-- you know, we see this happen from time to time-- you would argue priced to perfection, where everything has to go right. And, you know, it means going through the earnings season that we've just started and seeing expectations move higher, like I alluded to a few minutes ago. It's the idea that, you know, the Democrats will be able to pass everything rather easily. And we know that that may not be exactly the case. So I agree with you. I think the market in this situation is priced to perfection. We could see a pullback. That would not be the worst thing, in my opinion, to take some of the froth out of the market and let investors get another bite at the apple.