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Stock market is 'waiting for the next shoe to drop': Shawn Cruz

Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down today’s market action with Shawn Cruz of TD Ameritrade.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, let's head back to the market action now with Shawn Cruz of TD Ameritrade. Shawn, good to see you here this morning. So do you think that volatility is the word of the day on the Street? And are we going to retest those lows we saw just a few weeks ago?

SHAWN CRUZ: Yeah, I think one thing you definitely don't want to take your eye off the Volatility Index, the VIX, because it's actually been a pretty good predictor as of late of really what market sentiment could be over the next couple of days, next couple of sessions. And right now when you see the VIX sort of in this 25 to 30 range, that means there's just a lot of uncertainty. The market's not overly pessimistic. They're not overly optimistic. They're sort of waiting for the next shoe to drop to decide what they will be doing.

When you start to see the VIX get above 30, that usually means fear is entering the market. There's probably going to be some bearish activity. So that's one thing I'm going to be watching over the next week or so is really seeing where that VIX is going to be at. And so far, we haven't really seen a meaningful spike, trading down around 26 today. I think a lot of it has to do with some of the earnings and some of the other headlines we've had. But I certainly expect choppiness out of this market. I'm not expecting really a strong and meaningful rally or a major sell-off anytime soon at this moment.

BRIAN SOZZI: Shawn, looks like some good news on the COVID vaccine front, even though we don't have one yet. Nonetheless, Johnson & Johnson out this morning with what appears to be progress on that front. Just looking at the stock, it is-- it's lagged the S&P 500 the past two years.

The stock's yielding about 3%. Is that-- does that stock look-- stock look undervalued to you? To me, I'm looking at a chart like that, I see that valuation, and it just doesn't look like a vaccine of any form is priced in.

SHAWN CRUZ: Yeah, so one thing that's interesting for-- and I can only speak for TD Ameritrade clients-- and we do see it as a popular held name, not so much a name that's traded, but a name that is held by quite a few TD Ameritrade clients. So I think one, they've had their own very individual issues that have affected the company, in particular. I think getting this vaccine out, and it's a vaccine you only have to take once, would certainly, I think, be a big headline for the company. I don't know that it would necessarily change my long-term outlook.

And then, also, just thinking of a vaccine, you know, getting into the third stage trials or getting out of that is one thing, but getting a vaccine out into-- into broad distribution is entirely different. And if you think about what we just saw out of the EU over the weekend, where there was a rise in cases, the potential for restrictions being back in place, I think it's always great news to see that these vaccinations or treatments are really sort of getting closer and closer on the horizon. But right now we're sort of into crunch time, because you are going to start getting into flu season. You are supposed to be getting into that time where all along a lot of these experts have predicted a second wave or a second spike. So I think timing is now going to be incredibly important for not just, you know, are we getting a vaccine, but when, and when is it going to be out in broad distribution?

ALEXIS CHRISTOFOROUS: Shawn, would you be a buyer of J&J at this level, and really, of any of the companies that are in the race for a vaccine?

SHAWN CRUZ: So looking at J&J, there's-- you know, if you're looking at maybe a company that is in the race for the vaccine, I don't expect that many companies are expecting being able to get a vaccine out to be a major driver of profitability or they're going to start blowing earnings out of the water. Typically when we see people that are interested in J&J, it's a pretty-- a strong brand, a very diversified portfolio of products and services that they offer, but also the yield right now is something that I do think investors find attractive, especially when you're looking around-- around the world and trying to find yield. Something that offers a 3% yield is probably going to be the bigger draw into this name, not that it's some high-flying biotech that's either going to boom or bust.

BRIAN SOZZI: And Shawn, what do you do with-- what do you do with Nike here? The stock opened up, I believe, at a record high, which is remarkable. Stores have continued to close-- a lot of them are still closed, some of them won't even open. Yet you have Nike here saying last night on our earnings call they're gaining market share, and they're coming back-- they're rounding back into form. It almost doesn't make any sense. Do you buy it here at the record high?

SHAWN CRUZ: I think you still could. And the reason why is I was actually expecting more weakness out of their-- their Asia business, wasn't really even looking at Europe, and I thought North America would actually hold up a little bit better than it did. But Nike is one of those companies where when you think about the sort of the vision and strategy of management, they started moving to direct-to-consumer, they started moving to digital well before a lot of their competitors really started making meaningful strides in that direction.

So if you're looking at Nike, they were growing-- they said they grew their digital sales in Europe near triple digits. So that's incredible growth over there, 82% overall. So they've already really started making the strides in the direction when they could, not when they had to, to getting towards more direct-to-consumer digital-type sales. And I think they're now in a good position to maybe press that advantage and continue to grow.

So you could see more upside here. And it's actually incredible, Brian, when you look at what Nike did. They were down to $60 a share at one point. You know, now they're, last time I checked, trading, you know, up to that $130 level. So incredible performance, and I don't really see any reason to think that this is going to really fall off or it's going to be a flash in the pan type of a quarter.

JARED BLIKRE: Hey, Shawn. Just looking at the US dollar, it's really strengthened over the last three sessions, and the DXY, I'm looking at it, is roughly at a two-month high right now. How does a strengthening dollar factor into your analysis-- analysis of the markets? Does it favor certain sectors over others?

SHAWN CRUZ: So one thing I think is looking for multinationals, there could be some currency issues there. I actually think, when I'm looking at the strengthening US dollar, it has bigger implications to me for, say, emerging markets, or even if you're looking into the commodity complex a little bit, but I think there's a lot going on, and you're going to have to be very specific about which commodity you're looking at. But some people have talked about maybe looking for value in emerging markets or even in some of the more developing type markets.

And I think a strengthening dollar can actually create headwinds for that trade, because that really does put pressure on a lot of those-- especially a lot of the emerging markets whose debt's usually denominated in dollars. So I think it's-- it's one thing where I don't expect it to meaningfully impact any US sector in particular just yet. I don't think it's-- it's strengthened to that extent. I think it's a little bit more of a the rest of the world outside of the US, there's starting to be some concerns there, so you're seeing asset flows back into the dollar. But I would need a little bit more strength in the dollar before I would look at it to really impact any sector materially.

ALEXIS CHRISTOFOROUS: Shawn, what do you like in the retail space right now? We heard this morning Walmart's going to hire 20,000 seasonal workers. They're expecting a really good holiday shopping season online, which then, of course, makes us want to talk about Amazon when we talk about online. Between those two, do you own both of them? And what would you tell investors right now?

SHAWN CRUZ: Yeah, I think it's interesting to look in the retail sector in sort of what we were just talking about with Nike, that you can go back, and it's-- I don't think it's overly difficult to find the companies that have been ahead of the game in moving into that digital space, Walmart certainly is one of them. I think if you're going to look at one of the early on competitors to really come up and at least in the same conversation as Amazon, it was Walmart. So I think Walmart is one place you can look, some of those other individual names like Nike.

I would even look at a Lululemon. They've done a pretty good job moving into digital as well. And I think their products are still have a very premium sort of-- or perceived as being premium products by investors-- or by consumers, so they'll be willing to pay up for that. So I would look at one, names that have been ahead of the game moving into digital, like Amazon and Walmart, and they're more just, you know, selling goods sort of across the spectrum, and then some of those single brand retailers who have been ahead of the game in getting into direct-to-consumer and into digital.

BRIAN SOZZI: Shawn, we're not letting you off the hook here without commenting on Tesla. Stock down about 5% here in the early going off of what many on the Street are saying disappointment off of Battery Day. But I'll take the other side of the coin. Elon Musk teased a potential $25,000 electric car within three years. How does that not pummel Ford and General Motors?

SHAWN CRUZ: So the one thing that I thought was interesting, everyone more or less expected that headline to come out. I think he did a decent job of telegraphing that and saying, look, we're going to announce something that I think is pretty revolutionary, but it's not going to be there till at least 2022. But I think there was just a lack of details.

And I think one thing they really wanted to see was major announcements in terms of partnerships. There was discussions of Tesla sort of becoming a supplier of these-- these batteries to other electric vehicle makers. That was sort of the whisper rumor that I was actually hearing from a lot of the analysts out there and a lot of other traders was that they were expecting some news on that front.

I think not getting that, and you just sort of get this concept of a $25,000 electric vehicle that's three years out, I think investors wanted something that was going to be a little bit more tangible. And even just the announcement of, say, a deal or a partnership to either get this spun up sooner, get this more out in broad distribution, whatever that might be, I think they wanted more news on the partnership front, but they didn't get it.

I don't see this as a material breakdown. Just when we were looking at options and derivatives and what they were pricing in for potential post-- post-battery event move, they were actually expecting around $29 up or down, so we didn't move meaningfully outside of that range. So I don't think this was a completely getting caught off guard.

This is more sort of the bear case played out. It's moved down towards those levels, so it'll be interesting to see if we get buyers coming back in. I have seen some analysts come in and actually start upgrading the stock, raising their price target, saying this might be an attractive entry point for a company like Tesla, so we'll see if you get any sort of buying on this dip. That's actually something I'll be watching today.