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Stocks open higher on final trading day of short holiday week

Yahoo Finance’s Julie Hyman and Brian Sozzi discuss today’s market action with Toews Asset Management CEO Phil Toews and GraniteShares CEO & Founder Will Rhind.

Video Transcript

JULIE HYMAN: And we just got a headline that US House Republicans have blocked a Democratic effort to increase those aid checks to $2,000. Of course, in the package as it exists, the checks stand at $600 for Americans whose household income is below a certain threshold. But President Trump hasn't signed the bill yet and says he wants those checks to be two grand.

Doesn't seem like we're going to get there, but let's talk about what all of this means for the markets. We've got Phil Toews. He's of Toews Asset Management-- he's the CEO there, and Will Rind, GraniteShares founder and CEO, as well.

Phil, I want to start with you. You know, we've got this sort of what seemed to be done on this aid package that now is not quite done. It doesn't seem to be a problem for stocks, though. Why not, do you think?

PHIL TOEWS: Well, it's a continuation of a trend that we've seen all year, which is you've got news that looks unfavorable and sometimes even vastly unfavorable. And then the markets open with futures higher and advanced further. So I think we can expect to continue to see that up until it stops.

One thing that's working for the markets right now is that there's a veto-proof majority in both chambers. So that the deal will get done. It's just a question of when it happens.

BRIAN SOZZI: And Will, just playing off that here, at what point do you think the market realizes that it's probably overvalued, given all these political dynamics, things still not getting done to help struggling households? When does the market take a pause?

WILL RHIND: It's a very good question. I'm not sure that the market will take a pause in the immediate fact. I mean, as Phil was saying, just then, I think the key news for as far as the market's concerned is that the deal is priced in. And regardless of whether it ends up being $2,000 checks or $600 checks, there is going to be something.

And that stimulus is really part of these conditions that are driving the market higher. So I think with the positive news about the vaccine, and that started to be distributed, people feel good about next year. And I think you can expect to see some continuation of what we saw this year in terms of the companies that fundamentally are able to thrive in this economy, are able to continue that. And those that have been kind of exposed with the coronavirus in the situation this year, continue to struggle.

[APPLAUSE]

JULIE HYMAN: We were about to see the ringing and the opening bell there. It looks like the "Nutcracker," very seasonal. All the New York City ballet is there ringing the opening bell there, although, I don't think anyone will be sitting unfortunately in person and watching that lovely performance this year.

Phil, as we talk about valuations here, and as we talk about heading into next year, it does feel like stocks are on sort of delicate footing because of the run that we have had. Does that leave them vulnerable? I mean, it doesn't seem like they're vulnerable, to your point about stimulus, right? It hasn't seem like that that has hit things. So what could trigger a sell off if everything that has been thrown at the market thus far has not?

PHIL TOEWS: Well, so, you know, if you try to look at all the macro data and say, does it matter, and how can it predict what's going to happen to the stock market over the next year, the one metric that does have some predictive power is valuations. And so if you're price where we are right now at 22 times forward earnings on the S&P 500, the five-year outlook historically would be that you'd have 0% return over the next five years.

So ultimately, valuations will drive stocks. However, talking about valuations in a rising market is a little bit like talking about a hangover at a cocktail party, right? Like, it doesn't really matter. People are going to still have drinks.

And so you just have to wait until momentum plays out, and it's hard to predict what's going to happen. So if people are willing to pay 1,000 times earnings for Tesla, why aren't they willing to pay 22 times earnings for the S&P 500?

So that'll be one of the biggest challenges. Ultimately, it will become a factor in the markets. Probably at some point in 2021, we'll see a downturn of some significance. But at the moment, it would be hard to bet against a rising stock market in the next weeks or months.

BRIAN SOZZI: And worth noting here everyone, the Russell 2000 is now at a record high, pretty remarkable stuff. Will, so many folks I talk to on the street, they're telling me, Brian, we're going to get a second-half economic boom. I can't tell you how many folks within the past week and half have used the word boom.

Do you think we will get that boom in the second half of 2021? And where-- do you think the market is undervalued right now in advance of that boom, if it even happens?

WILL RHIND: And my take on it is maybe slightly different. It's not so much that the market is either overvalued or undervalued. I think that it's a consequence of the fed policies and the macroeconomic policies that have put in place that is really kind of forcing people into the stock market because there is no alternative.

The alternative gold to bonds. There's no income available from the bond market. And with rising inflation expectations, the macro policies that central banks have put in place are encouraging people to get into stocks and get into the equity market.

So from that perspective, it is about riding this momentum. It is about the trend that we've seen frankly since the financial crisis of adding stimulus to markets. And that stimulus has resulted in a higher stock market.

JULIE HYMAN: And Will, I also wanted to ask you about gold since you manage a gold ETF. Because, you know, if inflation finally comes back, which, so far, you know, not really any sign of it, is that going to benefit gold a little more? Gold had a good run earlier in the year and then kind of stalled out.

WILL RHIND: It did. So the last-- I guess, the last few months, we consolidated in terms of the price action from those record highs we saw back in the middle of the year, which, I think at some level, is natural, given the pace of the rally we saw in gold after March. But you know, again, I come back to this macroeconomic environment.

And for me, the inflationary environment as positive as it's been in a long, long while. But to me, the most important thing is the US dollar outlook, because I do think that we'll get higher inflation.

But for me, the most important thing is that we get a weaker dollar. And again, that's a consequence of these policies that have been put in place. And I think the one thing that will benefit gold more than anything else, at least in the short term, is a weaker dollar platform. And I think that's something that we're going to see next year.

BRIAN SOZZI: Phil, before we let you go, do you have any contrarian calls for 2021?

WILL RHIND: So we believe that the stock market will be challenged at some point in the next 24 months. It's hard to make a short-term call because markets can be irrational and can extend higher for a very long period of time. There is-- one way to think about this is, you've got a prediction or trying to predict what's going to happen to the market. But then an even bigger question is, what do you do about it, right?

So we all agree that it would be very hard to not be in the stock market as long as it's moving higher. And so we've got a slight change on the old cliche about buy fear and sell greed. And that is buy-- continue to buy fear.

But we think that people should try to hedge in a way against greed. So in other words, try to ride out this market as much as you can, but buy things like buffer ETFs, hedge equity funds, things that allow you to ride the market higher, but have an automatic ability to help de-risk if markets start to move lower.

You know, there's never a sign on I-95 that says, market downturn ahead. These things are always surprising. And sometimes you find yourself well into a down turn before you realize that it's happening. So addressing that contingency now, understanding that markets are at an overvalued state is probably the best path forward.

BRIAN SOZZI: Hey, they have those signs by me.

JULIE HYMAN: And, Phil--

BRIAN SOZZI: I don't know where you live, They have those songs by me.

[LAUGHTER]

JULIE HYMAN: Brian's always ready. Phil Toes and Will Rhind, thank you so much, gentlemen. Happy holidays to both of you.

PHIL TOEWS: Yeah, you, too. Thank you.

JULIE HYMAN: Well talk to you in the new year. Thank you.

WILL RHIND: Thanks.