Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman discuss what’s moving the markets today with Chris Versace, Tematica Research Chief Investment Officer.
JULIE HYMAN: And market participants are working hard too, doing the same thing that they did last week when we got the Pfizer announcement. That is, largely selling some of the big work-from-home plays and buying up some of those hard-hit companies in various sectors that have been hit by the coronavirus pandemic. What happens now? Let's talk to Chris Versace. He is Tematica research chief investment officer.
So Chris, I know that Brian Sozzi's not climbing down off his Peloton anytime soon. But the market is acting as though there will be fewer new activations for a company like Peloton or like a Zoom Video or any of those other stocks that got so bid up this year. How are you thinking about those work-from-home stocks, and are you still holding them, are you lightening up on any of that kind of trade at all?
CHRIS VERSACE: Sure, Julie. So, I mean, it's a great question. You know, those stocks benefitted handsomely, you know, really, over the last, you know, six, seven months as the throes of the pandemic took hold. And odds are, you know, the market being a forward-looking animal, you know, some six to nine months or so, it's starting to bake in some of what we're hearing today with Moderna and then last week on the positive vaccine news.
So I think expectations are going to get dialed back. But I have to be honest with you, I think there are certain aspects of the changes that we've taken on during the pandemic that may not go back as much as people think. I think Peloton is a great example. I think that companies will continue to look for ways to squeeze their cost structure.
That's going to mean getting out of some less productive real estate. I wouldn't be surprised if Zoom continues to grow, if Microsoft continues to gain traction with Teams, and the like. So I would just hang on to these names, given the structural shift that we're seeing. And remember, too, we're seeing a huge upgrade in the digital infrastructure with 5G, Wi-Fi 6. That's really going to enable a number of other applications to just further this even more so.
BRIAN SOZZI: Chris, we're bumping up right against Dow 30,000. Let's just assume it hit-- we had Dow 30,000 this week on this vaccine news. How much further upside do you expect over the next 12 months, assuming we continue to get positive vaccine news?
CHRIS VERSACE: Well, first off, Brian, I would say I really wouldn't look at the Dow. You know, it's only 30 stocks. My preference is always the S&P 500, its 11 sectors are much more well rounded. It's also the one where they have consensus expectations for it, and we look at that.
You know, to the extent we get more positive vaccine news, it probably means that expected earnings from 2021, not over 2020, but 2021 over 2019, will expand. You know, it's currently calling for about 3% growth over that two-year period. You know, I think that's the key to focus in on, more positive news, more people being out and about, more well-rounded parts of the economy coming back online.
I think we have further to go. I wouldn't go hog wild, though, because we've had a surge this year. If you've been sitting on the sidelines, you know, we've got Brexit coming this week, OPEC meets, and we continue to get rising case counts here in the US. Debts are rising as well. I wouldn't be surprised if we see some of today's, you know, pop, you know, fold back a little later in the week, just like we saw last week.
MYLES UDLAND: Chris, what about, you know, animal spirits on the corporate side? I mean, we're seeing a bank deal today, Home Depot making a big acquisition. We've got a mall deal that's worked itself out between Simon and Taubman over the weekend.
Do you expect that there'll be a lot more dealmaking in 2021 if things get a little more normalized? And obviously, you can finance anything for basically nothing right now, so is that maybe something you're looking at in the market here?
CHRIS VERSACE: Yeah, I mean, look, publicly traded companies have to deliver on growth expectations kind of one way or another. In some respects, you know, what you're talking about, I believe the PNC deal, it's something like 20% accretive to earnings by 2022. So of course that's a positive.
You know, on the other side, we're seeing Walmart get out of a deal that it did several years ago, so it can really focus on its core business and really leverage the e-commerce boom. So I think we're going to see both of those types of transactions continue. You know, on the M&A front, look, there's going to be a lot of companies that are looking to plug, you know, certain holes, whether it's geographic exposure, product exposure, technology exposure. And I think it's going to continue.
JULIE HYMAN: Chris, what's your favorite sector going into next year? What are you-- what are you adding to right now?
CHRIS VERSACE: My favorite sector going into next year is-- well, it's a theme that we have, it's digital infrastructure and connectivity, largely tying back to what I said earlier about that 5G boom, the Wi-Fi 6 boom, as well as just the continued creation consumption of data, that we're just going to see more data centers, more devices. And the cool thing is these new technologies are going to really widen out connectivity. You know, historically, it's been, let's be honest, the smartphone.
But with the Industrial Internet, IoT, it's just going to explode in terms of the number of touch points that are connected to the network. And I think that's going to be a boom for chip stocks, and it's just going to pull through that ecosystem. So that's where we're adding.
JULIE HYMAN: Chris Versace, thanks for your time today. Chris, good to see you, Tematica research chief investment officer.