Stocks rally following 4 straight weeks of losses

Aaron Dessen, Payne Capital Management Financial Advisor, joins Yahoo Finance's Zack Guzman to discuss the current state of the markets and why earnings should be "a huge focus" for investors.

Video Transcript

ZACK GUZMAN: So here to discuss the latest market moves with us to kick off the show today is our first guest, Aaron Dessen, from Payne Capital Management, a Financial Advisor there with that firm. Aaron, thanks so much for joining us here. Interesting, I guess, questions investors had for us today, in regards to the moves that we're seeing now. Some people are saying we're out of the woods. We had Fundstrat's Tom Lee coming out last week saying that there's a bit of an all clear at the 30 to 44 level on the S&P 500. What do you make of the moves here in this hot start to the week? Are you considering the same thing here-- that we might be out of the woods now?

AARON DESSEN: It's hard to say. I think we may be out of the woods. Definitely, you know, as far as the economy-- we're seeing a lot of signs that are pointing to the fact that we're still on a continued V shaped recovery. So I think that's definitely playing on investors' minds and pushing markets higher.

ZACK GUZMAN: Yeah, for Morgan Stanley, I mean, when we think about out of the woods, obviously there is a couple of fears here when we saw the NASDAQ enter correction territory. You have COVID-19 and the second way, potentially, we're seeing as New York reported more than 1,000 new cases for the first time we've seen since earlier in the summer.

You also have election uncertainty with the debate tomorrow night. I mean, when you put all these things together and you think about how far we fell, how quickly we fell here-- at least at NASDAQ, what do you make of where we go from here looking past some of those uncertainties, certainly once we get past the election here?

You have Morgan Stanley saying that we could return to you know, where we were before this correction hit if you get past some of those question marks. So when we talk about positioning if that were to be true, what are you looking at, in terms of how investors should be re-weighting before maybe the election and then where we could go after it?

AARON DESSEN: Well, I think that one of the areas that we're looking right now is anywhere that we can get yield and better valuations. So if you talk about the run up in big tech that we've seen and the growth so far this year, a good place to look would be things like international emerging markets, or even value place like cyclicals in the US.

Just as an example, if you took the S&P and break it down between growth and value, the value-- large cap value sector is paying about four times in dividends what you're getting from the growth sector. And then if you look at valuations, I mean, large cap growth in the US is trading at 35 times earnings-- versus value, which is trading at about 18. So I think there are definitely a lot of buys there and like you said, maybe a rotation that's going to start happening.

ZACK GUZMAN: And the other one that Morgan Stanley pointed out, and I understand that those are kind of where you're looking they're in the cyclicals. One particular sector that we've seen moving higher today, I should point out, are financials, as well. If you scrap out energy, which is today's biggest gainer, financials would coming right behind them. But they flag that sector as a potential place to rotate into here.

Just in terms of the quickness, too, in this rotation, they were comparing it back to what we saw during the great financial crisis and how quickly some of these stocks that had been beaten down recovered. Obviously, the sell-off that we had earlier in the year was the quickest we saw ever in the history of the stock market. So I mean, when you think about the rotation happening now and how quickly it could accelerate, what do you think about the financial sector and the potential opportunity that presents there?

AARON DESSEN: I think the financial sector is tricky. I think if you're looking at big banks that also have trading platforms, there's lots of benefit from there. But I mean, with the Fed insisting that they're not even thinking about thinking about raising rates until 2023, that's really going to squeeze these net asset margins for some of these big banks. So that's definitely something I think to be wary of moving forward. We certainly want to collect on some of the dividends that these companies are paying, but I would be wary of financials moving forward until we maybe start to see some inflation or an uptick in rates.

ZACK GUZMAN: One good thing then I think some investors are looking forward to is is more of a focus, obviously, we've talked about this ad nauseam about the market not enjoying close elections and uncertainty there around the election. But when you move past it, I think some investors are saying it might be nice to focus back on earnings, especially when we think about these upward revisions, as Morgan Stanley points out in their latest report here-- earnings revisions have rebounded sharply-- a net 27% positive revision ratio in just 25 weeks. When they compare back to what we saw during that 09/09 crisis, that move took 45 weeks. So again, happening a lot quicker here, in terms of the idea of more positive news coming when we get some bigger reports here in Q3.

What do you make about that focus and how potentially that could take some of the volatility questions we've been discussing out of the equation, and maybe shift the focus away from the dysfunction that we've seen play out so far in Washington, DC Over that next stimulus bill?

AARON DESSEN: That's a great point. I mean, I think earnings should be a huge focus. And as we start to see these numbers turn around-- you know, Q3 numbers coming out and companies starting to give guidance for Q4 and beyond, I think that's really going to weigh more heavily on investors' minds than what's happening with the uncertainties with the election.

And typically, when you look at election years, you know, there's definitely some headwinds and some volatility in markets leading up to the election, but afterwards, just with that game certainty, with OK, we know who's going to be in office and we can kind of go from here-- you tend to see markets I think on average take off about 5% in the later half of the year after the-- after the election.

ZACK GUZMAN: Yeah, I just want to wrap up, too, with where we started here, because obviously it's hard-- and I never like putting guests in this position when we think about calling short term moves here, but when we think about what Morgan Stanley is saying in terms of there could be potentially a little bit more chop before we move past-- maybe the idea of the election volatility here and what we heard from Tom Lee we'll be on the show tomorrow, by the way, calling that all clear and again about 32, 44 here.

Still about 4% off the correction lows that we have. I'd be curious to get your take maybe on where we go from here regardless of if we get this big question answered in the next couple of weeks because some people are more optimistic that we could get that stimulus bill here-- I'm not still necessarily in that camp.

But when it comes to the question of a pricing that in, I guess I think because we have had pessimistic updates from Washington, DC, I would imagine more investors have foregone that being something that we could get here before the election. What's your take on maybe how the market might be looking at that as Republicans and Democrats still remain quite a bit apart?

AARON DESSEN: Yeah. I think a lot of that negativity is priced in. I don't think anyone's really expecting anything to get done before the election. So certainly, any upside-- you know, regarding a fiscal stimulus package or anything related to progress made on the virus I think is really going to send markets higher. It's obviously you know, it's impossible to tell what's going to happen in the short term. I think there's definitely going to be some chop leading up to the election. But any big news on all on things that investors are kind of writing off until the election that's surprising to the upside, I think would really be a jolt for markets to the upside.

ZACK GUZMAN: And regardless, realistically as we've seen it play out hitting pretty much everybody across the board but relative upside, as you note, potentially there in value over growth. But Aaron Dessen, appreciate you taking the time. Payne Capital Management Financial Advisor. Thanks, again.

AARON DESSEN: Thanks for having me.