Lee Munson, Portfolio Wealth Advisors President & CIO and Brian Nick, Nuveen Chief Investment Strategist joined Yahoo Finance to discuss the day's market action.
ADAM SHAPIRO: You know, the surprises that we've seen with the election, and yet the market seems to just shrug it off. Why?
BRIAN NICK: Well, because I think the surprise it delivered is divided government. So the issue that the markets may have had with the blue wave were after you get the big stimulus up front, you potentially end up with higher taxes down the line on investment income, individual income, corporate income, that looks like it's off the table. And so you've had sectors like health care that probably are relieved that we're not going to get that public option probably in the Affordable Care Act.
Sectors like technology, we probably don't have sweeping anti-trust legislation coming that sector's way. So probably more good news on the whole than bad news, although we are still concerned about the economic impact of the smaller stimulus over the very short term and how that's going to get us through the fourth quarter and the first quarter of next year.
SEANA SMITH: So Lee Munson, with all of that in mind, is there any investment or any moves that you're making today that maybe you've hold-- you've held off on and haven't made over the past couple of weeks?
LEE MUNSON: Yeah, I'm doing a lot of buying today. And I know that a lot of people don't understand that. They want to wait until the coast is clear and be reactionary versus anticipatory. So we're adding-- OK, I did add some last Wednesday on that capitulation event.
But in terms of having any size outside of picking up a gold position, we're deeply-- we're buying a lot more of our small value, it's down today, because we think that a red GOP in the Senate means that there's not going to be infrastructure bill. I don't buy that. I'm also buying a lot of China, China index and emerging markets. We did a little bit last week, but I've been holding off.
The reason that's working out is not because Trump may win and there's going to be more trade war issues or Biden's going to win so they'll be less. I'm just strictly looking at the PMIs over in Singapore and in Hong Kong, which is validating that in Asia you have a broader market recovery. This on a day when the Chinese regulators told Jack Ma no. It's like somebody coming to Jeff Bezos in this country and just saying no. To what question? Just no to everything. And yet these things still rally. And that's because tech is cheap.
ADAM SHAPIRO: Right
LEE MUNSON: It dominates over there. The valuations are there. The dividends are there. And so I'm going in aggressively into those two areas because that's where I can get yield.
And I'm selling my 10-year treasuries and my short-term corporates to pay for it. That's how I'm going to build that wall. That's how I'm going to pay for being long China and more long small cheap companies--
ADAM SHAPIRO: OK.
LEE MUNSON: --in the US.
ADAM SHAPIRO: Hold it right there. Lee and Brian, don't go anywhere. We've got to get to Jared, because we're getting ready for the bell to strike. And Jared, what are you watching?
JARED BLIKRE: Well, let's take a look at some heat maps here, see what some of the big stock movers are. First with the NASDAQ 100, a lot of this jumps out to you on the left. Haven't seen Facebook up 8% with Alphabet and Amazon each up over 6% in at least a few weeks. Apple's up 4%, as well as Microsoft.
Not a lot of red on the screen. It looks like some of those old-growth names that fueled so much of the rally really in favor here. Seems to be just a one day pricing so far, or a repricing of the absence of a blue wave. And that's also being reflected in the bond market.
And we can go here. This is going to be the S&P 500 over the last three months. You can see what happen-- what could have been a double top here has just turned into a trading range, and we are now in the upper part of it. Only took about three days there, so something to keep an eye on.
VIX, we've been talking about the VIX. VIX coming down below 30. A lot of de-risking here. And then the 10-year T note yield, huge moves in the bond market, but we still have this upward trend if we look at this trend channel-- that's not a trend channel.
We'll do this one more time. That's a trend channel and could see a reversal from here back to the upside. Maybe somebody's buying Lee Munson's buns-- bonds here, excuse me.
And also, the dollar, a lot of macro plays in play here. And the US dollar, very big range day. We can see it spiked all the way up off the lows, kind of in the lower third here. But if you look at what's happened over the last year, still very much in this trading range that we have towards the lower end here.
SEANA SMITH: And that wraps up the trading here today. Again, a rally, although we are closing well off the highs of the day. The Dow up just under 400 points as we shake out the final trades.
Looks like it's going to be up just around 370, S&P up just over 2%, the NASDAQ-- this was the case throughout the entire trading day, the NASDAQ was the outperformer. A lot of that had to do with the reaction that we saw in the big tech names today. So the NASDAQ closing up nearly 4%, so a nearly 4% pop in the NASDAQ today.
And drilling down into some of that sector action, I mentioned the strength that we saw in technology. Communication services, another standout in today's action. And health care leading the way. A lot of the big health care names here outperforming the rest of the broader markets, so something to keep in mind as we turn focus to the after-hours trading, and then, also, of course, to tomorrow's opening bell.
Brian, I want to bring you back in here because when we take all this into account-- and first, I want to start with the jump that we saw in the NASDAQ, because-- and we talk about big tech. We've talked about this with our tech reporter Dan Howley, and he was saying that no matter who wins, what the scenario is, it's bad news for big tech because they're getting hit from both sides of the aisle. But with that in mind, then, why are we seeing such a pop in these big names today like Facebook, Amazon, Apple, Netflix, Google all in the green?
BRIAN NICK: Yeah, I think there certainly is some bipartisan hostility towards big tech. I'm not sure it's coordinated. It's not coming from the same place. So when you have hearings led by Republicans, they go differently for the tech CEOs than when they're led by Democrats. So I'm not sure there's a regulatory or legislative fix or policy coming down the pike, probably just more difficult hearings.
I think why is tech performing well? Go back to the last time we had divided government like this, 2013 to 2016. You can't find a better performing sector than tech. You have low policy uncertainty, low interest rates, and sort of middling growth, which is where I think we're going to be back to by the end of next year once the bounce is over. Hard to design a better environment for tech than that.
ADAM SHAPIRO: Lee, I'm curious, because I do understand the play you described to us in Asia. But back here in the States, didn't the ADP number miss this morning, the 365? It was supposed to be much higher. And we're going to get the big jobs number on Friday. I mean, should the people who are rushing into stocks in the United States be a little bit more careful?
LEE MUNSON: Yeah, I think they should. You know, I'm going from a sort of a neutral to an overweighting, but I'm looking at a reflation trade, right. I'm not looking at the concept. You see, here's what people need be really careful of-- next year, where are you going to have earnings revisions?
You think industrials and materials are going to show anemic growth? Did they pull anything forward in their earnings? No. I think the big tech, while I'm not saying it's-- I'm not a Cassandra saying it's going to crash, it's going to be a problem. The big tech is a problem because how much more earnings are we going to be able to pull forward once we get a vaccine?
And so I think that the vaccine and the idea that we're going to reflate reopening, that's what's driving me to look at the smaller companies over the big tech. Because where's the earnings going to grow-- going to be from the FANG stocks? It's there. It's not going to be as dramatic as re-rating all these-- these cheap little dividend payers.
And let's be honest, like, where are yields going to be next year? Yield will start becoming important after we get out of this speculative phase and when we get into vaccines are out, how quickly can we return to some type of normalcy? So I think that your opportunity is when there's this type of uncertainty. And by the time that we feel more comfortable, we're going to see a market that's going to trade higher, and we're going to see a lot of those cheaper areas be even higher than where they are now. So I think that if you want to make money or have the opportunity to screw things up, you've got to get ahead of the machine.
SEANA SMITH: Lee, it's hard to argue against the momentum at this point. And Jared, I know that you're a technical guy, when you take a look at some of these stats that you sent over, S&P and NASDAQ having their best three-day streak since April, Dow having its best three days in a row since May, what are some of those key levels that we need to keep an eye on here going forward when we're trying to figure out whether or not this rally has legs?
JARED BLIKRE: Well just before-- excuse me-- just before the bell, I was talking about this trading range in the S&P. So basically, 3,200 to 3,600, those are the levels to watch here. We're in the upper part of it. This right here, I don't remember this right offhand, but that's going to be probably a pause point, if we do continue to the upside.
But you know, four years ago in 2016, we had a nice two-day run Monday and Tuesday into the election, and then, admittedly, it was decided pretty quickly, much more quickly than we're expecting it to now, it was up, up, and away. Now, a lot has changed since then.
And it's interesting to bring up the bond market and also what the Fed might do, because if we're expecting some kind of reflation trade, which generally expands the yield curve, and we can see that we had a huge day in the 10-year T note yield falling to the downside, we just went over that as well, I'm wondering and my question for Lee here is, is it a headwind from the Fed that it might actually institute yield curve control and bring in some of those long-term rates, would that have any effect on your sector style outlook?
LEE MUNSON: It's just going to put more fuel on my fire. I think it's more a reason why you're going to have relative underperformance by big tech, which are super long-duration assets, and where all the crap that I like to hang out in, let's just say, banks, right, as being the most extreme version of that trade will increase their net interest margins, steeping of the curve. You know, it's going to make it more obvious that central banks are unable to help beyond what they're doing now and why we need more fiscal stimulus.
And I think it's going to put the down-and-out names in those value areas and make them go on a very violent tear up. So I'm very much hoping that we're going to see the 30-year and the long end of the curve steepen, and that's going to help a lot of companies that are not in favor right now. And I think it's going to cause people to think about tech, hmm. You know, this is all been based on no inflation and a very flat yield curve. So it helps what I'm buying? Who knows? We'll see. Nobody knows.
ADAM SHAPIRO: Brian. But Brian, with what Lee just said, though, and we're going to get that FOMC statement tomorrow, doesn't-- if that is indeed what does happen, the rising tide's going to lift some boats that should really sink, isn't it, and a lot of investors get burned by that.
BRIAN NICK: I think the Fed probably doesn't want to make any big sudden moves tomorrow. Even with the outcome of the election having been a bit of a surprise, I think they're going to probably wait and see how the economy does over the next month or so. I could see them easily announcing something inter-meeting, if they think the economy is really headed for a nosedive because of the lack of fiscal stimulus and the prospect of not that much more in 2021.
We could see, I think, probably not yield curve control, but I think you could see an upping in the purchases, both MBS and treasuries, as sort of a gesture that look, we think the economy needs a bit more oomph, maybe the fiscal side will get it if we do more on the monetary side. But they've been pretty clear that they think fiscal policy is the way to go here.
SEANA SMITH: Lee, you're nodding your head. Our viewers can see it though. Sounds like you agree with what Brian's saying.
LEE MUNSON: Yeah, I mean, on our bonds, I know-- I deal with old people who are kind of, like, rich and retired, so I have, like, stocks and bonds, you know. And I know we're always supposed to just talk about stocks, but on the bond side of my life, I'm getting rid of a lot of my short-term treasuries and going into mortgage-backed securities, just for the very reason that he's talking about, because they already-- the Fed already owns a third of MBSes. They're going to own more.
And on the riskier side of that trade, you can look at mortgage rates, I do think that the Fed is going to back up the mortgage-backed security market. And so we're trying to slowly shift going forward, not today, not on a particular day, but as we move forward, we're looking to get out of our corporate exposure, which has a lot of duration, not a lot of upside, and try to get into those mortgage-backed securities, which have what's called negative convexity, for all you wonky people out there.
But it means that you're getting a little bit better yield and less duration risk. Because what's my upside on a 10-year? 0.8 to 0? You know, I'd rather-- I'd rather tune that down and tune down my duration. And the Fed has basically said, go for that trade, Lee, because there's nothing left. We've already nationalized the corporate bond markets.
ADAM SHAPIRO: Brian, I wanted to bring you in, but I've got to follow up with Lee. What's your upside on those mortgage-backed securities, especially as the real estate market itself is kind of topping out with prices inflated because of the COVID, you know, exodus out of major cities to try and buy houses?
LEE MUNSON: Oh, I don't think that I-- I don't think that there's much price upside at all. I'm looking at, you know, a basket, like, you know, like you look at an ETF like REM, it's, like, just a basket of all these crappy mortgage rates. You know, at 12%, I just need it to be stable, right? With that amount of leverage, I just need nothing to happen for a few-- I just need the Fed to do what they say they're going to do and control and support that housing market, and I'll be sitting here on my bond side, granted, taking some risk, but getting 10-plus percent.
And while it's not sexy, I'd rather sit at 1 and 1/2% on a three-year duration in MBSes than sit on, you know, 2.7 on a Vanguard short-term treasury getting point nothing versus 1.5. It's not a total solution, but it beats being a stick in the mud, right, because I've got to have those bonds. You know, I need to have that for the allocations for my clientele.