Matt Maley, Managing Director and Equity Strategist at Miller Tabak joins Yahoo Finance Live to weigh in on Congress passing the long-awaited stimulus bill and what the government’s funding plan means for the economy.
MYLES UDLAND: All right, let's stay on the markets here to talk about what to expect as we head into 2021. Matt Maley is the chief equity strategist over at Miller Tabak, and a managing director. Matt, great to talk with you this morning. Let's begin with your 2021 outlook and a note you sent over saying that you've become more cautious on the market next year. What are you seeing when we see the stimulus come through today? We had a guest earlier say the recession or double dip recession is now canceled as a result of that. But what kind of backstops or your caution here as we get into next year?
MATT MALEY: Yeah, I mean, one of the things that I'm not so worried about a recession. I'm just worried about how expensive the stock market has become. it's interesting, with the addition of Tesla has actually made it a little bit more expensive. So now it's, the S&P is now trading about 22 and 1/2 times earnings. And the thing though for me, is that people keep talking about, hey, growth rates are going to be great next year. We're going to see a big jump in GDP growth year over year, GDP growth. Earnings growth is going to be really strong. Some people saying it could be even as high as 20%.
Well, that's great if you're comparing it to 2020, which was a horrible year. But we really need to compare it to pre pandemic, because that's where the stock market was trading. If we were going to have year over year growth and the stock market was down, that would be great. OK? But my point is, that we have a earnings growth, I'm sorry, the GDP growth is still, was only mediocre pre pandemic, and we'd be lucky to get that by the end of next year. And earnings growth, even 20% year over year, that only takes us back to what we had in 2019, which was no better than 2018.
In other words, you're going to have flat earnings growth over a four year period, yet the stock market's 30% to 40% higher. That's why the PE ratio, of course, is so high. So my point is, we're going to need a lot stronger growth than just better growth than 2020. We're going to see better growth in 2019 and 2018 to take the stock market a lot higher from here.
That doesn't mean the stock market is going to get crushed or we're going to go into a bear market. I think will be likely to get a deep correction. But those was what we get most years, anywhere from 10% to 15% or even close to 20%. That would be normal and healthy, not the worst thing in the world. And I do think that overall, it's going to be a relatively flat year by the end of the year. But there is going to be some opportunities to buy I think certain groups in certain areas, where people will still be able to make some nice profits.
JULIE HYMAN: Matt, if I could put you on the spot here, it's Julie. Is one of the things to buy Bitcoin? You just heard our guest talking a little bit earlier about what she is expecting for 2021 and kind of explaining the move that we've had this year. Is that, I mean, if we're not going to see amazing outperformance next year in stocks, is that one of the places people should be putting their money?
MATT MALEY: Well, I think Bitcoin is going to be, I love it long term. And I think it's going to go a lot higher. But investors need to be careful right here. I just think, you know, again, if you're a long-term investor, I'm not saying sell it. Maybe you can take a few chips off the table. In fact, I still think it can rally a bit further and get up into the high 20s, 20 thousands. But I do think it's becoming very, very vulnerable to a significant pullback.
Your previous guest had talked about how volatility is way down. That's like saying that the Jets are a great team because they won one game. I mean, that just, I just think there's a lot of volatility left. It's the most overbought. It's getting very close to where, as overbought as it was back at the 2017 highs. I don't think it's going to have the same kind of correction.
But I also believe that the volatility, I'm sorry, the liquidity that's being put into the market, which I think is going to be a little less plentiful after we get past this most recent cold weather and the most recent strain of the corona, I'm sorry, most recent wave of the coronavirus. And what's going to happen is, remember over the summer when you get that real excess liquidity, it goes into a narrow number of things. It was all those high tech mega cap high tech stocks.
Well, guess what. It's no coincidence that when those stocks started to flatten that back in September that a couple of things, like Tesla and Bitcoin suddenly shot up. So there's a great fundamental story, but it's also a liquidity-based story the most recent rally. And when that kind of dries up, I think the thing can easily pull back 30%. So I'm not looking for the same kind of decline we saw after the 2017 top, but I do think we'll have a better opportunity to buy it at some point next year. A much better opportunity.
BRIAN SOZZI: Matt, you struck me as a little bullish on Apple in your morning note this morning. If you had to bet your life savings in 2021, Apple or Tesla, better stock to own?
MATT MALEY: Oh, Apple, absolutely. It's, you know, first of all, again, it's a great company. I mean, Apple is serious about getting into this automotive business or the smart car business. That's a big problem for Tesla. I mean, we just got a little news. It's talked about it before. This one seems to be a little bit more serious. But Tesla, we're not buying Tesla because it's a car company, of course, we're buying because it's a technology company. And there's nobody who can compete with it.
Well, if Apple becomes a major competitor, with all the money they have, I mean, the amount of cash they put off every year, that's going to be a problem. But much more importantly, I just think that again, Tesla has been moving up lately because of this issue of liquidity into the marketplace, where Apple has still got a much stronger fundamental base. So I'd much rather own Apple. Tesla, I'm not saying Tesla should short it. I'm not, I'm not a major bear on Tesla, I just think they got some issues. And if Apple really starts to compete with them, that's going to be a big problem.
MYLES UDLAND: Matt, I just want to go back to the thing about the broad market next year and an interesting dynamic that some analysts have flagged, which is that earnings growth may broaden, but because of the market cap construction of the S&P, the index might not go anywhere. If Apple doesn't go up a lot and Tesla doesn't go up a lot, you could have bank stock go up 30%, but that might not really push the S&P all that much given the weighting. Is that something you're on the outlook for next year? This sort of, good sectors are really good, but the overall market is flattish because of the distribution of some of those gains.
MATT MALEY: Exactly. It's one of the things, I still think a lot of money could be made. I mean, the bank stocks, I think one of the previous guests said they're expensive. I'm not, I'm not really sure where they came up with that. They've had a nice rally here. That doesn't make them expensive, because they were incredibly cheap for a long time. But the reason is, they were cheap for three years. And I was very cautious on the group, because of the way the interest rates were.
And interest rates, if interest rates skyrocket, now we know short term interest rates aren't going to move. The Fed's told us that. But long term interest rates have been moving up. And if they skyrocket, that's going to be a big problem. But I don't expect that. I expect just creep a little bit higher. They get up into the high, I'm sorry, into the low 1s for the 10-year yield, especially if we get the yield curve, which has been steepening. Again, the 2 to 10-year spread is only 80 basis points, but that's a lot higher than it was before. And that's very bullish for the bank stocks.
So my point is, that you finally got a cheap group that has something on the interest rate side of things that's going to help it make even more money. This is a group, again, it's getting a little overbought near term and it could see a little bit of a pullback, but I think that they will outperform as we move through the year, especially with the announcement on buybacks. And as they get further into the year, they're going to be able to do more of that with dividends and things.
So that, and I also think the energy sector, you had the recent comment on Exxon, and I agree with that. Exxon, they've got their issues, but if you get some of the smart stocks in that area, they're still trading like oil's in the low $30s. Oil doesn't have to take off for this group to do better. And I'm a bull on commodities in general. So I guess my point is, stock picking and group picking, people can still have some real nice returns next year. It's just not going to be as good if you're in an index fund.
MYLES UDLAND: All right, Matt Maley with Miller Tabak. Matt, always great to get your thoughts. Have a great new year. We'll talk to you in 2021.
MATT MALEY: Sounds great. Thank you, have a great holiday.