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What strong IPO performances could mean for 2021

Janney Montgomery Scott's Mark Luschini joined Yahoo Finance Live to break down what strong IPOs indicate for the market and what they could signal for 2021.

Video Transcript

ADAM SHAPIRO: We're going to bring it home with Luchini. He is chief investment strategist at Janney Montgomery Scott. And wanted to ask you, there's so many headlines we have to dive into. But let's react quick. Do we have some pretty strong IPOs? Does that signal anything to you and to investors as to where we're headed in the first quarter?

MARK LUSCHINI: Well, Adam, I mean, historically, typically is some evidence of speculation in the marketplace. It's always a good signal, in general, that companies and their investment banking teams feel as though that the economy and the market is not only ripe enough by way of enough economic momentum for these companies in a public life to continue to perform well so as not to disappoint their new shareholders, as well as those that are equitizing their proceeds.

But in addition to that, it also speaks a little bit to the frothiness of the equity market that you have a lot of liquidity sloshing around looking for a home. We know we see very little in the alternatives to the stock market, at least, by way of fixed income and certainly cash and/or equivalents. You have money coming into the market by way the stimulus checks-- the $1,500 or that is the $1,200, the $600, the potential for another $2,000.

And all of this adds up I think to an environment that's helping to breed these kinds of pops on these IPOs opens, now, suggesting that perhaps not necessarily a top is here today but, rather, further evidence along with some other things that collectively suggest that perhaps the market is ripe to be vulnerable to some thing that catalyzes a pullback in equity prices even if only to consolidate on a very near term basis some of the recent massive gains we've seen in the equity market before or more perhaps stable but nonetheless, I think quite handsome advance to continue.

SEANA SMITH: Hey, Mark, what do you think that would be the thing that would trigger a pullback in the market, because every time we get a worrisome headline, I mean, most recently when it comes to the turmoil out of DC and the rapidly rising COVID cases, the market is able to look beyond it?

MARK LUSCHINI: It's been remarkable how resilient the market is really a Teflon market because you've had any number of things thrown at it. And it continues to advance almost unabated. And so, I mean, again, what could it be? I think obviously the uncertain path around the coronavirus. I mean, obviously, we'd all like to see the speed with which these vaccines are being applied and a more broad inoculation occur on a timeline that we've been given by some health care experts around midyear or so.

But anything that would defer that, whether it be a fumble in the way of the operational aspects of this somewhere along the way that clogs the roll out of these vaccinations, perhaps, some new strains that develop in which the efficacy of the drugs that are already on market are diluted by the fact that they're not as efficacious in applying those vaccines to those new strains, I mean, those would be a couple.

Certainly, of course, there's been a lot of bullishness around the fiscal programs that have been announced here recently before the end of the year. Of course, the $900 billion and what's expected to be forthcoming by way of tonight's announcement from President-elect Joe Biden with regard to not only further stimulus but possibly, as well, a sizable infrastructure package. Well, of course, what investors haven't really seemingly been focused on are taxes and regulation which could undermine some of that boost.

ADAM SHAPIRO: Do you expect-- well, let's talk about what we'll hear from President-elect Biden because you're advising some of your clients be overweight industrials, materials, energy. What do you specifically expect him to say tonight that would reinforce that recommendation? And why would he necessarily undercut the good feelings from that with a proposal to raise taxes? Now's not the time to have that discussion. Is it?

MARK LUSCHINI: Well, I don't disagree with you on the latter part of that, Adam. And ultimately I think that comes by way of how do we pay for all of this? And so it may not necessarily be something we see in 2021. It could be that the laws through, perhaps, reconciliation later this year put into place that don't go into effect with regard to raising corporate or individual tax rates until perhaps 2020.

But nonetheless what I do expect to see at a minimum, of course, is further discussion about how we can extend the kind of programs that were announced under the CARES Act and had been obviously extended by way the $900 billion program that was announced here over the holiday to continue to offer support for those that have been displaced from their jobs to small businesses.

And importantly from what was left out of the last package, those civil employees of state and local entities that are really going to be struggling to maintain their jobs when budgets are having to align here come midsummer with these state and local governments that are under some pressure at the moment. And since 1 in 6 Americans are employed by those governments, it could mean that we see another wave of layoffs and/or furloughs as a consequence that I'm sure President-elect Joe Biden's administration would like to avoid at all costs.

So what that basically means, I think, is that we're going to see incremental boost to economic activity that's already growing in a positive fashion by way of the organic growth that's occurring coupled with obviously the augmentation through the opening that will lead to an environment that cyclical sectors should really be the beneficiary of that outcome.

ADAM SHAPIRO: We hear you, and we're going to be paying attention to it tonight. Thank you so much. Mark Luschini, chief investment strategist at Janney Montgomery Scott. We appreciate you being here.