Bill Baruch, President of Blue Line Futures, joined The Final Round to discuss his market outlook and why he says the big tech stocks are going to be driving the market even after the election is over.
- Welcome back to The Final Round. Stocks are lower, but a very busy day in terms of news flow. Of course, it's Amazon Prime Day, we've got Apple's big reveal on new products, we have earnings season kicking off with the banks earlier today. Stocks were lower, but we've got just about 32 minutes left in the session, and I want to bring in Bill Baruch, Blue Line Futures president.
So Bill, the-- I kind of had gotten used to not paying constant attention, only attention to the Fang and the couple other stocks. We started talking about value, and, I mean, I've been talking about the Russell a bunch lately. But now, yesterday, today, it seems like Big Tech is back. Has the rotation already happened? Are we back to just big growth is big growth? Where are we right now?
BILL BARUCH: I think tech's going to continue to be the leader and be the workhorse that really drives this market higher to record highs, I think, at least after the election. I mean, look, you know, we saw over the past couple of sessions, it could really happen any day. But I'm telling my clients to be prepared to see record highs by the start of quarter one. You know, planning on seeing after the election.
I think tech is going to be that bellwether, but I am starting to position on some other stocks that I did throw some regional banks on here today and yesterday. I expect inflation to start showing up, and I think yields will take up a bit. I think Treasury yields will tick up a little bit. And I'm trying to find places-- other places to invest I think that could bring value to.
- So let's talk about a few of those. Again, it's Amazon Prime Day. The way that works, right, you buy online, then somebody delivers it to your house. You're going after the picks-and-shovels trade a little bit here with the part of it. Can you talk about what you like about some of these transport names?
BILL BARUCH: Well, I mean, there's so much product being moved around the country. I mean, everybody is virtual shopping, and that's, I think, going to be the new narrative going through next year. And it's transitioning still. So it's not something that's even taken hold fully yet.
So I think these companies that-- even on the Amazon that you already know and the target that it's become, but even things like Wingstop, I mean, have really crushed it this year. Wingstop, obviously, not on, you know, part of a transport trade. But you can see the type of names that have been able to adapt to the world that we are in now and the world that we're going to become.
Those are the ones that want to thrive. And I think we're going to continue to see that momentum shift into those type of names. Again, whether it's the Amazon, Target, Best Buy has even done a lot better, or things like a Wingstop or a Chipotle.
SEANA SMITH: Hey, Bill, it's Seana. What do you make of third quarter earnings season just in terms of what to expect? Because we got our first glimpse out this morning, I mean, we saw JP Morgan and Citi both beating expectations. Delta, on the other hand, we know that that's almost a severe scenario type of play. But Delta reporting a wider loss than expected.
Are you in the camp that you expect media companies to turn a quarter-- a corner here in the third quarter? Or do you expect this earnings season to be a potential headwind here for the markets going forward?
BILL BARUCH: I think, overall, that the numbers will come off as a headwind. But I think it'll be more of a relief coming out of it. I picked some good work-from-home stocks early on, but I've stayed away from the names that I kind of think of as bottom feeders, and looking at some of the airlines, the cruise names, and really focus on stuff that I'm very confident in over the next five to 10 years.
And yes, the banks started to-- some of their earnings, and they gave up the early gains. JP Morgan turned down, and the broader market turned down. But I do like the fact that you're seeing less money put away for bad loans from JP Morgan and the banks. And that's a narrative, I think, to keep a focus on.
The IMF came out today, and they're a little less enthusiastic about 2021. But I'm still becoming more enthusiastic about 2021. And as long as the Fed is going to be there, and if we get fiscal policy, fiscal policy is going to be the huge narrative, and I feel very confident we're going to get fiscal policy after the election. That's going to bring a tailwind into quarter one. So I think there's definitely some winners that are going to be out there.
BRIAN CHEUNG: Bill, Brian Cheung here. So I want to drill back on that point that you made about inflation. It does seem like you think that inflation is going to rise, right? I guess I just want to clarify it. Do you-- when you say rise, you mean just above that 2% target that the Fed has. Because for now, it does seem like there are quite a lot of disinflationary pressures.
The CPI print this morning showing when you exclude food and energy, it's still only about 1.7% year over year. This is for a metric that tends to overstate inflation. So is that the thesis that you see, just slightly above 2%? And what's your time horizon for that, and then what's the investing strategy off of that assumption?
BILL BARUCH: Well, you make a point, it's 1.7%, and then August was revised a little higher. But the Fed's preferred inflation indicator, the PCE, is 1.6. I think we're at an inflection point here where we've seen, as you mentioned, disinflation. We've seen that-- we've moved through March and April, we're starting to see that recovery, the Fed printed money, and a lot of prices have recovered across the board.
You know, construction, prices are very expensive in a lot of areas. So I do think that inflation is starting to show up. 1.7%, yes, it's not 2.0%, and I'm not calling for 2.2, 2.3, you know, in the next several months. I think we're going to get to 2.0% and wouldn't be surprised to see it before the end of the year. But I definitely think we'll see it in the first quarter.
And really, what does that mean? It just-- it doesn't mean the Fed's going to go in hike rates or anything. It does mean, though, that they could start talking back that time frame from 2023 before they plan on hiking rates. So they're less dovish, and less dovish as well as inflation is really going to pick up Treasury yield. So I really do expect to see the 10-year yield start to move up towards 1.3%.
It's actually a trade I've started a position with. I got filled a little bit, a part of the position late last week and the other part of the position early this week in some option spreads. But I plan on continuing to position in that trade. So what I'm doing is I'm buying put spreads in the 10-year Treasury futures. I like buying some stocks that-- where I think could benefit, as I mentioned, the banks from rising yields and an overall market that's making record highs.
But I do think, though, that as fiscal policy gets passed by Congress, after the election, what does that mean? They're going to be printing more money and more Treasury supply to cover that money. And that's, I think, as well, as another-- another tailwind for yields higher.
And then if you look at some of the history, quarter-- QE1, QE2, and QE3, after those, you know, after those-- we really saw reactions in the Treasury markets very quickly after that. But this is a little different situation. I do think that the Treasury market, each time that happened, has topped out and yields bottoms.
So I think we're going to see a similar reaction now. And after 2008, 2012, and 2016 elections, we also saw the Treasury market top out, yields bottom. So I'm expecting that to happen in the 10-year market again, and that's how I'm positioning now.
- Bill Baruch, Blue Line Futures president. Great to see you, thanks so much.
BILL BARUCH: Thank you.