Technology is the most overvalued sector: strategist
Yahoo Finance’s Brian Sozzi and Alexis Christoforous discuss what's happening in the stock market with Megan Horneman, Verdence Capital Advisors Director of Portfolio Strategy.
Video Transcript
BRIAN SOZZI: Consumer confidence just hitting the tape-- pretty ugly miss, eight point miss versus expectations for August. You think now the market might realize, or finally realize, the US consumer is one of the biggest risks to this market headed into the fall.
MEGAN HORNEMAN: Yeah, I think the consumer is definitely one of the risks we've mentioned on this channel many times. Some of the risks are also from the election side. But the consumer is the one thing from a macro fundamental that we really have to face, that we have to look at, and that's because the consumer makes up so much GDP and has really been-- we've been pleasantly surprised with the amount of consumer spending we've seen as the economy has reopened.
So there's a couple of components of that consumer confidence index that I look at. The headline number had fallen down to the lowest level since 2014. But one of the other components that I like to look at is that expectation component, because that's going to really be a strong correlation to how people are looking to take on big-ticket item purchases. And that's been weak for several months now. So I do think that this is a risk into some of these-- as we go into the second half of this year and some of the economic data we may see.
ALEXIS CHRISTOFOROUS: And Megan, when you look at what people are purchasing, I mean, a house is the largest purchase a person will make in their lifetime. And we're seeing that mortgage delinquencies jumped to the most on record last quarter. Is that concerning you? And do you think that that's going to start to trip up the housing market, which really appears to be firing on all cylinders right now?
MEGAN HORNEMAN: Yes, housing is getting the benefit from the low interest rates. I mean, bottom line, it's significantly historically low interest rates, and the fact that people are spending more time at home. So they're either fixing up their current house or buying new houses.
But that delinquency number is very concerning. Now, we do have some executive orders that were put in place through the rest of this year. But unless we get Congress to really come through with some more concrete stimulus, then those delinquency numbers could continue to rise.
BRIAN SOZZI: Megan, have you started to make any changes to your portfolios ahead of the election?
MEGAN HORNEMAN: So not because of the election, but primarily because the market has run so far, so fast in certain areas of the market. Some of this mid-cap growth types of areas have run up significantly, still off of their record highs, but has still has run up significantly. And looking at that part of the market, it is very heavily weighted in some of the small and medium-sized banks that could be at risk if we start-- when we start to see bankruptcies rise.
But in general, we have reduced a little bit of our equity exposure. We just did that recently. We put some of that money into cash. I've always said on this program that there's nothing wrong with holding cash.
I think there's the pockets of the market that are very expensive right now. As much as I'd like to invest in them, I just don't chase momentum. And we want to put money there that doesn't look like it's going to give a good long-term value to the clients.
ALEXIS CHRISTOFOROUS: What are some of those sectors that you're not chasing right now because you think they're a little overvalued?
MEGAN HORNEMAN: So technology is the biggest sector I think that we could mention there. And then there's certain parts of consumer discretionary as well, even though it's really been driven by a couple select names. But those five or six names that are really running the entire S&P 500, they're names that we had been trimming and also would wouldn't invest in at this time.
Your large-cap growth, just that entire arena, has been driving a lot of this rally in recent months. So it just looks very expensive to us. You're seeing even yesterday, if you get any good news from a therapeutic or a vaccine, look at what happened yesterday.
Everyone's talking about Apple making yet another record high, but they were ignoring the fact that there were several sectors that reversed yesterday. We saw financials, energy, industrials, those types of sectors that rallied yesterday. And even today, because interest rates have backed up a little bit, we're seeing financials get a bid here as well.
BRIAN SOZZI: Megan, how difficult is it to make those long-term bets ahead of an election? Next year we could have-- really, I mean, we have parties that are wildly on other sides of the spectrum. How are you thinking about it?
