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Strategist talks Federal Reserve, bonds, and Tesla stock price

In this article:
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TD Ameritrade Chief Market Strategist JJ Kinahan joins Yahoo Finance to discuss the market's possible reaction to Biden's decision on the Fed Chair, the outlook of the bond yield for the remainder of the year, and the competitiveness taking place in the EV industry.

Video Transcript

- We've been talking about a number of stocks that are moving this morning. And I just want to get your take on the general market action. We're coming off record highs. We were talking with previous guests about how the VIX is at a low and suppressed level. We haven't had a 5% correction in the market in some time here. And we're also sitting on, I think, the fourth-highest set of record highs for any year going back 100 years. So how do you make sense of all this?

J.J. KINAHAN: Well, I think-- you know, first of all, thanks for having me today, guys. Always appreciate being on here. And I think, first of all, you're hitting on a lot of it, and the pattern I expect to continue for the rest of the year. And that is this constant message of conflicting numbers or conflicting outlooks.

You know, we come off, as you said, record highs in the NASDAQ on Friday in a day where we have disappointing job numbers. We all expect bad numbers out of China in terms of exports. And they come up with good numbers overall.

So now the main overall theme continues to be, what's the Fed going to do? And every data point we get on it seems like people have a conflicting view of what they're going to do. Or tapering is going to start sooner. Tapering is going to start later. And I think for the viewers right now, it's more about, OK, just, you know, try and shut out some of the noise as much as you can. Stick with some stocks that you think are good over time.

If you want to play volatility, this is a nice volatility environment in the fact that it's not huge one way or the other. But we do get a lot of intraday or intraweek volatility where you are getting some opportunities to play the volatility from that point of view.

So as I said, I really expect this pattern to continue for the rest of the year. I don't think we're going to get any clarity. You know, the Delta virus being in and out-- we just stopped the extra money for assistance checks for people. So again, all these continuing points that make you scratch your head on which way the economy is really going, while at the same time, we set new highs. I don't see a reason why that stops in the short term.

- J.J., weigh in on this debate. We've been talking all morning long about President Biden potentially this week announcing his decision on Fed Chair. Handicap this for investors. If Jay Powell is reappointed, where does the market go? And then, conversely, if he's not reappointed, where does the market go?

J.J. KINAHAN: Well, hey, Brian, I think, you know, the first thing is, if you look at the history of the stock market, what is it? It's about the known having less of a dramatic effect than the unknown. We know Jay Powell. We know what to expect. He's been pretty good. And agree or disagree with the decisions he's made overall, he telegraphs his decisions pretty well to the market, in my opinion, about what he is going to do, when things are going to happen. Takes a very conservative approach in terms of moving.

You know, I know a lot of people would like him to move a little bit more aggressively right now. But he does tend to take that-- I'm going to let the numbers tell me what to do. And you know, the argument has been, maybe a little bit late at times.

With that said, we know what we have. And so the market tends to-- you know, maybe we sell off a little bit based on him being reappointed. My guess is no matter who the other person is, no matter how smart they may be, I would expect the market to sell off a little bit more if somebody else is appointed, only because it's a completely unknown commodity. And the market gets used to a Fed chair after six months to a year, and how they operate, how they communicate with the market, and what we can expect.

And so, again, there's-- just like-- it's almost like having a new boss or something like that. There's a transition time that you go through with uncertainty. And so the market goes through uncertainty with a new Fed chair, Brian. So I would expect that that will add more volatility if it is not Jay Powell.

- Yeah, I remember him getting off to a couple of stumbling starts there. Those pressures were kind of brutal in the beginning. But I want to shift directions to the bond market. The 10 year T note yield-- I'm looking on the YFi Interactive. It is up 5 basis points.

And I've been showing this chart-- I don't know if you can see this. But basically, it looks like the yields, inversely, the bonds, are kind of coiling here. You take a look at a year-to-date chart, we see this consolidation. And if yields break potentially above 1.4%, I got to think that's going to be selling-- it's going to gain some momentum. We're going to hit stop losses in bonds.

And I'm just wondering where you see bond yields going next under a couple of different scenarios.

J.J. KINAHAN: Well, I think, as I said, you know, without us doing anything by the end of the year we can get to 1.5, maybe a little bit above that. I just don't know what the stimulus is to get us too far away from this 1.5-ish area on the upside and this 1.25 area on the downside.

So I would expect this, as you said-- that coil, I think, is a good way to say it. We may spring out, and it looks like getting a breakout just to sell off. Or if we go down, look like we're going to sell off on the yield only to come back.

You know, just like everything else, the punch that knocks you out is the one you don't see. So if something happens between now and the end of the year, it can drive us either way. But all other things being equal, I don't see why we go out of this range.

- J.J., I talked to Cathie Wood on Friday. She told me she's still looking for Tesla's stock to hit about $3,000 a share. Currently it's at $757. It was interesting to me to see your TD Ameritrade clients selling Tesla in August. Why do you think they were doing that?

J.J. KINAHAN: Well, you know, actually, Brian, they sold it two months in a row. They sold it in July and August, which I think is very interesting overall. A couple of reasons. Number one, because when Tesla gets back above 700, it seems to bring people out as sellers a little bit more. As you know covering that stock every day, that 700 level just seems to be some sort of a magnet on the stock. It seems like when we've gotten over it recently, we go back. When we get under it, we come back to it. And so I think that that's part of the reason.

Also in the EV space, you know, you guys just had a segment on here before I went on. The competition has heated up so significantly over the last year. You see Ford and GM as two stocks that our clients were actually buying, Brian, as they sell Tesla.

So what does that tell me? That we know Ford and GM are really good at distributing cars. But can they get the cars to distribute, so to speak, in terms of the electric vehicle space? Tesla, obviously, has better battery technology that gives them an advantage over others. But I think what we're really looking for is-- or our clients are really looking for is Ford and GM to continue to pick up their game and this to become a much more competitive space over time.

Very interesting that we also had Tesla last month talk about getting into the electric game down in Texas, et cetera. So maybe they're looking for other areas to grow their business, which is fantastic overall. But again, I think from a-- what people are looking at from the car distribution, car making point of view, they see Ford and GM having an opportunity longer term to make some strides there.

- Yeah, Ford up 28%-- or 48% this year. GM up 18%. Tesla up 7%. Thanks for stopping by, J.J. That's J.J. Kinahan, TD Ameritrade--

J.J. KINAHAN: Thanks for having me.

- --chief market strategist.