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Yahoo Finance’s Alexis Christoforous and David Nelson, Belpointe Chief Strategist, discuss the latest market moves as stocks track for their best week since November.
ALEXIS CHRISTOFOROUS: All right, for more on the markets now and the jobs report, let's bring in David Nelson. He's chief strategist at Belpointe Asset Management. Yeah, would you like the yogurt, too? David, I saw you're nodding your head.
DAVID NELSON: I-- look, I'm a vegan, so yeah, I'm all in. I'll have to look at this when it comes out.
ALEXIS CHRISTOFOROUS: Oh, I didn't know. Something I'm still learning about David, David Nelson. All right, let's talk this jobs report now, because there are a few ways that we can slice it. I mean, compared to December, we did add jobs, right? That's a good thing, but more sectors shed jobs in January, then added them. So what is your take on this report? And what is it telling us about the state of the economy?
DAVID NELSON: Look, on the surface, it's not a great number-- 49,000. It's a little soft. And you just hit the key point that even the private payrolls, the number of industries, less than half the industry saw some increases there. But the good news is, it's all about COVID.
And to date, you've got another vaccine out there. The J&J news is great news. It's another vaccine. It adds to the arsenal. Some will complain that it doesn't have the efficacy. But when benchmarked against severe cases, it's up to 85%. And the fact that it's just one shot, I think that's good news as well. And in the end, it's all going to come back to earnings. And for the most part, they've been blow-out.
ALEXIS CHRISTOFOROUS: They really have. I want to get to earnings in a moment, but first back to jobs. Do you think things might reverse in February? Could this have just been an anomaly because we had some seasonal oddities with construction when it comes to payroll?
DAVID NELSON: I think it's just delay because we stumbled out of the gate on getting the vaccine out there, and maybe some of the numbers had to come in. I think in the end, if the vaccine gets out there on some kind of pace in there, people are going to be looking to the other side of a vaccine rollout. I don't think what the data that we're looking at right now is what investors are investing right now.
ALEXIS CHRISTOFOROUS: Let's talk about where investors are investing right now and these fourth quarter earnings that keep coming in. About 80% of the companies that have reported so far have beaten estimates. What's your take on this? And what's your take also on valuation versus earnings outlook for this quarter?
DAVID NELSON: Look, the headline numbers are great. You just pointed to it. But what's really important is the conference calls themselves. Does it really matter what company A's fourth quarter of a pandemic year looked like? What really matters to investors is, what does the business model look like on the other side of a vaccine rollout? And that's why you're seeing headline beats, and maybe the stock goes down. What's much more important is that outlook.
On the valuation front, look, on most metrics, we're obviously egregiously overvalued. But stocks don't live in a vacuum. And relative to any other competing asset class-- and there isn't one right now-- the risk-free rate is essentially zero.
And as long as the rates remain benign, stocks can trade at these levels. What you're going to need to watch is just how far is the 10-year going to go. As it approaches even 1 and 1/2, that's going to be the first line in the sand because that's the dividend yield of the S&P 500 right now. 2% is another line in the sand. And at that point, you've got a competing asset class. And that could be problematic for stocks.
ALEXIS CHRISTOFOROUS: Jumping off what you're seeing there in the bond market, the firming of Treasury yields, they've actually caused financials to perform quite well over the past week. That's one trend I'm seeing. I want to ask you about that. Are you buying into the financial rally we're seeing right now?
DAVID NELSON: It's probably one of our largest overweights, and you just hit on the reason. The long end of the curve continues to rise. So even though the holding the short end very low, that steepened yield curve is a blessing for net interest margins. The spread between 10 and 2-year paper right now, that's probably the widest it's been in a number of years. Plus and the fact that this is a sector relatively cheap to the rest of the S&P 500. I think that's a big part of the rally that you've seen ever since November.
ALEXIS CHRISTOFOROUS: Another trend I want to get your thoughts on is what we're seeing in terms of smaller cap stocks outperforming the larger caps, emerging stocks outperforming US stocks, and sort of that rotation-- growth oriented stocks into value. Are you playing in any of those areas?
DAVID NELSON: We're in all of them. And look, I don't think you have to sell your large cap secular growth trade right now. I don't think you have to sell your FAANG names. But that's not the risk-on trade right now. There's a place for it. I think you just hit on it. The big run in small caps and smaller companies and pro-cyclical companies started with the announcement in early November from Pfizer on the vaccine. That changed the game. That was a game changer. And the outperformance has been notable in that point as people rotate out of what I would call the old, safe haven trade into something a lot more cyclical and a lot more dependent on the economy.
ALEXIS CHRISTOFOROUS: All right, David Nelson, chief strategist there at Belpointe Asset Management, great to see you. Enjoy your weekend.
DAVID NELSON: Thanks, Alexis. Take care.