Market Recap: Thursday, January 28

Stocks rose, shaking off the prior day’s steep declines after new economic data showed a bigger dip in new unemployment claims than expected.
Each of the S&P 500, Dow and Nasdaq gained more than 1% intraday on Thursday after logging their biggest drops since October on Wednesday. The Dow outperformed with a jump of more than 600 point, or 2%, led by shares of Walt Disney and Intel. Oppenheimer Chief Investment Strategist John Stoltzfus and LPL Financial’s Jeff Buchbinder joined Yahoo Finance Live to break down the details.

Video Transcript

[BELL RINGING]

ADAM SHAPIRO: All right, cue the exit music. We've got a closing bell in the green. Here's where we're going to probably wind up settling. The S&P 500 is going to be up about 37 points, Dow is going to settle up about 308 points, and the NASDAQ is going to be up about 66 point. Some of the sectors that were really strong today, as you heard earlier, industrials-- that sector up about 1.7%; financials up about 2%.

And then among the Dow components, some of the big winners today include Merck and Company, also had Home Depot up-- Home Depot was up 1.4%. Proctor & Gamble-- do they make Crest, I love my Crest-- up about 1.7%. Let's go back to the guests to break this part down. And I believe that we've got John's audio fixed. John, we are in the green. I heard Jeff say that the fundamentals are looking good, but I had a question about this. When we get these big volatile swings like we had the loss yesterday and then the upswing today, is that a sign that we're at the top of this market, that we're about burned out?

JOHN STOLTZFUS: I don't think so. I think what we're looking at is we've got pockets around the market that are decidedly showing signs of bubbliciousness, so to speak. Whether that comes from what we saw yesterday that was really in a sideshow of the markets related to those shorted stocks that were driven up higher by individual investors. The other side of it would be on a fundamental basis, what we are seeing is an economy that is positioning itself for a recovery process, and that means your core equities are likely to have opportunity to move higher. The valuation might be stretched in terms of a more conventional period.

But right now with the Fed essentially magnanimously providing liquidity and fiscal policy, coming to the rescue at least one more time to help small businesses and individuals, we would say that valuations are probably reflecting the current environment and a need for investors who have intermediate to long-term goals to invest in stories that are fundamentally sound.

SEANA SMITH: But John, what do you make of the action, though, that we've seen in GameStop, AMC, some of those other heavily shorted names? Does this type of action were you at all?

JOHN STOLTZFUS: It actually would worry me if it were to become a systemic problem, OK. The fact related to GameStop, for instance, that was a stock that was for a considerable period of time-- my recollection, and I don't follow GameStop, I have not been invested in it-- but my recollection is in some ways, it's position in its marketplace on Main Street, so to speak, is I understand is tantamount to where the old Blockbuster was. It's more of a come in to the store or you order software instead of streaming your access to your programming. And I believe that there are all kinds of arguments around the stock itself.

But what happened is you had a group of people, a fairly large group of people, that drove the stock price up because they noticed the short that the hedge funds had and they took advantage of it. That's speculation, that's different from investments that people make in large mids and small cap stocks that have fundamental value.

ADAM SHAPIRO: Hey, Jeff, something that caught my eye, Dow component Disney closed up what, almost 5% today. And then you've pointed out that strong economic growth this year is going to fuel sharp acceleration in corporate profits. Disney I get-- pent-up demand, get the kids to Disney World. What about the more traditional non-leisure types of businesses, what's going to drive their profits?

JEFF BUCHBINDER: Yeah, those are the types of companies that need that economic tailwind. And we think we're going to get it when the vaccine distribution picks up steam and that J&J vaccine could really be a game-changer there as we get closer to herd immunity. Plus, we still have the stimulus fiscal and monetary behind us, something like 30% of US GDP, that's been brought to bear to get past this crisis with as little damage as possible.

When all that's hitting, we're going to be, we think, really, really rolling in the second half of the year. And that tailwind is going to help drive cyclical value stocks. These are the industrials, the materials, financials, potentially even energy as well.

SEANA SMITH: Hey, John, I want to ask you about foreign policy. You mentioned it in your latest note, it's something we haven't really talked about for a couple of days at least in terms of what the market is anticipating. What do you think investors are expecting to see when it comes to foreign policy and Biden's approach?

JOHN STOLTZFUS: I think the thought is here that President Biden's approach is going to be much more traditional in terms of diplomacy. We must say completely on a politically agnostic basis, the Trump administration's policy was definitely out of the norm in terms of its approach. And we think that what the market is saying, in effect, is it's really a reiteration of the process of globalization while continuing to look for methodologies as how to increase and bring back businesses onto the US shore. So I think the market has shown that it feels remarkably comfortable based on the thought that this is a decidedly different administration from the prior administration.

ADAM SHAPIRO: Any final thoughts from you, Jeff?

JEFF BUCHBINDER: Yeah, we think investors should still be positioned toward equities, overweight equities relative to their targets, as this economy rebounds and gets fully reopened and earning-- potentially, we could see earnings growth in Q4. The earnings season is off to such a good start, we might not have to wait until Q1 to get earnings growth as we had anticipated. So the economy has got some good momentum, earnings are going to pick up, and we think that's going to drive equities. And then we want that cyclical exposure so that you can benefit from that reopening. So that's how we at LPL research are positioned right now.