Market Recap: Tuesday, December 29

Stocks dropped Tuesday after hitting fresh record highs earlier in the session, as traders’ hopes for a larger round of direct checks to consumers faded. The S&P 500 and Dow each ended a three-day winning streak. Baird Investment Strategy Analyst Ross Mayfield and Ark Invest Client Portfolio Manager Ren Leggi joined Yahoo Finance Live to discuss.

Video Transcript

SEANA SMITH: Less than two minutes here until the closing bell. We have Ren Leggi. He's the portfolio manager at Ark Invest. We're also joined by Ross Mayfield. He's an investment strategy analyst at Baird. And our very own Jared Blikre joining our Around the Bell conversation. Jared, let me just toss it to you first. We're seeing some selling pressure today in the markets. All three of the major averages in the red here into the close. What's weighing on the broader markets today?

JARED BLIKRE: Well, the official reason might be the failure to get through those direct payments of $2,000 today. The measure was tabled. We'll see what happens. I don't think it's going to go through. I don't think a lot of people, many people think it will. But let's check out the price action for the day because this is really a muted, low volume environment. I know this is a Santa Claus rally, the third official day. We were supposed to see some gains here, but the losses are pretty small. We're talking about the Dow off 55 points here, the NASDAQ off about 40 basis points, and the S&P 500 only off about 2/10 of a percent

Russell notably down 1.8%. It has been the high flyer this month. You check out over the trailing month, it's still up 5%, 6% here. Some nice gains coming back in the fourth quarter. Here's quarter to date for the Russell 2000-- up 30%. But just looking into the NASDAQ 100 components, we can see the mega caps are off today. That's probably a reason we're seeing some weakness in the indices, even though we have other sectors trying to outperform. Health care is up 4/10 of a percent, and discretionary up about 4 basis points here coming into the closing bell. And here it is on Wall Street.

[CLOSING BELL RINGING]

ADAM SHAPIRO: And that's a wrap. We have few sessions left in 2020. But right now, we're waiting for the S&P 500. It will settle down about 7 points. Dow will settle around off about 50 points. NASDAQ will be off about 50 as well. Russell 2000, though-- we've been watching the Russell 200 with the rotation of small cap. It's going to settle off by about 35 points. Then, the sectors-- just want to let you know that consumer discretionary was in the green, as was health care today. Utilities were essentially flat. Everybody else was off today. And one of the big ones that was down-- industrials, information technology-- those sectors off as well. Let's go to our guests, and let's start with Ross.

I wanted to ask you-- you referred to stimulus as a "nice to have, but for Main Street, a must have." Does that mean when we get on the other side of this pandemic, and people are back at work, that we'll see a pullback in the market because those folks won't have the money from the government to juice spending?

ROSS MAYFIELD: No, not necessarily. In the sense that stimulus is a nice to have for the stock market, mostly that I mean, you know, it really isn't a big, you know, juice to the market. The market is able to look forward, look past kind of the next three to four months of vaccine distribution logistics there and any issues that might come from the coronavirus. But for, you know, the people on the ground-- small businesses, people struggling with job loss or hours being cut because of Covid-- you know, this stimulus really provides a bridge.

So for the stock market, which is a forward-looking mechanism and gets pulled by different levers than the real economy, it's a nice to have. Nobody's going to complain about-- you know, particularly retail, retailers and consumer discretionary businesses, people having an extra $600. But for Main Street, it was really a necessity to get through the rest of this pandemic.

SEANA SMITH: Ren, today, we're seeing some selling pressure, but the bullish sentiment out there-- it's tough to argue with. I mean, it seems like every day, we're talking to people who are just getting increasingly bullish. Does this make you hesitant at all given the fact that we're really-- just yesterday, all three of the major averages closed at record highs.

REN LEGGI: No, this creates opportunities for us. We are long-term investors, so when we get, you know, increased volatility, market selloff, sometimes our names are disproportionately punished because of these macro concerns. But that doesn't affect the fundamentals of the companies that we own. So it creates buying opportunities for us. We're focused five years out, minimum, on these disruptive technologies.

So follow up with us on the disruptive technologies because right now it seems like tech might be dangerous or risky for a lot of people as we talk about the rotation to small cap out of tech. Are those people making a mistake?

REN LEGGI: Well, so we're focused on disruptive innovation. That goes beyond the technology sector. We're talking about companies that are technology enabled that are really impacting all industries and sectors. And the pandemic has really accelerated the adoption for these technologies, and we've hit a point of no return, we think, for the five innovation platforms that we're focused on. So DNA sequencing, robotics, energy storage, blockchain, and artificial intelligence are accelerating, and we've experienced exponential growth in these areas. And we think this is a longer-term trend.

SEANA SMITH: Hey Ross, what do you make of the recent moves that we've seen over the last couple of trading days? Do you think it's year-end profit-taking or new thinking from investors? Because we've seen a bit of a rotation in some of these names that have been outperforming throughout 2020 have been under pressure the last couple of days.

ROSS MAYFIELD: Sure. So over the last couple of days, you know, it could be a handful of things. I think moving into 2021, a rotation into cyclical stocks and some of the more beaten-down names probably makes sense, particularly if you have a shorter time horizon. I think that trade will work as the economy reopens, as we kind of get this wave of pent-up demand.

But as you were mentioning earlier, longer term, you know, COVID-19 was really more of an accelerant for some of the the secular trends that we're seeing-- things like e-commerce, you know, certain things like that. So I think there will really be a tailwind on those for longer-term investors. And to your point about longer time horizons, I think you really have to consider that.

ADAM SHAPIRO: But what about the dangers with a weakening dollar, especially as we go into 2021, Ross? I mean, wouldn't investors be a little leery? Forget bonds. Equities might take a bit of a hit because of that, wouldn't they?

ROSS MAYFIELD: Sure. I mean, certain names would take a hit from a weakening dollar. But you know, on the large, particularly for say, the S&P 500, a large cap index, you know, that's global in nature, a weakening dollar-- it could be a boon. And it certainly would be for, you know, emerging markets and international names. So you know, to the extent that we recommend well-diversified global portfolios, you know, a weak dollar, you know, in the near term is not something to be afraid of and could actually end up being a tailwind, you know, considering the way some of these indices are built.

SEANA SMITH: Ren, speaking of emerging markets, are you seeing opportunity there? And if so, how are you identifying those specific opportunities?

REN LEGGI: Yes, we've seen a lot of opportunities. There's two big pockets for innovation. It's really been the US and Asia. So in Asia-- more specifically, China-- we've seen a lot of innovation coming out of China, and that's been an area we've been focusing on a lot more. In fact, we've hired an Asian innovation analyst that is really picking apart that area. And we're seeing opportunities in the EV space, in genomics, fintech. So we're starting to increase our exposure there.

ADAM SHAPIRO: Well, when you talked about, Ren, blockchain, now, a lot of the banks are putting together the use of blockchain. How would, though-- is there a way for me to get in on that as an investor without having to buy a bank stock? Is there another route I could go? Or do I have to buy the financial?

REN LEGGI: So with blockchain, we're really focused on the public blockchain. So that's Bitcoin. That, we think, is as a store of value or almost a neo-gold, and we define it as a new asset class for investors. So we expect investors will start to gain exposure to this new asset class as a store value and start to take the place of gold in investors' portfolios. So the pure, you know, exposure is through Bitcoin, we believe.

SEANA SMITH: Ross, I don't know if you're able to comment at all on cryptocurrencies or Bitcoin, but are you seeing any potential opportunities there?

ROSS MAYFIELD: Sure. So we definitely have conversations about it with our advisors, with some of our younger clients. I think that the way it was just discussed is certainly the case for value that we're seeing, which is a store of value, you know, something that that's scarce, that's insulated from the quote unquote "money printing" or you know control of fiat by governments. And that's base case, or that's the case, investment case that younger investors and next-gen advisors that we talked to really look at it as. And really, what's interesting is as a payment, you know, it's a much more secondary consideration.

ADAM SHAPIRO: Ross, real quick-- there was that article in The Wall Street Journal about margin debt being very high right now. You were just mentioning younger investors, although the article had middle-aged investors in it. Any concern going to 2021 with that statistic, you know, hanging over our head?

ROSS MAYFIELD: Sure. So I mean, it's two things to me, the first being, you know, extended margin debt. A lot of the other sentiment indicators that we look at are running a little hot, flashing some signals of concern. So in the near term, that's not, you know, a cause for a selloff, but it can accelerate, you know, a contraction if something were to spook the markets. So you know, that to me is emblematic of that trend, which we really have been seeing for, you know, four to six to eight weeks now.

On the other side, which is, you know, maybe retail participation in the market, the Robinhood story, which has been one of the big-- one of the big stories of the year-- you know, my take on it is I'm all for the democratization of investing, and that's going to sting people at times who get a little overextended. So it's concerning, you know, a little bit, but nothing to be overly concerned about to me, and maybe more emblematic of just the broader enthusiasm in the markets and investor sentiment running a little hot.

SEANA SMITH: All right, Ross Mayfield, investment strategy analyst at Baird. Great to have you on the show, as well as Ren Leggi, portfolio manager at Ark Invest. Thanks to you both for joining us.