Market Recap: Tuesday, December 7

Stocks jumped on Tuesday to extend gains from earlier this week. Brad McMillan, Commonwealth Financial Network CIO and Ryan Payne, Payne Capital Management President joined Yahoo Finance Live to discuss.

Video Transcript

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- All right. 30 seconds to the closing bell. Helping us decipher today's action after we get the gavel, Brad McMillan, Commonwealth Financial Network, CIO. We also have Ryan Payne, Payne Capital Management. He's president and founder of Payne Capital Management.

We're going to ask him about his call on Bitcoin and crypto bubbles. But right now as we see these markets trading higher, we are in online for the gavel.

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- All right. That is the closing bell this Tuesday, December 7th on the New York Stock Exchange. As we can see, green across the screen here. The NASDAQ handily the outperformer, up about 3% as we settle on today's session. The S&P 500 up about 2%. And the Dow up nearly 500 points or about 1.4% on the day.

Now turning back to our panel, joining us now to discuss the market action. And Ryan, I want to start with you. You wrote in a note earlier today that the stock market looks ready to move higher. What makes you think that?

- Yeah. I actually said, dude, it's a bull market. Relax. I think the bottom line is, look, and we did have a bit of a M off after we saw Black Friday, and we just had that, I guess, one of the bigger corrections we've seen all year.

But what we've seen here is the cavalry comes in and buys every single dip. We haven't had a real significant selloff in the market all year. And I think it just comes down to very simple economics. The world right now is awash in cash.

People have money to spend. Wages are going up. Demand is huge. And look, people have like $1.7 trillion more today than they did before the pandemic.

And that's going to get spent over the course of the next year or two years. And if you look at the profit outlooks for stocks, they look very good. Money has to go somewhere.

We've got inflation. So money's just going to continue to funnel in this market. My thoughts are we're going to see a melt up at some point.

- Brad, picking up on what we just heard from Ryan, are we seeing that melt up now regardless of what the Fed may throw at us next week?

- I think it's a little early to call it a melt up. I would call this a Santa Claus rally. We often see this.

I agree with a lot of the points that were just made. There's a lot of money still out there. But what's interesting, though, is we're seeing the Santa Claus rally, but at the same time, a lot of that money is in the higher income people's savings accounts, and they're not necessarily going to spend it.

So I think we're seeing a good time here, but I'm a little more cautious about next year. I think we want to enjoy this while we have it, but I'm not sure it'll last too far into next year.

- And Brad, following up on that, just really quickly, one of the things that market pundits had been saying was that perhaps we were a little bit oversold when we had that decline after the discovery of the Omicron variant around Thanksgiving. Are we perhaps a little bit overbought here now with this pretty significant rally we've had the past two days?

- I think that's a real possibility. The market is struggling to figure out what the Omicron variant means, what the wave means. And we saw improvement in the pandemic data over Thanksgiving, but that's all it was, was Thanksgiving. So what we're going to be seeing is we're going to be seeing-- we've gone from the world is coming to an end to this doesn't matter at all.

The truth is somewhere in the middle. And I think we've gotten a little bit ahead of ourselves here.

- Ryan, as investors look for opportunity, I know that you've brought to attention your clients. We got the contract with the striking John Deere workers not too long ago. But you also want them to pay attention to the fact that for the first time single-family housing stocks are going to top $1 million. Where do you play that?

- I think the housing stocks here are dirt cheap. If you look at any of the major home builders, whether it's Toll Brothers, D.H. Horton, they all look very, very cheap and the demographics look very good. Right?

It's not like the housing bubble back in '08, '09 where we had an oversupply of houses. We're in a situation now where we have Millennials, the biggest cohort, we have like 80 million Millennials in America, they're all in the family formation stage. They waited a little bit longer.

It's like the baby boomers when they were in the 80s and they were starting their families. So basically, you're going to have a lot of household formation. You're going to have a demand for houses. And we've been undersupplied for like a decade.

So it's going to take a long time to work that out. So the home builders, they trade for single digit multiples. They're very cheap. Dividends are attractive.

So I think at this point that's the way to play it. And it's a great cheap way, especially with a lot of overvaluation in the market in other places.

- And Brad, speaking of valuations, you mentioned that next year will be a battle between multiples and earnings growth. How do you see that battle playing out?

- What we have here is we have the multiples. They're much higher than history. They've been running between 20 and 22 times. We've actually seen that start to reverse a little bit to the lower end of that range.

And so the question is, are interest rates going to go up and pull them down even further? I think we are going to see some of that. But we're also going to continue to see faster earnings growth.

So I think that's going to constrain the market as a whole. I don't think we're going to get the melt up. Because I think that's going to be a battle of the valuations coming down. Earnings are still going up. But we're not going to see the kind of growth that the earnings growth would imply.

- Brad, I just want to follow up on something you just said before I get to Ryan on his Bitcoin call. But regarding that, if the E is still going up, isn't that going to carry us forward regardless of the multiples?

- Well, it depends. If, for example, the multiples go from 20 to 18, that would nominally imply stocks going down by about 10%. But if earnings go up by 10%, we'll be about even. But earnings are probably going to go up more than that.

So we can see gains, but a lot of those gains on the E line are going to be offset by lower multiples. People aren't going to be willing to pay as much for those higher earnings.

- And speaking of earnings, we just got earnings results from Stitch Fix crossing the wire. And we have Yahoo Finance's Ines Ferre standing by with those results. Ines, what are the details?

INES FERRE: Well, it's a beat on the top and the bottom line, but guidance coming in short of what the Street is expecting. That's why you're seeing the stock down in after hours, with first quarter net revenue coming in at $581.2 million. That was a beat.

Also, it's the loss per share. That came in at $0.02 And the Street was expecting a loss per share of $0.13. Meanwhile, its net revenue though for the second quarter, that forecast coming in anywhere between $505 million to $520 million.

The Street was expecting that to come in at $585.5 million. Right now shares are down in after hours about 18%, and year-to-date the stock has not performed well. It's down 57% year-to-date. Emily.

- All right. Thank you, Yahoo Finance's Ines Ferre. And turning back Ryan to you, I also want to ask just about the stream of economic data that we've been getting recently. Of course, we did just get the November jobs report coming in. A bit mixed, but in terms of the labor force participation rate, that did come in a little bit stronger than had been expected. How are you assessing all of this data that we're receiving at this point and where do you see us going as we head into next year?

- Yeah. One word. Awesome. Look, unemployment's down to 4.2%. Wages are going higher.

The only reason that we didn't see even more hiring is it's hard to find people that are skilled labor for specific jobs. And the labor market is going to run hot for a long time. We got the JOLTS report this week. We've got like 10 million job openings.

There's only like 5 million people in unemployment, which means to me unemployment is going to be-- the biggest problem here is we're not going to have workers, which means wages have to keep going up, which means inflation is real. It's going to continue, which means you have to get invested.

You Can't sit in cash. And my argument again for that melt up is money's got to find a home. Money's got to get a return somewhere. Because if inflation is over 6%, maybe even 6.5% on Friday for November, you've got to get a return on your money because you're losing sitting in cash right now. And I think that's the big story right now.

- Ryan, I want to follow up on something. Last week on Yahoo Finance you put your neck out on the line regarding Bitcoin, and you said, you called it the biggest bubble. It's going to be painful, I think were your words-- and I'm paraphrasing-- when it bursts.

We just had guests on, Dan Roberts, who said, "No, not so much." what do you see that the rest of us don't?

- Well I like the painful, P-A-Y-N-E, no pun intended, Adam. Look, I think the bottom line is this. Look, I think it can definitely go higher in the short term. This is indicative of the fact that we literally have central banks around the world that have printed so much money, trillions of dollars, and it's just a big casino.

There is no commercial use or very little commercial use for Bitcoin. The size gets bigger in terms of the people participating, but it's just more people gambling. And this argument of this scarcity argument, you can create as many digital coins as you want. It's not impossible to do that.

There's only so much real gold in the world. There's only so much oil in the world. Real commodities.

So I think the bottom line is, look, it's not a good store value of money. It doesn't have a commercial use. And the more it becomes pervasive in society, and we saw this during the real estate bubble, we saw this during the dot com bubble, and, look, the internet stayed around. The internet's still here.

It's a great innovation. But literally most of those tech companies became worthless. Amazon went down 80%, 90% when the tech bubble burst. So I think it's just the same thing here. It's just common sense.

There's no real intrinsic value, and eventually the party's going to stop. This kind of speculation is as old as the hills. We've seen it over and over again, and we'll see it again.

- And Brad, I want to pick up on that topic with you as well because of course, we did have the slide of Bitcoin prices over the weekend. We're back above 50,000 today. How are you thinking about Bitcoin and how investors should be thinking about where that might fit into their portfolio?

- I don't think it's an investment asset. I think it is a security asset. I think it's a lottery ticket. I think it is a kind of insurance against the financial system melting down.

None of that makes it an investment. I actually think gold is a good comparison, because it only has value because people want it. But that value is real under certain circumstances. So investment, no. Something as part of your portfolio, maybe as insurance, but not an investment.

- They don't need lotto tickets.

- I'm going to give you the last word, Ryan. One side of this panel has $130 billion assets under management. Ryan, I'm not discrediting you. You're young with $1 billion assets under management. But you're putting your neck out there.

- I mean, look, I think this is a very obvious trend here is the bottom line. Someone has to be the voice of reason here Adam, in a crazy world. And look, you know a tulip could buy a whole house in the 1600's. And we know today a tulip's worth like $1.00.

So I think You've got look at things economically, what are sound and what are not. And I think Bitcoin here is just one of the greatest speculations of our lifetime. Enjoy it. But that bubble is going to burst.

- All right. Brad McMillan is Commonwealth Financial Network CIO. It's always good to have you here. Ryan Payne, Payne Capital Management's president. Want to get both of you back. Thank you so much for being here.