Markets volatile with earnings, stimulus in focus

Keith Lerner, SunTrust Advisory Chief Market Strategist, joins The First Trade with Alexis Christoforous and Brian Sozzi to discuss what's moving the markets Tuesday following Tuesday's opening bell.

Video Transcript

ALEXIS CHRISTOPHOROUS Tom, good to have you with us. What do you make of the market action so far? Sort of a ho-hum start to the trading day this Tuesday.

TOM ESSAYE: Yes. Good morning, everybody. Thank you for having me back on. Yeah, I think digestion of yesterday's rally. I mean, yesterday was a surprisingly strong day. We got the decent manufacturing data and then, of course, whispers on progress on the stimulus bill. So it was still a pretty good move yesterday. So I think absent any major news this morning, we're just seeing markets kind of digest here at the open.

BRIAN SOZZI: Tom, you wrote in your morning note that the action in the NASDAQ is starting to resemble the late 1990s. We know that ends bad. Do you think it will end bad this time too?

TOM ESSAYE: Yeah, the price action is very similar. The dynamics are a bit different. I mean, these are large companies this time that have real earnings that are frankly making tons and tons and tons of money. Just when we think they can't make any more, they make even more.

So the structure of the companies is different. But at the same time, valuation still matters. Momentum still matters. And the end of the tech rally has been called many, many times over the past couple of years, and it's proven to be wrong. But at the same time, it's still important to point out that, hey, nothing lasts forever. And while this move is strong, just keep that in mind, even as these stocks remain very impressive.

ALEXIS CHRISTOPHOROUS: So given that caveat-- and you've lived through the what we saw in the late '90s and the bubble bursting there-- what are you doing with your tech holdings right now? I mean, are you taking some profits off the table?

TOM ESSAYE: Yes, yes. So I am reducing positions. I wouldn't be eliminating positions because these companies are still fantastic. And that's something that's important for everybody to realize. I mean, look at the earnings from last week from the big four that were reported on Thursday. I mean, nobody thought there were going to beat these crazy expectations, and they did. The whisper numbers were blown away.

So they're still very good companies. But at the same time, there are some interesting values. I think Europe is one area of value that actually has a positive catalyst now. So instead of going potentially into financials, we're redirecting some funds into European ETFs.

BRIAN SOZZI: Tom, can you explain why we have seen this latest push higher in the NASDAQ at the same time as some of the macro data we've been getting has started to get worse?

TOM ESSAYE: Sure, it's sort of a difficult thing to understand. And here's the reason. Investors view these super cap tech companies-- the big four, the big five-- as essentially being, A, the beneficiaries of everything happening with the pandemic and people's changing behaviors, and B, almost immune to the macroeconomic forces hitting the market.

And that's because people are going to need Microsoft. They're going to need to buy stuff on Amazon. They're going to use social media. They're going to continue to buy their phones. So I'm not saying it's the right view. It's become a pretty intense view that these companies are essentially Teflon. No matter what happens in the macroeconomic isn't really going to hurt these big five. But that's why they're rallying despite some breakdown in the macroeconomic fundamentals.

BRIAN SOZZI: Well, Tom, yeah, I'm with you. It's unclear what would take these stocks down. Are the FANG stocks essentially, at this point, this generation's Treasury bond?

TOM ESSAYE: Yeah, that's a very interesting way of putting it. I would say that maybe not at this moment, but if we keep doubling our debt and deficits every couple of years, perhaps they will be viewed as more secure than Treasury bonds. I mean, [AUDIO OUT], so you're just seeing people pile into them. I would just temper the enthusiasm a little bit because these stocks have come a long way.

- But Tom, I've got to ask you about actual Treasury bonds, because we've got the 30-year at about 1.2% right now, five years at 0.2%, and a 10-year down to 53 basis points. Can these go much lower without really having some kind of bond market dislocation that affects other markets?

TOM ESSAYE: I think they can. I think you need to get the 10-year. If the 10-year were to go-- I think if the 10-year breaks 50 basis points for a couple of days on a closing basis, we need to seriously be talking about a negative yield. And I know that people-- the Fed has said, we're not going to go negative. We're not going to go negative.

Well, the Fed doesn't control what the 10-year yield does. It only controls what Fed funds does. And I think that as they move lower-- at some point, does it start to have a market disruption? Yes, it does. Maybe not for those tech stocks we were talking about as much, but for other sectors-- for your industrials, for your financials. For anything that's cyclically oriented, it's just going to be more pressure.

ALEXIS CHRISTOPHOROUS: Tom, what about what we're seeing happening in the bond market and how that's impacting gold? I mean, investors are running after yield that's not there. We've got the weak dollar which is making gold a lot more attractive in other parts of the world. So do you see anything stopping gold as it marches towards that $2,000-an-ounce mark?

TOM ESSAYE: No, frankly, not unless we get some sort of crazy surprise bout of inflation, which I'll never say anything is impossible, but it's as close as we're going to get right now. Or you get some Fed official who all of a sudden speaks hawkishly, which again, that's pretty close to impossible right now too.

Now, does that mean that gold is a no-risk trade? Of course not. Gold's come a long way. Gold can correct and correct violently. I want everybody to know that. But the overall trend in gold is clearly higher because the fundamentals are positive for it. The dollar is trending lower. Real interest rates are going down. That's the time to own gold. And just be aware, though, that it is volatile.

ALEXIS CHRISTOPHOROUS: How do you own gold, or do you own it? And if so, are you in ETFs? Are you in mining companies? Are you in the actual physical gold?

TOM ESSAYE: So I do own it, yes. I own it in virtually every account I have because I think gold is important as a long-term diversifier. I own GLD. I will say unabashedly that I think GLD is the best, easiest, and cheapest way for everybody to own gold. The coins are cool. You get killed on the transaction costs. And buying the mining stocks-- you better be a really good mining stock analyst, because good luck going through those financial statements. So maybe the easiest way to do it is just GLD.

BRIAN SOZZI: Tom, are you a buyer on Ford after the CEO shakeup announced today? Is this the type of announcement where you say, you know what? This guy, Jim Farley, incoming new CEO, he clearly knows what he's doing. Let me go back and re-crunch the numbers. Also, keep in mind, they have some very key model launches coming up over the next 12 months. And so far, they've been well received, at least in terms of reviews.

TOM ESSAYE: Yeah. So I have a bit of a disclosure here. The Ford Bronco was my first car, so I always now am very excited about Ford now that they've come out with the Bronco. But I think that the car industry is changing so much right now that you really have to look towards the technology leaders, personally. Because some time ago, Jamie Dimon said, every tech company-- every company is now a tech company. I think that's true in the auto industry as well.

So you really need to look to the names that are furthest ahead on the technology. I don't believe Ford is it. Perhaps this man can change that. But right now, I don't believe Ford is it.

ALEXIS CHRISTOPHOROUS: So what else do you like in the auto space right now? We were talking earlier with Jared about Nikola and NIO. Certainly risks abound there, but are they a better bet than Ford right now?

TOM ESSAYE: Well, I think there's certainly more upside. There's more of a growth catalyst in there. And I don't see Ford as having that sort of defensive, very sound balance sheet that makes me want to stick money in there. So I would go on the growthier types with it. I mean, I know Tesla is a cult stock. It's very expensive.

But look, EV is the future. We know it. EV is the future. So getting some diversified exposure to those names, which could include Ford, could include GM, could include Toyota, I think, is part of a well-balanced position in the autos. Because autos aren't going away. It's just what makes them run will.