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Semiconductors are a ‘stock picker's trade,’ strategist says

Shawn Cruz, senior market strategist at TD Ameritrade, joins Yahoo Finance to discuss the stocks that clients are buying and selling the most and investor sentiment trends.

Video Transcript

[MUSIC PLAYING]

BRIAN CHEUNG: Welcome back to Yahoo Finance Live. July was a good month for the market, but TD Ameritrade's measure of investor activity during July still pointing to a cooldown among retail traders. Joining us now live in person to break down the Investor Movement Index Report is Shawn Cruz, head trading strategist for TD Ameritrade. Good to have you on set.

SHAWN CRUZ: Yeah.

BRIAN CHEUNG: I want to just talk about kind of the big movers. Again, first of all, the index showed that maybe the sentiment was declining, although net buying was still the case. But just wondering, what are some of the names that were getting a lot of attention in the month of July? What are people buying or selling?

SHAWN CRUZ: I thought it was interesting. And it was actually something tracking the overall market, was the semiconductors were sort of holding back the NASDAQ from really being able to get some good traction to the upside. And we actually saw the sentiment on that, today maybe not so much, but generally speaking, we saw the sentiment around semiconductors improve.

And that was one area where we did see some buying interest, specifically focus in AMD and Nvidia. We are seeing that become a little bit more of a stock picker's sort of a trade there, where they're not just going in, and you're just seeing buying generally across all the semiconductors. There's a lot more individual selectivity name to name in there, so shying away from names like Intel, but certainly interested in names like AMD and Nvidia, which sort of have the more high use advanced applications out there in the market.

BRIAN CHEUNG: So we were just showing the numbers overall, the aggregate number in the IMAX report, 4.7. That's down from 8.2-- or sorry, that's down 8.2% from the June score of 5.1. What does that number mean? What does that tell us? Is that a sentiment indicator? What's the decline kind of signal among the investors on the TD platform?

SHAWN CRUZ: And that is an important distinction to make. So the sort of the confusing part to be aware, we see net buying, but it moves lower. And so when we see that number moving lower, although they were net buyers of equity, it means they were going into lower volatility, less risky names out there.

And to me, that shows where there's a little bit of optimism starting to turn in the market. You saw that with the VIX index moving lower as well. Shows some of that fear and uncertainty is getting pulled out as we made our way through earnings season.

It shows they're going back in and they are net buyers, but they're not going out there and buying the very frothy names that the whatever as a service is sort of in vogue that month. They're not going out there, buying those names or names that may be profitable three years from now. They're going back, and they're buying some of those more core names that they actually see as maybe an interesting-- almost a value play relative to historical valuations.

BRIAN CHEUNG: So when we talk about companies that people sold, then, what was interesting to me, Twitter popping up this month. Obviously, a lot of headlines swirling around that particular company with Elon Musk trying to get involved. I mean, is that a meme play? Do you feel like there are elements in this report that you saw of meme traders kind of getting back active? I mean, people might be looking at the meme stocks today, which we'll discuss later, and saying, are we back in January, February of 2021 again?

SHAWN CRUZ: I think one thing where that was a feature of last month was that you had earnings coming out. So you can get away from sort of the stories and anchor back to the fundamentals. And I think if you looked at some of the news we heard, and it was a little bit mixed out there in the social media ad supported space where they're looking at that ad revenue, which, to me, boils down to willingness to spend from these corporate marketing budgets.

They're being a little bit more selective out there. And I think you saw that certainly with Snap. They got hit pretty hard. It weighed on Google. It weighed on Meta, at least, to begin with. So I think the re-anchoring to some sort of fundamental valuation, investors didn't really like what they heard from Twitter. And that's still always an evolving sort of a story as the ebb and flow of the steady weekly leak of information of the latest turn in that trial that is going to be ongoing. We got more out over the weekend on that.

It certainly made Twitter a lot more volatile. And so I think, by and large, clients are maybe going to the sidelines, getting out of that name, and maybe trying to get a better read for how this could potentially play out. Keep in mind, if this deal still goes through, albeit at a lower price, maybe not that $54 level, but if it goes through at 44, 45--

BRIAN CHEUNG: That's-- you're getting the upside from where it is right now.

SHAWN CRUZ: That is-- yeah. If it goes through, I think it's-- the market, at least right now, has the most probable outcome, not to the deal going through at 54, not to it completely falling apart--

BRIAN CHEUNG: Something in the middle.

SHAWN CRUZ: Yeah, we're going right in the middle. Maybe they're going to agree. All right, 45, 46. I think that is where the market's telling you. So I do think some clients who are maybe looking for a big pop on the deal-- hey, you know what? We figured it out. The bot situation isn't nearly as big of an issue as we thought, going to go off closer to that price. I think that maybe is getting pulled off the table, and you're having some of those stockholders who were maybe banking on that just deciding to shed that name and look elsewhere.

BRIAN CHEUNG: So, broadly speaking, we've seen a nice rebound in July, but again, your report shows that people are still kind of on the fence about how aggressive they want to be in buying here. Do you worry? I've had some people say beware of this bear market rally, that people get burned because you think it's on the way up, and then you end up falling another 20%.

SHAWN CRUZ: And I think that is what's going on right now. And if you look at analysts across the Street, they're still saying, look, we don't think the reality of what's happening on the ground for a lot of these companies is appropriately reflected. There's still a lot of uncertainty around what's going to play out for the remainder of the year.

I think this week, the inflation data we're going to get, the CPI and the PPI, you're going to want to look at the difference between that to see if companies-- the PPI moves higher, but CPI doesn't. That's going to hurt profitability prospects. It's going to signal that, hey, they don't have as much pricing power over the consumer as we suspected. So a low CPI number might at first blush look good.

But if that is followed by a high PPI number, as a shareholder, you might not like that. And I think that is the one thing investors are dipping back into the market. We've at least gotten a little bit of stability, some sort of a short-term bottom. But I think right now, they're dipping their toe and taking small bites, but they're by no means sold on, let's get back in this thing en masse.

BRIAN CHEUNG: Well, luckily, they won't have to wait long to get that data. Wednesday, CPI, and then I believe PPI on Thursday as well. TD Ameritrade head trading strategist Shawn Cruz, thanks so much for stopping by.

SHAWN CRUZ: Thank you.

BRIAN CHEUNG: Stop by again soon.