Stocks surge despite another grim jobless claims report

EventShares Chief Investment Officer Ben Phillips joins Yahoo Finance’s Seana Smith to discuss the additional 3.169 million Americans that filed for unemployment last week amid the coronavirus.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance's live market coverage. I'm Seana Smith.

We have a nice rally on our news today with the Dow up 337 points. We are off the highs of the day when the Dow was up just around 430 points. S&P also holding on to gains, up just around 1 and 1/2%.

The NASDAQ was briefly above 9,000. It's since come back just a little bit, three points shy of that right now. Up though, just around 1.6%. The NASDAQ, as it stands right now, is just around flat for the year. All three major averages are on pace for their first weekly gain in just around three weeks.

Now the gains today coming despite that weak jobs number that we got out this morning, and we're talking about 3.1 million Americans filing for unemployment last week. So let's get to more on today's action, and for that we have Ben Phillips, Chief Investment Officer at EventShares.

And, Ben, let's start with this rally that we're seeing in the markets today. It's coming on the heels of this terrible jobless number. This has kind of been the story over the last several weeks. So what do you make of today's move to the upside?

BEN PHILLIPS: Well, you know, I think people are looking at the jobless claims on a weekly basis and see that we peaked, right? We peaked a few weeks ago, and now they're coming down. So I think the worst of the economic damage as far as the near term is behind us. And so the markets are a discounting mechanism. They're looking forward. They're saying, you know what? Let's start to look to the other side of this. But we've still had 33 million since the start of this lockdown seven weeks ago, so it's a huge number.

SEANA SMITH: Yeah, it is a huge number, but it's interesting because investors are able to move past it, look ahead to states reopening their economies. What do you think is the number-one thing investors are focused on at this point?

BEN PHILLIPS: You know, I think it's the reopening. It's how can we reopen safely? How can we do it in an effort to really get people back to work as quickly as possible too? I think that's important. But again, safety first, right?

So I think that's what the market is looking at. You know, I've been watching small-cap stocks as a really good indicator. I think we talked about that last time I was on. So, yeah, there's a lot to be watching here, a lot of moving pieces. But I think the market's saying, you know what? Things are getting a little bit better. The treatment technology and everything we're seeing there on the research side of things looks more encouraging this week too, so I think that's what's getting people excited.

SEANA SMITH: Yeah, Ben, you mentioned small caps. They have been a relative underperformer when you compare it to some of the larger names that we've been seeing really carry this market to the upside. Do you think that's about to change? What do you think-- what's ahead for small caps specifically?

BEN PHILLIPS: Well, you know, small caps are going to be the barometer, I think. I mean, large caps, you look at all the liquidity. You look at people thinking about where's safety? and people are going flight to safety in US equities too. That's globally, right? So they're looking, where can I get equity exposure that is relatively safe? People are saying that's the US still.

So you said the NASDAQ's flat. S&P is down 10% year to date. I mean, with the economic data we're seeing, that's actually pretty phenomenal, I think. And then small caps are in there down 20%. But, you know, those are the barometer, I think, for the US economy, really. They're more US-centric companies. They're less diversified. So it's a real good barometer for the economic health of general business out there.

SEANA SMITH: Hey, Ben, what do you think is ahead for the markets here, at least in the short term? We know that we can expect more volatility, especially as the possibility of the number of deaths significantly climbing here over the next couple of weeks, next couple of months. What do you think the likelihood is that we'll retest those lows that we saw a couple weeks ago?

BEN PHILLIPS: Well, you know, I think consensus has shifted now to where everyone's saying W-shaped recovery, right? So that's everyone's expecting we're going to retest and double dip back down to those lows.

I disagree. You know, I think it may be an upward-sloping W. I do think it's going to be volatile. But for the near term and really through year end, I think we're going to be relatively range-bound here in kind of the 2,700 to 2,950 range and just trading around there based on what we're seeing the economic data.

Now, the Fed is throwing enormous liquidity at the market. I don't want to discount that. But for now, I think there's a lot of unknowns and a lot of uncertainty, especially about 2021 growth, that I think we're going to see just volatility and relatively range bound.

SEANA SMITH: Hey, Ben, one day that we got out today, China exports data. Surprise rise there, up more than 3%. Now economists were looking for a fall of 16%. What's your interpretation of this, and how bullish do you think this is for the US economy?

BEN PHILLIPS: Well, I'm hesitant to really look in just at one month of data. But, you know, I think it is encouraging. I mean, we saw China auto sales were down 80% in February, and we saw US auto sales really not be hit as hard as that. So I think there's a little bit of optimism in that the consumer, especially the US consumer, isn't as badly damaged currently as kind of worst-case scenario. Now, those unemployment numbers we were just talking about, those are going to start creeping into consumer spending. The unemployment benefits are going to run out. The stimulus is going to run out. So the key is we've got to get people back to work and get the economy clicking again.

SEANA SMITH: Trade negotiations, it's interesting. The US Secretary of State Mike Pompeo, today he left the door open for more trade talks with China, something that investors are closely watching. This comes after President Trump said that he would-- he was planning a progress report on the phase-one trade deal between the US and China. How do you think the market is reading this?

BEN PHILLIPS: Well, you know, I think the market got fatigued with the trade stuff just over the past couple years. And, you know, I think people are more focused on the virus, but I'm reading more into it as this is really kind of the continuation of this new Cold War with China. Those are strong words, but I think it's going to be a strong escalation, and I think it's going to be relatively soon. So it's something definitely to keep an eye on.

Right now, the rhetoric has been relatively tame. If you start seeing that heat up, you could see some retaliatory measures and this thing ramp right back up, and all of a sudden we're talking COVID and US-China trade.

SEANA SMITH: Hey, Ben, what do you expect to lead us in this recovery? Is it some of those big-tech names that have been performing relatively well? What are you buying at this point?

BEN PHILLIPS: Well, you know, I'm not one to discount those. I think they're going to continue leading the charge here. It's, again, where that safe money is going. People are thinking that they want to build-- sorry, buy into that momentum.

You know, places we're looking at that still have a lot of interest to us are like infrastructure, for example. Infrastructure, our basket's down 27% year to date, and that's one where we're seeing states spending, and they have to keep spending. And then if we see a federal package, that's just gravy. So we like that.

5G telecom is still really interesting. It's a multi-year buildout. We're going to see some the biggest numbers this year and next year on spending. And those stocks really haven't done as much as you would have expected given that almost certainty that spending's going to increase.

Health care too, its held in relatively well, and then sports betting, you know, is one that's a little contrarian as well as airlines. I mean, airlines, they're getting government support. We think the US consumer comes back and starts traveling again faster than is being priced into those stocks.

SEANA SMITH: And we'll see, I guess, if that turns out to be true. Ben Phillips, EventShares chief investment officer, thanks so much for joining us this afternoon.

BEN PHILLIPS: Thank you.