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Tech sector has a ‘fair amount of opportunity left’ for investors: Strategist

Chris Konstantinos, RiverFront Chief Investment Strategist, joins Yahoo Finance’s Alexis Christoforous and Kristin Myers to discuss the market outlook and higher than expected jobless claims.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to stick with the markets now and bring in Chris Konstantinos. He is chief investment strategist at RiverFront. So Chris, we just closed out the market's best month, at least for the S&P 500, since November. And we've got the S&P now above 4,000 for the first time ever. It looks like we're kicking off the second quarter on a pretty nice note. Where do you see the leadership for this market this quarter? And are things going to change at all?

CHRIS KONSTANTINOS: Thanks. Yeah, thanks for having me. Thanks. That's a great question. What's interesting I think about what's happening right now-- and Jared pointed it out a few minutes earlier-- is that on a day like today when, again, historic day with the S&P 3,000 or 4,000, it's actually not being led as much by the cyclical and deep value plays that were really the highlight of Q1. It's being led by more of a mixture of companies, and particularly, some things happening in the more growth-oriented names. You mentioned tech and semiconductors.

And I think this might be a little bit of a harbinger of things to come, when I think Q2 is going to be driven more by corporate earnings and a little bit less by some sort of positive mean reversion in valuation multiples off deep cyclicals. So what we're recommending is a barbell of secular growth stories and some value and cyclical plays, but not going whole hog into the cyclicality because we think a big part of that move has already happened.

KRISTIN MYERS: All right, so Chris, as you're talking about this, of course, I want to ask what the tech story is going to be in 2021 for the rest of the year and perhaps even into 2022.

CHRIS KONSTANTINOS: Sure. Well, you know, and this is like a theme that we've talked about a bunch in the past, and I still think it has legs. The theme here is that you have a lot of some of the more esoteric parts of tech and some of the, quote unquote, "COVID plays" that have been bid to the moon. And some of the valuations on those types of companies look speculative to us.

However, you have a bunch of other mega cap tech companies that are really, really solid companies, a little less sexy, if you will, but generate tremendous free cash flow. And in some cases, actually also generate strong earnings growth potential and dividend growth potential as well. These types of things aren't as exciting for investors, but they're just great cash flow generators.

And many of these companies, which are household names, still traded what we believe to be relatively reasonable valuations, especially because they haven't gone anywhere, really, in the last quarter or two, as these, quote unquote, "long duration" plays have fallen out of favor. So we still think there's a fair amount of opportunities left in the tech space, but it's probably the less sexy-- you know, think about software and services types of companies, versus the high flyers that dominated really since the summer of last year.

ALEXIS CHRISTOFOROUS: I want to get your thoughts on the jobs report, the monthly jobs report out tomorrow. Today, of course, we got the unemployment benefit numbers coming in a little stronger than expected, 719,000 Americans applying for first-time benefits. I guess, the good news there, though, is that continuing claims actually declined, as did the total receiving benefits through all government programs. So that, at least, is something encouraging. What do you expect from that jobs number tomorrow? And what is it going to take for this market to react in a big way to that report, whether it comes in a lot stronger or a lot weaker than expected?

CHRIS KONSTANTINOS: Yeah, I'm really glad you brought up jobs because I think this is one of the really important fulcrums for the market because it's one of the really important fulcrums for the Fed. And what I think today's data highlights and tomorrow's data is probably going to do as well, is that the jobs market is still highly dislocated. And this is something that Jay Powell has talked a bunch about. If you look at his recent communications with the press and with the market, he's made statements around the effect that, yes, we have a 6% unemployment, but it's really closer to 10%, because a lot of folks have permanently dropped out of the employment market, which is not a good thing.

So when I see that continuing claims number, yes, that is good news in a sense. But I don't think it's the full picture of what's really happening on the ground. I think the US labor market is still highly, highly dislocated. And somewhat paradoxically, I think this is actually a good thing for stock markets, even though it's a terrible thing for our country and its workers. The reason I think it's paradoxically a good thing for the stock market is because I think it keeps the Fed accommodative for longer.

And again, all I have to do is go back and look at the statements of the most influential members of the Fed, including Jay Powell. And I think his recent statements corroborate this. So, if you look at jobs, if you look at full employment, we're so far away from reaching full employment in this country, regardless of how you define it, that it's likely we think that the bond market is being overly conservative as it relates to when it thinks tapering and, you know, rate hikes are on the horizon. We think that's a lot further out.

ALEXIS CHRISTOFOROUS: Yeah, and certainly, Fed Chief Powell has said time and time again they're going to wait for full employment before they make any kind of a move. So, thanks so much, Chris Konstantinos of RiverFront, for joining us.