We’ve been in a ‘reopening vs. stay-at-home’ environment: Analyst

Dave Mazza, Direxion Managing Director, Head of Product joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

ZACK GUZMAN: Good to be chatting here today I mean, when we look at it as Emily was kind of walking it through expectations for the jobs report tomorrow, I mean, how important do you think that's going to be for the market specifically here, just given kind of how we have risen over the last few weeks despite the weaker data?

DAVE MAZZA: Well, historically, the jobs report is always one of the most important indicators for both the interest setting, the path of interest rates, and of course, the equity markets. More recently, inflation numbers have played an increasing importance because really what the Federal Reserve is trying to do is weigh just the pace of economic recovery and identify what exactly is so-called transitory. What I think is interesting here is that the setup for equities especially is a unique one because markets have continued to rise and continue to show a lot of resiliency in the face of some waning economic data.

You mentioned real-time indicators like the TSA throughput coming in below-- a little bit lighter. We also see OpenTable data showing a deceleration in folks being comfortable going out to eat. So all of that is not necessarily a great sign but markets continue to do well because we're in an environment where some of this bad news is actually good news from the market perspective.

AKIKO FUJITA: Dave, I wonder how you're looking at the tech space right now. We had a conversation with Jefferies analyst Brent Thill earlier today. Where he said the growth story is sort of taking shape yet again. Some would argue because it's been a bit of a safe haven play because concerns or because of the uncertainty moving ahead but you know, what we've also heard is that higher rates aren't necessarily good for these growth companies. So what do you see behind the gains that we've seen in the big tech names like a Netflix, like an Apple, and how are you playing the space?

DAVE MAZZA: Yeah, it's interesting, right? So growth historically, especially tech was more cyclical but in 2020, especially when COVID first hit, they became very defensive because that was really the only area where there is what I'd call some, [? a surety ?] of where growth would be because people were spending money on streaming, spending money on subscription services and things of that nature. We have actually been overweight tech for some time even through the [INAUDIBLE] we saw toward value. It's still an area that provides some opportunity.

More recently, I have been looking at some smaller, more disruptive type companies in the tech space. Generally, those are in areas like cyber security, cloud technologies, some things of that nature. Because many people are already overweight some of the large mega-cap growth names. They continue to the surprise to the upside, look at Apple yesterday, Netflix today, there's opportunities which continue to come to bear there. But I do think it makes some sense for investors who want to stick with growth to maybe go down in the cap spectrum, look at mid-caps, look at small-caps especially.

ZACK GUZMAN: Yeah, on the more I guess, innovative front, it was interesting to see you lean into hydrogen power as maybe some of the things we could see here. Obviously, there's a lot of investors kind of trying to chase that next wave of technology here maybe outside the likes of the mega tech players. But I mean, maybe tell me more about the opportunity there or some of the more fringe opportunities you're chasing here?

DAVE MAZZA: Yeah, so hydrogen is a really interesting opportunity. We know some of the stocks in the hydrogen space, your Plug Powers, your Blooms, your Ballards, had a really unbelievable 2020 and they've sold off a lot in 2021. In fact, some of them have seen they're down 40%, 50%. Which is why I increasingly think hydrogen is an interesting opportunity.

We recently launched an ETF, the Direxion Hydrogen ETF in that space to give exposure to 30 stocks at the forefront of the hydrogen revolution. Why I think it's apparent, what's really interesting for investors to look at today is one, they're not as potentially overvalued as they were from a multiple perspective. And two, if we look at the likelihood of the infrastructure package that's likely going to be passed, hydrogen is actually going to play a big part in that.

It's an area that, of course, hydrogen is the most abundant element in the world and folks are familiar with it but the really usage of it can range from everything from powering cars to trucks, to actually factories and homes. So it's a very versatile energy source and it's increasingly getting greener, which is going to be really important going forward as we think about the fact that we're still a very carbon-intensive world. So for both investors focused on sustainability and for those focused on growth, hydrogen stocks are a nice intersection of the two.

AKIKO FUJITA: What about some of the other plays in the renewable space? We've talked a lot about solar and this push to bring manufacturing back. Is that something that you like when you think about ESG as a whole?

DAVE MAZZA: Yeah, exactly. So for me, the areas that I'm most focused on from an ESG perspective is again, on that kind of clean energy side. I think hydrogen is a paramount example of that but you can go down the line. So solar stocks, of course, have taken a bit of a backseat as investors rotated toward some of the larger energy names. Frankly, because they were just so beaten down, so out of favor. And took that risk, especially as oil prices began to recover, which is really a good thing from an economic perspective.

But again, for investors focused on sustainability, there's a lot of opportunities for them to do that. So solar, wind, hydrogen, all fit into that perspective. And it's an area that we're beginning to see a bit of a recovery again, in most of the space because they were so beaten down. Probably ran up too much in 2020 as questions about just what the size of the infrastructure package would be when it would come through. And now we're seeing a bit of a resetting there and I think an opportunity for further growth going forward.

ZACK GUZMAN: And lastly, just kind of this debate between the stay at home trade and the work from home trade, your notes were kind of digging into Peloton and Zoom. We saw Zoom get hit pretty hard off their earnings and a lot of questions about going back to the office and getting back to normal. I mean, how do you see that trade may be faring up here as we kind of move through the next chapters on the Delta front?

DAVE MAZZA: Yeah, I think you know, we've been in an environment where it's either been reopening versus stay at home. I'm thinking a bit broader about where really is that disruption and innovation happening? So for me, it's this idea less of the stay at home, reflation, et cetera. It's more work from home or the fact that we can work remotely or work anywhere.

We know the Delta variant has pushed back return to office plans for many companies. But at the same time, other companies are really reevaluating what their working model is actually going to be. So certainly, Zoom shares took a pretty big hit after their earnings. But if you read through the report, they're showing a lot of resiliency at the enterprise level. Meaning, larger and larger companies are comfortable using Zoom's platform, they're getting into phones and things of that nature.

And if you also look at some other stocks, OKTA, Okta actually had a pretty nice upgrade recently and it has performed well. They're all kind of part of this idea that investors maybe should be focused less on the push-pull between whether we're all going to stay at home forever, never be comfortable re-entering society, versus it's going to be back to completely back to normal. I don't believe 2021, 2022 is back to what it was in 2019 because the world has now evolved kind of under our feet here and we've got to look for some of the stocks that cut through the noise and see where those opportunities are.