'We’re beginning to see that investors have a much broader appetite for stocks': Strategist

Chief Investment Strategist at Oppenheimer John Stoltzfus joined Yahoo Finance to break down his thoughts on the broader market action and he expects for the remainder of 2020.

Video Transcript

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SEANA SMITH: Stocks pushing higher here. We're seeing the momentum pick up. With just around 20 minutes to go in the trading day, the Dow now up 231 points, the S&P up about a half of a percent, and the NASDAQ up about 3/10 of a percent. We want to bring in John Stoltzfus. He's the chief investment strategist at Oppenheimer. And John, great to see you again. Let's just take a look at the broader market action that we have been seeing in this steady move higher over the last several trading days. Big tech once again today among the leaders there. Is this a trend that you expect to continue?

JOHN STOLTZFUS: We do expect the market to grind higher at this point. It doesn't look like we are about to see a market that's going to take off dramatically higher. But we do think that we'll see the market go from day to day trading off, on some days, value, other days, growth. If anything, what it is proof to us is that we're beginning to see that investors have a much broader appetite for stocks than they have shown thus far.

And essentially, we think this has to do with the capitulation by many people who have had money on the sidelines, recognizing that interest rates are not likely to rise extremely higher from where they are right now. We do think interest rates move higher. We run into some kinds of difficulty with these supply chains that are still disrupted. But we don't think we're running into a high inflationary environment. And we think most investors are getting the sense that, at least for the next year to the next 18 months, we are liable to be in an environment that is more favorable for stocks than for bonds.

EMILY MCCORMICK: And John, I want to ask a little bit about the approach that you discussed in one of your recent notes, that barbell approach to investing, kind of keeping some money on the table here for both those growth and those cyclical and value stocks. And I'm wondering, just as we see this recovery continue to play out, where do you think leadership is going to end up shaping up maybe at the end of this year. And when is the cyclical rotation maybe going to lose some of that steam that we've seen?

JOHN STOLTZFUS: Well, we can't help but think that technology remains the centerpiece for investors. After last year, where we saw the NASDAQ up over 40 some percent, compared to the S&P 500 last year, up around 16%, are our thoughts are really that where we are this year is we're seeing technology, at least at the start of this year, taking a backseat, allowing value to become the star right now. But we think by the end of the year, we'll likely see technology and consumer discretionary in the leadership with sectors like industrials, materials, and financials, the more value oriented sectors, likely trailing, but at the same time, within the leadership in terms of the 11 sectors of the S&P 500.

SEANA SMITH: John, you mentioned before that you weren't too worried about higher yields and higher inflation because the market seems to be shrugging off any concern or about the size and the cost of President Biden's infrastructure plan and what that could mean for inflation. But it sounds like that you think the market is reacting correctly.

JOHN STOLTZFUS: Yeah, we do. The thing about it is, is, when we consider what's going on is technology and globalization, neither of which is going to disappear, even if globalization becomes a regionalization, but is more of a global economic recovery, really, we'll see increased competition as supply chains come back online.

And we will see an economic recovery that, at its best, likely looks like the type of growth when normalized, OK, to the type of growth that we saw leading up to the pandemic and the pre-pandemic period, where you get growth of 2 and 1/2%, 3% a quarter is about the best you can expect. This is a highly competitive environment for corporations, for private businesses, for the labor pool, as well as for commodity producers, once you get production back online in a pre-pandemic level. And we think that's going to happen.

EMILY MCCORMICK: And John, a quote stood out to me in one of your recent notes, and that was that the challenge in the second quarter will be to keep the mix of positive factors that overwhelm the negative factors on the economic, social, and corporate landscape in the months ahead. What do you see as being those big negative factors investors should be watching that could derail this momentum that we've seen in this grind higher in stocks so far this year?

JOHN STOLTZFUS: Well, we would have to think of the variants related to the virus would begin to really have an effect negatively on the reopenings. That could be it. It could also be, if we get a spate of economic data that confuses the market somewhat-- either it could be greater inflation or it could be sharply lower growth-- that could be a problem. Or of course, there's always the risk of the bolt from the blue, you know, the exogenous shock.

But generally speaking, we think the cues that you want to watch for are what happens in first quarter earnings season, which is right around the corner. It begins next week, when the big banks unofficially start the earnings season. I think it's on Tuesday when they start to report.

SEANA SMITH: John, let's talk a little bit more about earnings seasons and your expectations there. Are you expecting another strong quarter here for corporate profits?

JOHN STOLTZFUS: Yes, we are expecting. We're expecting that this year, especially the comps are particularly good this year over last year, of course, for one thing. But we are expecting that corporations are very much prepared to essentially move ahead with guidance in a more positive sentiment this year, as they begin to see what we expect as an economic recovery in the US that will solidify the green shoots of economic recovery that we've seen around the world, particularly in Asia.

SEANA SMITH: John, Stoltzfus always great to speak with you, chief investment strategist with Oppen--