Dow adds 200+ points; Moderna, Tesla shares extend gains

Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down today’s market action with Kevin Nicholson, Riverfront Investment Group Global Fixed Income Co-CIO.

Video Transcript

BRIAN SOZZI: All right, let's bring in Kevin Nicholson, Riverfront Investment Group Global Fixed Income Co-CIO. Kevin, good to-- good to see you this morning. Certainly want to talk about fixed income a bit here.

But first on stocks-- Tesla is not the only one trying to split its stock. Ironically, on the same day, Apple will also split its stock four-for-one. Is this a sign that the market has gotten just simply too hot, where now these tech stocks, these companies have to split? Maybe Amazon could be next.

KEVIN NICHOLSON: I don't think that it's a sign that the market has gotten too hot. What it's a sign of is that prices have just gotten high. And for the average investor, it's going to be more difficult for them to purchase it. So I think that they're just trying to cater to a broader audience by splitting their stock and bringing the prices down to more reasonable levels.

ALEXIS CHRISTOFOROUS: Kevin, what do you make of the action we've been seeing lately in the bond market? And it's directly correlated to what we're seeing in the gold market.

KEVIN NICHOLSON: Yeah, the bond market has been interesting, because we've been hovering close to the lows for the year as far as yields are concerned. And that is really because I think that they're looking for Washington to actually have a deal, get a deal done. And because they have been not negotiating well with one another over the last couple of weeks, we've seen the kind of risk off in the bond market because I think that they're afraid that if we don't get people back to work, we're going to see the economy slow down.

BRIAN SOZZI: Kevin, are you seeing any warning signs in the bond market, just from a stock market perspective? The stock market's on complete autopilot right now.

KEVIN NICHOLSON: Well, I like to look at high-yield CDS and the high-yield credit default swaps market. What you're seeing is spreads are coming down. And the cost to insure is coming down. So that is actually a risk-on indicator for equities.

And so right now, the bond market really isn't showing these signs that we're not-- that this equity rally cannot continue.

BRIAN SOZZI: Kevin, what type of trades are you putting on in the bond market?

KEVIN NICHOLSON: Well, we've been focused more on one to five year corporate bonds, because that's what the Fed was buying in their program, in their bond-buying program. But also when we look at the Treasury market, we have some long duration there. We are on the long end of the curve as far as treasuries are concerned. But overall, we're still underweight fixed income in the portfolios.

ALEXIS CHRISTOFOROUS: I would love your take on what you're doing with the muni market right now, because we know the Federal Reserve just came out and said they want to lower rates on those short-term emergency loans for municipalities. Are muni markets something that should be part of one's bond market portfolio right now?

KEVIN NICHOLSON: I think that munis always have a place in a client's portfolio, especially if you are in a high-tax state especially. For us, right now, we don't own any munis in our portfolio. But that's not to say that we wouldn't look at them if the right yields were in play to put in the portfolio.

BRIAN SOZZI: How are you playing the presidential election, specifically the Biden-Harris ticket? Is there a way an investor can play that through the bond market, perhaps through the infrastructure side?

KEVIN NICHOLSON: Yeah, I mean, when we look at infrastructure, we're going to put it in an ETF as far as that's concerned. Because if you think about what's gone on with infrastructure, both parties has wanted to have infrastructure bills over the last couple of years. But nothing has really taken hold, because it takes such a long lead time to get infrastructure in place.

And so even if the Biden ticket wins and they go down the infrastructure road, it's going to be a year or two before you really see any results. So that hasn't been a primary focus in our portfolios.

ALEXIS CHRISTOFOROUS: Kevin, when you read the tea leaves there in the bond market, what are bond investors telling you about the hopes for another stimulus package? Because it looks like equity investors feel pretty confident about it, even though there's still the stalemate in Washington.

KEVIN NICHOLSON: Well, today, the bond market will-- it looks like it's telling us that we will get a stimulus deal done. Because you notice that when we were-- not when they said that we weren't going to have a stimulus deal a week ago, that they were on hold and it was delayed, the bond market kind of rallied. And we got closer to 50 basis points on the 10-year in that risk-off mode.

But now today, you look at the bond market, and we're up close to 65, 66 basis points. So I think that the bond market is starting to say that they're going to get a deal done eventually. We're going to get the two sides back to the table and, ultimately, get something done and help these folks that are unemployed right now.

BRIAN SOZZI: Kevin, we're alm-- the year, believe or not, is almost done. And certainly a lot of people would be just OK with that, given the 2020 that we've had. Have you had a moment to reflect on how far we've come in this market? This has to have surprised you in terms of where the bond market has gone, where the stock market has gone. It's been a real fascinating year.

KEVIN NICHOLSON: Yeah, it definitely has. When we started out the year, I expected the 10-year to be well-- for yields to rise in the bond market. We started around, I think it was like 190 on the 10-year. And now we're sitting here at 67 basis points. So I was very shocked by that.

From the equity side of things, I expected the year-- going into the year that we were going to finish the year around 3,400. And obviously, when we had the selloff in March, that-- I thought that we would still come back to these old highs. But I didn't think that we were going to do it as fast as we've done it.

However, we still have a lot of uncertainty around COVID and getting people back to work, as well as the uncertainty around the election. So I think that we're going to continue to see some volatility. But I think that the market can grind higher here, especially because there's a difference between the economy and the market. And the market is forward-looking, and the economy is backwards-looking.

BRIAN SOZZI: It's been a heck of a year, indeed. Let's leave it there for now. Kevin Nicholson, Riverfront Investment Group Global Fixed Income Co-CIO, good to see you.

KEVIN NICHOLSON: Thanks for having me.