Energy, bank stocks are ‘going to be the trade’ at some point moving forward: expert

Yahoo Finance’s Alexis Christoforous and Brian Sozzi break down today’s market action with Heritage Capital President, Paul Schatz.

Video Transcript

ALEXIS CHRISTOFOROUS: All right. Taking a look now at the markets, let's do that with Paul Schatz of Heritage Capital. Paul, good to have you here this morning. What do you make of the market activity so far these past few days and the bounce back from that big tech sell-off last week?

PAUL SCHATZ: And good morning. Always good to be with you guys. I don't think much of the bounce.

I thought-- I thought we got a little overdone last week, especially in tech. But unless the bulls immediately gain control and really get a run to new highs-- which I'm gonna say is not gonna happen-- I think there's probably one more shoe to drop at least in tech. And that-- it could start today after the Fed. It'd be unlikely, but it could.

But I do see in the next week or so that tech beginning to roll over again to the downside and take out the lows that we've-- we've already seen. So maybe tech could go down another 4% to 6% from here before it tries to grope for a bottom. So-- and here's what's encouraging. It's encouraging that we're seeing a broadening out.

We've talked about it here for several months that while everyone's piling into tech and what I call the Fab Five plus a few stocks, we're now starting to see other sectors, other market capitalizations, other indices raise their levels up, which longer term, it's healthy. It doesn't speak to anything for the next couple days to couple of weeks.

BRIAN SOZZI: Come on, Paul. Apple's not gonna sell off. You see that new pricey Apple Watch from yesterday and the new fitness offering? How much more Apple are you buying today?

PAUL SCHATZ: So, Brian, we-- as I think I mentioned last time I was on, I'm more in the cutting back on Apple and Amazon than I am by adding to it. And I think similar to what I mentioned about tech a couple of seconds ago, I think there's another leg to fall on Apple. I don't want to make a grandiose call just yet and say we just saw a significant peak in Apple last week, but I do think that the risk in Apple is to the downside. And I would sell-- I'll be-- I'll commit treason and say I think continue strategy would be selling rallies in Apple would be better than buying dips right now. Here comes the hate mail.

ALEXIS CHRISTOFOROUS: Yeah. Yeah. All right.

So where-- let's-- we've been talking so much about tech, right? We sound like broken records. Where are you looking outside of tech-- how about that for a question-- for opportunity right now, Paul?

PAUL SCHATZ: Sure. And as I always disclose what I own, we-- we do own-- I still own semiconductors. I've owned them-- it's gotta be a year and a half, two, two and a half years.

That's a core holding of mine. So I'm not gonna say that we own zero tech, but I have a smaller position than-- than I've had in a long time. What do I like? Materials is one of our biggest holdings. I continue to like that.

I don't-- and I'll be-- I don't think this V-recovery thing is gonna play out long term. I think the recovery's gonna stop sometime, end of Q4, Q1 and probably pause. But for now, I do like-- I still like materials, we're still long it.

Precious metals are still another long-term play we've had. I've talked about it here, Sprott and Newmont Mining as being super holdings that you could take advantage of that.

With FedEx's news today, I think those stocks are a little overcooked in the short term. But if you get a pullback into October, I think you can look there. There's a lot of areas that are getting some love.

So we sold biotech a couple of weeks ago, maybe a little more than that. And I owned that for a long time. And it pained me to sell it, but it looked like it was ceding leadership.

And I think there's gonna be a continuation of a roll away from what went parabolic. So all these things that everyone's beat their chests about, I think those are kind of sell the rallies. And you can move into things that don't look so wonderful.

I would not run into the cruise lines. I'm not running into hotels. But there's an area in between those-- in between tech and the ones that were the most hard hit.

And at some point-- right? At some point, energy and banks are gonna get a bid. I'm not in those spaces yet, but I watch him every day, every week, every month because at some point, those are gonna be the trade. And I want-- those are the ones that I want to be a little on the early side on. But I'm not yet.

JARED BLIKRE: Hey, Paul. I hear you on the bank trade here. XLF looks like it's been consolidating and just moving to-- wants to break out in one direction.

But we got the FOMC meeting later today, the big decision. Or maybe it's not gonna be so big. Any expectations there? Do you see anything baked in, maybe expectations too high for a little bit of forward guidance?

PAUL SCHATZ: As critical as I normally am of the Fed-- and we've had this discussion many times before-- I don't think Powell and his minions will go anywhere near controversy given that the election is now, you know, a little under two months away. So we'll have-- we'll get some further clarity on their new plans for inflation to let things run hot. But I don't think they're gonna float any trial balloons. I don't think they're gonna deviate from the plan.

I think this is one of those super boring, not-much-going-on Fed meetings. People will try to pull a couple of words here and there out of Powell's comments. But until we get through the election, I just find it hard to believe-- Powell's a shrewd guy. He's been around the block a few times. He's not gonna upset either apple cart on the left or the right.

ALEXIS CHRISTOFOROUS: Speaking of apple carts, we're gonna talk about Apple with a tech analyst coming up. But I want to thank Paul Schatz, president of Heritage Capital, for joining us this morning. Good to see you, Paul.

PAUL SCHATZ: You guys too. Thanks. Stay well.

ALEXIS CHRISTOFOROUS: All right.