Market Recap: Wednesday, December 16

Stocks were mixed Wednesday as traders considered lawmakers’ final efforts to get a stimulus package through before year-end, and digested the Federal Open Market Committee’s December monetary policy decision. Stephen Dover, Head of Equities at Franklin Templeton and Greg Staples, DWS Group Head of Fixed Income joined Yahoo Finance Live to break down the details.

Video Transcript

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ADAM SHAPIRO: All right, about 2 minutes to the closing bell. We want to bring you into the stream. Greg Staples, DWS Group, head of fixed income-- also, want to bring in Steve Dover, head of equities at Franklin Templeton. Greg, let me start with you-- that phrase we got from the Federal Reserve where they said the committee is looking for substantial further progress being made toward maximum employment. How do you interpret that? How are markets interpreting that?

GREG STAPLES: Well, I think it was pretty clear. I think he needs to see inflation at the 2% level and some sense that it's going to stay above the 2% level for a substantial period of time. And he needs to see unemployment get down to what he deems to be or what the Fed deems to be full employment somewhere I think below 5%. And he needs to see that persist for a period of time as well.

SEANA SMITH: Assuming we did hear of Fed Chair Jay Powell say that the next four to five to six months are going to be pretty challenging because we don't know what's going to happen with the virus. How are you looking at that as an investor?

GREG STAPLES: Well, I think that we're looking-- I'm sorry, go ahead.

STEPHEN DOVER: Well, I have to say from an equity perspective, we're looking out over the longer period and looking for a recovery in the second quarter of next year and think that it's actually going to be quite positive and that there are a lot of reasons to be quite positive on the equity market.

ADAM SHAPIRO: And they are investors today who seem to agree with that. We're going to go back to Greg and Stephen in just a second. But Jared Blikre, you're watching what's happening in these markets as we get close to that closing bell following the big Powell press conference last of the year. What have you got for us, Jared?

JARED BLIKRE: Well, we got some movement in stocks and bonds today, as we were just talking about markets poised for record highs here in the NASDAQ and the S&P 500. But I'm watching the IPO market because we had the 31st unicorn in the US of the year go public today. That would be ContextLogic. That is the parent company of the better known name brand of Wish. And you can see that didn't have the best opening day here, down 15%.

They were valued at $17 billion on a fully diluted basis when they came to market, but they are trading down today. But it's not the same to deal for all of the IPOs. We had BioAlta-- that too in BioAlta. That's up 70%. Huge pop on the opening day.

We also have Scopus Biopharma. That's up 10.75%. You can see well off its highs. But the IPO market, as we head into the end of the year, still kicking strong here. And finally, we have the closing bell on Wall Street.

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SEANA SMITH: And that does it for us today taking a look at where we close the Dow lower off just around 44 points as we shake out the final trades of the day. The S&P looks like it's going to close just shy of that record, close-- still very, very close to call. NASDAQ, though, closing at a new record. You can see a 63-point gain in the NASDAQ today. Sector action-- technology and consumer discretionary-- leading the way.

This, of course, the market action coming after what we heard from Fed Chair Jay Powell. And from the Fed statement today, the Fed basically saying that they are committed to using a full range of tools, although reiterating the fact that the virus does pose considerable risk to their outlook over the medium term. We want to bring back in our guests, Stephen Dober and Greg Staples. Greg, let me just go to you first. Just in terms of as we see record closes again for the market today at least in terms of the NASDAQ, what is priced in to the market at this point?

GREG STAPLES: In the equity market, I think it's almost perfection. It was interesting hearing one of the last questions that was asked of Powell today, whether it was concerned about financial stability whether that was an issue. And I think he talked around it a little bit, talked about P/Es and such. But I think underneath that, he was emphasizing there.

Perhaps, there's a little bit of concern. He said that the Fed is monitoring it. I think he is concerned, perhaps, about growing irrational exuberance. We're not there yet, but I think it's on his radar screen. And if it continues down this trajectory, it probably will hit a little bit harder on his radar screen.

ADAM SHAPIRO: Stephen, when we talk about the exuberance that investors have right now, whether it be irrational or irrational, as you ask, what could go wrong. So what could go wrong?

STEPHEN DOVER: Well, of course, the first thing that could go wrong-- and there's a saying that it isn't vaccines that save lives. It's vaccinations. So if the vaccinations don't roll out as perceived, that could certainly go wrong. There's a likelihood or a possibility of a Democratic victory in the Georgia elections. That could be a case.

Any explosion in the cases and facilities around the world would create economic air pockets, and that would certainly go wrong. And, of course, inflation accelerating. We don't expect that. But if it did, that would be harmful to the market. And finally as previously mentioned, with the market sort of pricing in perfection, it's that very susceptibility we have to the unknown and unknown.

SEANA SMITH: Greg, didn't you look at the action that we saw in the bond market today. The 10-year yield rising just a bit, right around 92 basis points. When you take a look at what we've seen here in the yield over the past several weeks, what is the bond market telling you at this point?

GREG STAPLES: I think the bond market's looking past the surge of the COVID virus onto deeper into 2021. And I think it's correctly projecting a continuation of the economic growth situation. I mean, it was sort of interesting despite what people talked about. The Fed's projection going forward shows a decline of a half a percentage point versus the September numbers.

On 2021, they're showing an expectation of improved growth in 2021 of 2/10 of a percentage point. This is the median of SEP. And I think so the Fed and the market saying that we're going to get past this. It's going to be a rough couple of months. But once the vaccine rolls out, I think we're going to see a rebound. And the markets are starting to discount that.

ADAM SHAPIRO: Let's just pause for a second to go back to Jared because we want to update on Wish. Jared.

JARED BLIKRE: All right, well, we're looking at the parent company of Wish, which is ContextLogic. You can see the end of the day, down about 16.5%. They IPO'd at $24 per share. They open at 22.75. That was right here. And then they traded down throughout most of the session.

Now, when they opened, they were roughly valued at about $17 billion. And to just to recap the year in IPO'd, what an incredible run for them because this is the 31st unicorn on a US exchange to exceed $1 billion. And I don't think we've seen that ever before even adjusted for inflation, perhaps, going back to the late '90s NASDAQ bubble.

Nevertheless, we're tracking some of the other IPOs of the day. BioAtla-- that listed, as well, up 72%. And then Scopus Biopharma still up about 7% from the day but well off of these highs here. Guys?

SEANA SMITH: Hey, Jared, I also want to get your thoughts just on that M&A news that we got today in the cannabis industry. We had Tilray and Aphria merging, creating a $4 billion company. Tilray shares rallying on that news, up just around 18.5%. What do you make of this reaction that we're seeing in the stocks?

JARED BLIKRE: I think we're finally entering the consolidation stage in the cannabis market. And you look at what's happened in Canada. Now, they had a rush to the market a few years ago when cannabis was first legalized there. And there was huge overproduction. There was lots of euphoria in the space.

I think we all remember when Tilray just when rocket high-- rocketing higher. And it's come back down to earth. And now, finally, valuations make sense. And the market isn't as oversupplied. It also took a long time for the regulations to be coming into place for the Canadian market. And so that-- that kind of slowed down the growth over there.

And then you just have the house here in the US passing a week or two ago. Legislation legalizing or that would legalize if it passes the Senate and the president as well. That would legalize it here in the US. That opens up the banking system. And so I think the handwriting is on the wall here where in a year, maybe two years time. And it might take that time that it might take that long to get through the Senate and also to the president's desk. But it's coming.

And now the consolidation is in place. We have the infrastructure laid out by the Canadian system. So you put it all together here, I think we're going to see more deals like this coming down the pike.

ADAM SHAPIRO: Jared, thank you. Greg, I wanted to follow up with more on a question that Seana asked you about the 10 year. And there's this whole discussion about would the Fed ever buy the longer term, longer duration bonds. Where would the yield have to be on the 10 year for that to be serious for the Fed to look at it? I know they look at a whole bunch of other things. But do we have a sense of what it would be?

JARED BLIKRE: I mean, he was asked that. I don't think there's any specific trigger point. But I think what's even more important is it depends on what's driving interest rates higher. If they're going higher because of stronger economic growth or perhaps increased inflation expectations,

I think the Fed might actually allow that to go on. It's a reaffirmation that the economy is getting stronger. And it's also something that helps the financial system, you know, borrowing short and lending long if, on the other hand, rates are coming because of some other concern-- maybe an increase in the real or after inflation interest rate. And that's when they'd step in.

I think, you know, whether it be 1 and 1/4, 1 and 1/2, it'd look if it really came from one of those bad reasons why interest rates are going up. But there's really no specific trigger point. And I think the Fed is very much averse to drawing a line in the sand because they don't want the markets to try and test them at any time.

SEANA SMITH: Stephen, I'm curious to see your take on that same question. Just what would it take for the Fed to change that composition of their treasury purchases?

STEPHEN DOVER: Well, I thought he made a very interesting point about the reason for rising inflation. And at this point, it just really seems to us very unlikely that the Fed will intervene and raise rates at any time. And that certainly is what the market continues to think.

Just a couple of quick comments if I may on what you're talking about before. If there were a change in the election-- Democrats were to win in Georgia-- that would probably have quite a positive impact on the cannabis market.

ADAM SHAPIRO: Why is that, because I thought Biden was-- was against legalization?

STEPHEN DOVER: Well, the Democratic Party and certainly the progressives, that's always comes up as one of the top issues for them. And I think they're definitely-- it's not going to go through the Senate. If it's a Republican Senator-- Senate and the opportunity that it might go through the Senate if there's a Democratic Senate certainly raises the opportunity for that industry.

ADAM SHAPIRO: Want to say thank you right now to Greg Staples, DWS Group, head of fixed income, as well as Stephen Dover, head of equities at Franklin Templeton. We appreciate your both being here for insight on the big Fed decision as well as what's happening in these market.