Markets higher after Fauci points to coronavirus turnaround

Ari Wald, Senior Analyst at Oppenheimer, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi, Heidi Chung and Ines Ferre to discuss how the markets are faring amid the coronavirus outbreak.

Video Transcript

BRIAN SOZZI: I want to bring in Ari Wald, Senior Analyst at Oppenheimer to talk some markets. Ari, I'm so used to seeing you on the trading floor. How are you doing?

ARI WALD: I'm hanging in there. Thanks, Brian.

BRIAN SOZZI: All right, so from your technical standpoint, where do you see the markets here? Lot of back-and-forth action-- are you in the camp that we could retest those March lows?

ARI WALD: I am in the camp that we have seen extreme selling in March, and the focus should be on long-term recovery. That's really the two key takeaways for us-- 1, March was the extreme. That was it. That was capitulation on par, Brian, with some of the largest in market history. So our focus is on long-term recovery. Point 2, though, is, how do we get there? And yes, typically, there is a period of backing and filling needed. It usually takes about six weeks. So we're not in the clear yet, if you will.

ALEXIS CHRISTOFOROUS: Ari, what sectors do you feel comfortable with right now? I mean, banks might not be looking too attractive, airlines, the cruise industry. But do you leave a little room in the portfolio for those riskier bets right now?

ARI WALD: Alexis, I think you still have to stick with what's working. You've got to stick with leadership and technology specifically. It's a sector that's not only held up well on the downside but historically has outperformed more than any other sector six months after a major low, looking at all the important bottoms since 1932.

In regards to the beaten-up stuff-- airlines, cruise lines, big chunks of consumer discretionary-- yes. One trademark of a new bull market is that the most beaten-up stocks rally by the largest degree. But you have to get the market call right. And I think you want to see that base fill out a little bit more.

HEIDI CHUNG: Hey, Ari. It's Heidi Chang here. Thanks for joining us. A lot of people out there, a lot of market watchers, saying, watch these key levels in the S&P. We have to break above this. We have to hold above this. Being someone that is in technical analysis, what levels are you watching right now in the S&P 500?

ARI WALD: Yeah, for the S&P 500, there's two gaps in the chart that I'm watching. The first one comes in about right here at 2,700. We saw some selling yesterday at that point. We moved above it, closed below it. That's a near-term trading concern. If we could get back above that point, 2,900 is the next level I'm watching on the S&P.

But probably even more important than that-- there is a level on the Russell 2000 at 1,266. Here's why it's important. The Russell 2000-- that's your gauge of your small-cap stock index. Here's an index of broke below levels from December 2018. That was a very important point. And that's the level that I'm watching. As the Russell rallies back, very often, former support becomes resistance. And I think if it hits its head there, that's what causes the basing. That's what causes the W in the overall market.

BRIAN SOZZI: All right, from small caps to large caps, your firm still likes Costco. What's the trade there? It's been-- the stock has held up pretty well-- a lot of people out there buying bulk toilet paper, bulk soap, soup-- bulk everything. But is there meat left on that bone?

ARI WALD: I think so. Costco is what we call an OpCo triple play. It's rated to outperform by our fundamental analyst, looks good in the charts, and it fits one of our top macro themes, which is US large-cap growth. And I think what's a standout for Costco is, I don't think you get left behind in this stock if the market starts to recover again. It has been able to outperform during market rallies as well. So it's a really nice trade-off there. I think it continues to outperform over the coming months.

INES FERRE: Ari, Ines Ferre here. The energy sector-- it's been decimated. It seems that this is now a situation where the weak has gotten weaker. Would you even touch energy at this point?

ARI WALD: We wouldn't. Indeed, the weak have gotten weaker. And it's a sector that just has not been rewarded. When oil rises, to the same degree, it's been [AUDIO OUT] slammed-- oil drops. And through that, this destruction of the energy sector has brought the group down on a relative basis versus the S&P 500 to its lowest relative level since 1931.

We're talking about a 90-year relative low. So let's say I'm wrong. Now, I think the market is in recovery mode. I'd like to see energy stabilize here. That would be a positive for me. But if I'm wrong, and if we're in one of these deflationary spirals, that's where the vulnerability is. That 90-year low is not going to hold. You're going to have continued underperformance in that group on the market downside scenario. And really, on the upside, I just don't see the macro drivers to really lift it sustainably over the long-term.

BRIAN SOZZI: All right, let's leave it there. Ari Wald, Senior Analyst at Oppenheimer, I look forward to seeing you back on that trading floor.

ARI WALD: Stay safe, stay healthy. Take care, everyone.

BRIAN SOZZI: All right, back at you, brother.