Markets lower with China, earnings in focus

Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down today’s market action with Riverfront Senior Portfolio Manager, Rebecca Felton.

Video Transcript

BRIAN SOZZI: So Twitter hack top of mind with a lot of investors out there. This is the type of stuff, at least to me, just my-- based on my history of covering markets that happens-- it's the bizarre stuff that happens near market tops. Is there any read through the hack into that line of thinking?

REBECCA FELTON: Well, not specifically-- and thank you for having me-- not specifically on the subject of Twitter per se. But you have a market here that probably the valuations are not going to mix with a lot of uncertainties and a lot of bad news. And, mercifully, we haven't seen a lot of bad news, as is evidenced by the retail-sales numbers this morning.

So, I mean, again, to your point, it could create anxiety, and anxiety doesn't mix well with high valuations.

ALEXIS CHRISTOFOROUS: Rebecca, what do you see as the big market catalyst over the next few weeks? Is it the market waiting to hear from Washington if we get another stimulus package, if they extend these unemployment benefits? What do you see as the next big mover for the markets?

REBECCA FELTON: I think that that would have to be a positive for the markets. To your point, you've got a fiscal cliff, if you will, with the unemployment benefits as they stand now, that $600 additional boost expiring at the end of the month. And we know that there's been a lot of discrepancy between what both sides want in terms of what the Democrats have proposed, what the Republicans have signaled that they want. So clearly you've got a clock ticking here, and the market could react negatively if we don't see something soon.

BRIAN SOZZI: Rebecca, why are you still overweight stocks?

REBECCA FELTON: Because our tactical rules. We are process driven. We don't try to predict. We try to follow a process as it relates to how we position our portfolios. The three rules that we follow-- don't fight the Fed, beware the crowded extremes, and don't fight the trend-- all of those are still positive. So we're remaining overweight. Certainly looking at risk-off measures if we need to, but at this time, the signals aren't there.

ALEXIS CHRISTOFOROUS: So what are you overweight at the moment? What looks attractive to you? Because we've been talking a lot lately with all of our guests about high valuations, especially in the tech sector.

REBECCA FELTON: Well, we're overweight tech, preferring software and services. But when you think about, it is a crowded trade. Growth is at a premium, and I think it's worth it to pay up for it because right now if you look at tech's revenues for the second quarter, on average the sector's revenues are expected to be flat to maybe down 1% versus the S&P where revenues are expected to be down about 10%. So you want to stay in areas where you have higher degrees of visibility versus some of those sectors where they're still sort of in a show-me state like materials and energy. So I think it's worth it to play that crowded trade right here.

BRIAN SOZZI: Rebecca, have you been impressed with earnings? We've seen pretty big beats. They continued today. Morgan Stanley just crushed earnings estimates. But you go into these reports, and they don't look that great.

REBECCA FELTON: Well, and again, the expectations were already so low. So, yes, they've beaten. We haven't heard any huge bombshells by way of CEO comments, and we believe that's probably what's more important than the numbers that have been reported because they had been adjusted so dramatically downward.

BRIAN SOZZI: And what would quantify-- in your estimation, what would a bombshell comment be? We're still not getting a lot of guidance, but when you hop into these conference calls, you are hearing worrying comments. You know, we had the big bank executives come out this week and say, hey, you know what? The second half of the year, it probably won't be that great.

REBECCA FELTON: Well, I think that's a very valid point, particularly when you think about some of the beats and some of the economic numbers that we've had. You would have to expect that some of those year-over-year beats or beats relative to consensus are going to have to begin to moderate, particularly if there are rising concerns about a resurgence of the virus. We already know that we've seen some slowing of spending trends moving later into June, albeit the retail numbers were good. But there have been some slowing trends and concerns about shutdowns and new restrictions in various locations in the country. And if we hear something of that in terms of CEO and CFO comments in terms of very recent business trends and any changes that they may have to make in terms of their opening policies, that would be a concern.

ALEXIS CHRISTOFOROUS: What do you make of the data we got this morning? Jobless claims still troublingly high. 1.3 million more Americans applying for unemployment benefits in the latest week. We saw retail sales jump, but is that really a surprise because so many economies came off lockdown? And, in many ways, that's a backward-looking number. So what do you make of the economic data, and how much are you using that data in your day-to-day decisions given the fact that so much of it is backward looking and what we're seeing what the coronavirus is such a fluid situation?

REBECCA FELTON: Well, certainly the continuing-claims number was a little bit of a bright spot because that came in below expectations. And to your point on retail, it is backward looking, but it was above consensus. And the thing that was really interesting when you peel back the layers of the numbers is the fact that the nonstore retail numbers or the retail-sales data was actually negative. That was one of the top-three gains in the reported numbers last month.

And so this month, you saw a shift to clothing and apparel. The restaurant numbers were strong, and motor vehicles remain strong. So there were signs of confidence there. And it was particularly heartening to see that the nonstore retail number had actually fallen to the bottom of the heap, and that had been leading the way as we went through the shutdown. So there were some bright lights there.