Stocks rise, Dow adds 300+ points amid vaccine, stimulus optimism

Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down today’s market action with David Nelson, Belpointe Chief Strategist.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's dig a little deeper into the markets now with David Nelson, Chief Strategist at Belpointe. Good to see you, as always, David. Talk to me about the market action you're seeing here in the early going, sort of a tale of two markets-- this pullback in the recently high-flying NASDAQ, but the Dow reaching for the stars. What's the momentum this morning, do you think?

DAVID NELSON: It's been playing out, actually, over the last 10 days. And it's maybe the fourth time this year where we've tried to rotate out of large-cap secular growth and move down to valuation trade. Every time you get some good news on COVID, and now we have a potential vaccine coming from Russia, it's skeptical at best. But nevertheless, the market is embracing, at this point.

Every time we get news on that or something bright economically, we start to move out of these large-cap secular growth names and move down that valuation tape to more cyclical shares. And it makes sense, because some names in the NASDAQ, in particular cloud and some other areas, like stay-at-home stocks, pretty egregiously expensive. Some of these names are 1,000 times earnings, 50 times cash flow.

BRIAN SOZZI: Maybe when you hear the-- when you hear the president float a potential cut in the capital gains tax, as a strategist, do you get excited? And if that cut were to come through-- big if, certainly unsure-- would that cause you to buy stocks?

DAVID NELSON: No. And frankly, I come from the school that we, as a country, have to start thinking about taxing capital and income the same. We've been taxing capital, giving it preferential treatment for about 100 years. And maybe that made sense at the start of the Industrial Revolution, 100 years ago.

But today, it had unintended consequences. And you get this wide gulf in income inequality, largely fueled by this differential preferential treatment. Do you think the richest man on the planet, somebody like Jeff Bezos, cares whether the marginal rate is 60%, 70%, even 90%? He made $89,000 in income last year. Obviously, his lifestyle is supported by something else.

ALEXIS CHRISTOFOROUS: David, what are you-- what are you doing with your client's money as you move closer to the election? Joe Biden expected to come out with his VP pick any day now. That could possibly be market moving.

How are you positioning portfolios with this big sort of question mark of the election looming overhead?

DAVID NELSON: I'm trying not to let politics rule what I'm going to do with regards to stocks. I'm trying to let what the data is telling me to do. And frankly, the data is starting to improve. Even the COVID data is starting to improve. The seven-day moving average of new cases is starting to roll over on a national scale.

Estimate revisions are starting to move north. Goldman just raised their number for this year up to 130. Numbers for next year are about 165. And that's a number that's been rising steadily for the last couple of weeks. And frankly, that's something I haven't seen for about a year and a half.

BRIAN SOZZI: David, aren't-- can't the argument be made that part of that improvement in earnings estimates reflects the stimulus that has already worked its way through the system? And that this market needs something, and it needs it pretty quickly?

DAVID NELSON: I think that's-- that's a fair statement at this point. But it's pretty clear that the country is ready to go back to work. I think we have to start to look to other countries, what they did.

Sweden effectively did not shut down their economy. What they did do is what we didn't do, is they practiced some of the very basic precepts of social distancing, wearing masks. Clearly, the data supports that it works.

Unfortunately, a lot of Americans today aren't practicing that. I see that right here in the building I'm speaking to you from today. People under 30 almost refuse to wear a mask unless they're in a place like Whole Foods. I go out on the promenade on a Thursday, Friday, or Saturday evening, and it's almost like a frat party at this point.

If we could start doing that, we could start going back to work and not depend so much on fiscal and monetary policy.

BRIAN SOZZI: Well, David, that's why the capital gains tax needs to be cut, so they go out there and buy some masks.

DAVID NELSON: I don't think that's going to do it. I'm going to have to disagree with the president on this. I don't think that's really the path.

Get people back to work. I want some kind of package on protecting people's income and unemployment benefit, but not one that encourages you to stay home, like the current one does at $600. Some people are making more at home than going-- than if they go back to work.

Why would I go back to work? Americans are bright. They can do the math.

JARED BLIRKE: David, on the bond-- in the bond market, we got the 10 year above 60 basis points-- in fact, 63 basis points, up another six today. It seems to be moving in the right direction, along with the yield curve. Real yields heading higher.

Have we seen the worst? Or are we potentially in for another slump? Maybe the 10-year heads below 50?

DAVID NELSON: I hope not, because that'd be a real negative for the market. Right now, even though the yield has moved up, real rates are actually negative at this point. And what I find disturbing is, say, I look at policy trackers, like from FactSet, and you go out to, say, 2021.

And right now, 28% of economists believe the Fed is going to be at a negative Fed funds rate of minus 25 basis points. Jay Powell has assured us that we're not going to follow the path of Europe. Yet the data suggests just the opposite of that. So I'm hoping as the data gets better, the Fed can maybe start to normalize a little bit at this point.

I don't expect them to raise rates. That would be uncalled for. But I'd like to see the balance sheet start-- stop expanding.

ALEXIS CHRISTOFOROUS: What are you doing with gold right now, if anything, David? I mean, we know it's been on a tear. It's pulling back today, I guess its biggest one-day pullback since March. Perhaps no big surprise there.

But how are you treating that commodity?

DAVID NELSON: I have it in our tactical portfolios. And it's going to take a hit at this point. It recently went parabolic. And it makes sense that it's going to get some profit taking today because some of this good news that we're seeing.

But as long as the Fed is printing money, as it is right now, and as long as the dollar is cascading lower, gold is going to have a place to work for people in their portfolio. And it's not a dynamic that I expect to change anytime soon, regardless of who's in the White House next year.

BRIAN SOZZI: David, for the most part, it seems as though right now, every single stock is going up, no matter what they report for the second quarter or what they have already reported. What stocks do you like here?

DAVID NELSON: Right now, I guess industrials is probably the most attractive at this point, because it's part of that cyclical trade. I can take some money from the large-cap secular growth names that I have. But they make sense in the following-- they're safer in the sense that they're essential businesses.

I don't care whether you're buying your goods at Amazon or Walmart. Somebody has got to make it. Somebody's got to ship it. And that points to the industrial sector.

So there's a lot of names in there that I have. Even defense names are attractive at this point. Look around the world-- every corner of the planet is a geopolitical hotspot. We're moving military assets in and around the South China seas. I've got to like names like Lockheed Martin and others.