Strategists keep getting less bullish on the stock market: Morning Brief

Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman discuss the road ahead for the market amid economic growth.

Video Transcript

JULIE HYMAN: Something that you started to sort of explore yesterday and then continued today, Myles, where you talk about where there's all this optimism baked into the economy, but that optimism is not necessarily translating into stocks. And today in particular, you focused on the second half of the year. Because that's really where it seems like that strategists are expecting things to get a little more turbulent here. I think turbulent is the word that Torsten Slok used yesterday to characterize where we go from here, that you start to get that divergence maybe in the second half of the year. Although, you know, who knows if that will actually happen, given the pace at which these economic forecasts have been going up?

MYLES UDLAND: Yeah. I mean, I think there are basically two main tensions for the market right now. The first is that the market has kind of anticipated the economic growth that we are now beginning to realize. And I know we spent all of last year doing this thing, why is the market up when the economy is doing terribly? It was actually quite easy to do explicate, and we tried to do that dozens, hundreds of different ways.

But it was essentially, the market looked out to the next 12 to 18 months and said, that's probably better for the economy than the current period is. And that is now coming through. And we expect it to start coming through in corporate results, when first quarter earnings come in, and then again, even more strongly as we get into the next few quarters. So that's what has driven the market to this point.

So now that that tension is, well, what's the next leg of that? Why would we continue to be excited, or why would we grow discouraged about the stock market in the coming months? And right now, there are no good answers. And so I think strategists are really coming to this realization that the last year, though it had its challenges, was quite easy to explain to clients and it was quite easy to outline. Here's why x is happening, given kind of the pandemic backdrop.

Now the other tension is that the market is actually still going up. So we have all these calls for caution and here's why we think things might cool off, but the market still basically goes up every day. The VIX continues to come down. That's certainly positive for the bulls. And it gets us back to 2018, 2019, really, era question of, what else is there and why else would stocks do whatever it is? The market was up 20% in 2019. And I think everyone kind of looked around and said, you know, it's like the John Travolta gift from "Pulp Fiction." It's kind of like, why are we doing this? But that is what happened. And I think that's kind of been the conversation for some time.

And so it's that second question that I think maybe is a little bit more interesting. Because I mean, you can't build a bearish case around more rotation back into the FAANG names after you've had a 40% run-up in the financials. And yet I think that we're going to be stuck with a lot of folks trying to do that.

BRIAN SOZZI: Myles, you look at a lot of data, crunch a lot of macro data. Do you see-- in the numbers we have got in the past month, do you see the potential for a boom? I asked Honeywell's CEO-- we'll have more from that interview later-- if he sees a boom. And I asked him that because Jamie Dimon suggested he sees a boom, not just this year, but looking at till 2023. He said that in his annual letter this week. Do you see any of that in the numbers you watch?

MYLES UDLAND: You know, I think, if you look at labor-- we were talking about this with Brian Cheung earlier-- talking about the labor market, I think a really interesting conundrum right now is, does it normalize or are we on a new growth trajectory? And you look at things like Indeed's hiring, demand, job openings are now some 16% above 2019 levels. Saw the JOLTS report yesterday. Job openings are a lot higher.

And you sort of wonder, did the pandemic change people's psychology around how conservative they want to be with either their careers or how they're spending their money? The financial crisis was defined by people not having access to credit and being scared to use that credit, because it was a credit-based event. Is this like the YOLO economy, where people say, I make this money, I'm going to go spend this money because I don't know when the next pandemic is going to be, I don't know when the next time I'm stuck inside for nine months is going to be?

I'm not sure that that-- Sozz, to answer your question-- will necessarily show up in the data. But I think there are a couple of interesting threads to pull on in some data that maybe suggest this time is indeed different. But there, I just said it, and we can pull that quote out when this time is not different.

But we can have a conversation about that quote, too. It is always different. It's just like four macro wizards like to say, oh, how dare you say this time is different. Because they read that one book, John Mackay's book or whatever it is about, you know, the tulip bubble.