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The disconnect between the stock market and the economy

Ryan Detrick, LPL Financial Senior Market Strategist, joined Yahoo Finance's The Final Round to discuss the disconnect between the stock market and the economy and give his outlook for the market.

Video Transcript

MYLES UDLAND: I want to bring in Ryan Detrick now. He is the senior market strategist over at LPL Financial. And Ryan, a note that you had out recently certainly caught our attention-- the 50-day rally we've seen from the lows. We're up 38%, the largest rally we've seen on record over that time. And I guess just historically, where does the move we've seen off the lows fit into some other periods in market history, because I think some people say, boy, those aren't really years you want to be compared to.

RYAN DETRICK: Yeah, hey, Myles. First off, thanks for having me back. But you're right. I mean, 50 days ago yesterday was-- 50 trading days I should say-- was 50 days off the March 23 lows. And that's the greatest rally we've ever seen in 50 days on the S&P 500-- clear distinction. S&P 500-- 500 stocks started in 1957.

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We did see with the S&P 90, some bigger bounces in the Great Depression. But again, just going back since 1957, you know, we took a look. The bottom line is after these substantial moves higher, six months and one year later, you actually continue to see outperformance. The previous record-- that's 50 dates ever-- was October of 1982, not the worst time for a extended move.

I think our real synopsis when we looked at the previous largest 50 days ever-- yes, they took place usually at the end of bear markets. But they didn't take place in a bear market. They took place more often than not, actually, at the start of a new bull market. I know that sounds crazy we get into all the bad things that's happening

But what the stock market is telling us-- I mean, come on, you guys for two months now saying we're probably not going to meet those lows. Lows were in. We really feel that way now. But looking forward, the market is saying better times could be ahead. Market's a forward-looking mechanism. And economy could pick up the second half of the year more than most people think we think here.

MYLES UDLAND: And, you know, ultimately how you characterize any market period, it doesn't really matter. The only thing investors need to know is the general direction. But I guess now, it's something you're looking at, because I think some people have talked about this. In the last several months, go back to January 2018 and take those highs. That was basically the top within a couple of percentage points.

Have you had any conversations with folks who are saying, you know, maybe that was a secular bear for that two-year period, even though there were record highs, blow-off tops, huge crashes, and that maybe this is the kind of reset we're seeing after a tumultuous couple of years there in the market.

RYAN DETRICK: No, that's a great point. You guys talk about small caps before I came on. I mean, the Russell 2000 has not made a new high for two years. OK, and we think it's this great bull market. I know we had a 34% correction. But there's different parts of the markets that clearly haven't participated. And that's what we are encouraged by. What's leading again today? Industrials and financials.

You know, clearly the baton has been handed from tech and health care. But some of these other groups that lagged. But that's how bull markets work, right? Eventually we're going to get a pullback. I mean, June-- you go back last 20 years-- is one of the worst months of the year-- put-to-call ratio's are getting low. Many people will get optimistic.

We've just had the best 50-day rally ever. Little optimism makes sense. A pullback will probably happen. But the fact that the market is kind of handed that baton to different sectors is really a healthy phenomenon in our opinion.

SEANA SMITH: Hey, Ryan, going over that in just the recent moves that we've seen in the market, the big debate is what we've seen in the tech sector-- the NASDAQ 100 hitting that all-time high earlier today. Are you under the view, because some say that this trade still has room to run, while others say that there is a great rotation underway. And we could see some of these big tech names fall. Where do you stand on this?

RYAN DETRICK: Yeah, with tech here, we still think that's a group you want to be in. I mean, the big names, NASDAQ 100, led on the way up. They actually did better on the way down. And now they've weakened a little bit the last two weeks I'm aware. But until they really show some weakness, we think that's a group you want to stick with.

Also, we still like health care. Health care is quite similar where it did well. And now it's kind of been a little weak. But for the rest of this year, you know, you look at earnings, I mean, earnings are coming from health care and energy-- I'm sorry-- not energy-- health care and tech. And those are two groups that we still think can now participate and maybe even outperform the final will call seven months of this year.

MYLES UDLAND: And Ryan, just broadly, I think you talked to an interesting set of investors compared to maybe someone who's at a bullish bracket shop that we talked to. What are you hearing in terms of what questions are you getting? How much skepticism is there from the folks that you're in regular contact with about where this market stands right now?

RYAN DETRICK: Right, well, fortunately, I get to deal with LPL advisors. So they kind of get what's going on. And they understand the fact that markets are going to pull back. There's volatility. This is probably the shortest recession we've ever seen. And likely the expansion goes higher. But just look at any of the tweets I do that are bullish, right? I know you guys see this stuff too.

The skepticism on this rally is it's hated. I think it's almost more hated now than it was when we were down 34% back on March 23. I know that sounds crazy to say. But a lot of people say the Fed, right? The Fed is too powerful. The Fed is just printing money. I've got the same concerns with a lot of other people about some of those things. Reality, the fact when you stop an economy, you need record stimulus.

Whether it be fiscal or monetary, we have seen that. And that's what was needed. The olive branch to help people that have been so impacted by this when we get to the other side. And we're getting close to the other side. And I'm not saying what the Fed did is right. But I'm saying if you really wanted to help what's going on, competence and liquidity is what the Fed has done. And they've done a good job in our view right there.

MYLES UDLAND: All right, Ryan Detrick, senior market strategist with LPL Financial. Always great to get your thoughts. And we'll talk to you soon.

RYAN DETRICK: Thanks guys-- appreciate it.