The housing market is a ‘great space to be in’: Strategist

David Nelson, Belpointe Chief Strategist, joins Yahoo Finance’s Alexis Christoforous and Kristin Myers to discuss job trends for March, the housing sector, and market outlook.

Video Transcript

KRISTIN MYERS: Let's talk now about those private payrolls figures. They did come in under expectations as the labor market continues to recover, however, at a sluggish pace. So let's bring in David Nelson, Belpointe chief strategist, now. So David, we hear all the time that these reports are, you know, nothing more than really a one month snapshot. But curious to know what you made of the report? Does it at all indicate any bad news ahead, considering there was that miss on the expectations perhaps for Friday's jobs figures?

DAVID NELSON: Look, it's a backward looking number, as they all are. But I'm actually very encouraged here. I think the vaccine rollout is going pretty well. And even if-- even if these numbers are a little sluggish right now, I expect them to pick up dramatically. We're looking for a lot better reports as we move down the road. I think consensus for this Friday is somewhere around 600,000.

This number shows that we still have a lot of work to do. Tomorrow's claims numbers will tell us more. The work that we have to do, you can see because we're moving money-- we're kind of moving money from one pocket to the other. If you have 600,000 in new jobs and then you have another 600,000 in claims, it shows you still have a lot of work to do.

ALEXIS CHRISTOFOROUS: You know, David, I want to talk to you about what we're seeing happening in the housing market. We got some data out today, pending home sales down for the second straight month. Existing home sales were down last month. We've got this tight inventory. We've got a situation where historically low interest rates are starting to creep higher. What are you doing in that space at all, maybe the home builders or home building related stocks right now?

DAVID NELSON: I have one name right now. I have Lennar right now. It's been a very good stock. We also had DH Horton. That's actually exited our portfolio about a week ago. It's a great space to be in. These are really cheap stocks relative to the rest of the market. I think, in part, what's happening here, as 10-year yields rise, it's putting fear into people. And they're starting to get off-- starting to get off their chair. And they want to get out and get that house right now.

I think the exodus from the city has also been a contributing factor. I see it booming right here in Stamford, Connecticut I've heard even like some people have said they've come home and found like a note on their door, stapled to their door, saying, you know, here's my offer. So it seems like a seller's market.

ALEXIS CHRISTOFOROUS: Really? That's crazy. People are going knocking on doors.

DAVID NELSON: Oh yeah.

ALEXIS CHRISTOFOROUS: I mean, we're hearing a lot about bidding wars, too. Because we saw that home prices are near a record high. I think the median home price was $313,000. That was a record high for the month of February. Do you think, though, that things have peaked? That maybe there was a housing bubble that's about to burst. And if you're exposed to that space, do you need to make some moves?

DAVID NELSON: I suppose that could happen. But right now, you know, the numbers that I'm hearing here in the local area, people are getting above the asking price. That's what's happening. So as long as that continues, it's going to be a very hot market.

KRISTIN MYERS: All right, David. I want to go look at the broader market now. I was reading your note. And you said that it's deja vu all over again, that you ring some alarm bells there. I'm going to read actually what you wrote. You said that valuations for some momentum stocks stack up right now against some dot com favorites. Pets.com had Amazon as an investor and raised $82 million in February 2000. It filed for bankruptcy nine months later.

Of course, we have done a lot of talking about valuations, especially in tech. So what are you expecting here? It doesn't sound good. And when do you think it will happen?

DAVID NELSON: Look, look at the market right now. Look at it this month. The leading sector this month is utilities and consumer staples. Tech is actually underperforming this year. Today is kind of a reversion to the mean day. Today looks like your typical bull market. Large cap secular growth is moving. The elephant in the room, we just mentioned it, is the 10-year yield. Each stair step higher is going to be a challenge for long duration equity. And that points you right to technology.

For the last couple of years, we've been telling ourselves we can pay very high valuations because rates are low. Now 1.7%, it's not all that compelling for the 10-year. But the velocity in the move implies that it's going to move a lot higher. Look at commodity prices right now, they are soaring. Inflation is everywhere. I know the consumer price index and other metrics that we use seem benign.

But everything that I'm buying is going up. The pumps are going up. Housing is going up. You just mentioned it. And in the store, you're seeing it rise there as well. So it's an issue for some stocks out there. The good news is is that you can move down the valuation curve, there's a lot of very attractive sectors that are trading at very reasonable prices right now.

ALEXIS CHRISTOFOROUS: OK. So then enlighten us David and tell us what some of those sectors are. Because, you know, there are still so many highly valued rich sectors out there. Where can you still find some value and some bargains?

DAVID NELSON: I'll give you a couple. First, you can look at financials. It's not a good day for financials right now. But they've been a leading sector for the last six months, for good reason. Because the steepness of the yield curve speaks to net interest margin, which is their life blood. Look at commodity stocks, companies like NewCorp. It's seen its estimates rise 72% in just the last four weeks.

You've got an infrastructure plan that could pass, that certainly has to be good news for them. The good news about commodities, it's only 2% of the index. So if you have a 5% weighting, which is fairly modest, you're getting a lot of alpha added to your portfolio.