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Market Recap: Tuesday, January 5

Stocks rose Tuesday afternoon as investors awaited results from the Georgia Senate runoff elections and nervously eyed worsening COVID-19 trends in the U.S. and abroad. Defiance ETF’s Co-founder & CIO Sylvia Jablonski and Commerce Street Capital President and CEO, Dory Wiley, joined Yahoo Finance Live to break down the details.

Video Transcript

ADAM SHAPIRO: Four minutes to the closing bell. Let's head to the bell with Sylvia Jablonski, Defiance ETF's Co-Founder and CEO, along with Dory Wiley, Commerce Street Holdings President and CEO.

Dory, let me start with you. You're expecting volatility in the first quarter. You say this market is overvalued. What do you predict after the first quarter? Because I hear a lot of people saying the economy's really going to boom because of pent-up demand.

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DORY WILEY: Well, you know, that's the interesting question, and it's almost too far to see. We have some good things going for us. You know, obviously earnings are projected to increase versus what they did last year, but we've got to get past this election. We've got to see what the Congress influence is going to be on legislation and taxes and further stimulus and this, that, and the other, and that all depends on this Georgia election here Tuesday.

So once we kind of get past that, then I think the markets will have a chance to stabilize, maybe get the vaccine rolling and in place over the first quarter, and then I think we'll have a lot more color about where this economy is going.

I do think the market wants to be bullish. I think that manufacturing number that came out today, which was a stellar number, best number we've seen in a number of years, that tells us that the market does want to get out of the gates and run around the track.

SEANA SMITH: Sylvia, when it comes to the Georgia runoffs right now, what is priced into the market at this point?

SYVIA JABLONSKI: Well, I think what we're seeing in the market is just actually volatility. I think that the market is expecting that there's a Republican win there and then we have a, you know, split Washington. But if that goes a different way, I would expect that the market could significantly pull back.

So in the near term, I think the volatility that we saw yesterday, some of the risk-off trading was the uncertainty about the election coupled with some of the updates on how it's going with the coronavirus application. So until, as Dory said, we get some stability about both of those points, I think the market will be on hold for a little bit.

ADAM SHAPIRO: Jared, I want to bring you in, even though we have about two minutes to the closing bell. I'm taking a look at the sectors right now, and we just heard this discussion about the manufacturing PMI number, which was-- I think came in at 60. I mean, very healthy number. The sectors are all higher today. What do you think this says to those who think the first quarter may not be as strong as at least this preliminary reading we get today is telling us?

JARED BLIKRE: Well, to be sure we're going to have a stumble here and there. That usually happens, and that's the way the markets operate.

But I think it's instructive-- just going to the YFi Interactive here as we head into the closing bell. This is the final day of the Santa Claus rally, and guess what? Over the previous seven trading days, S&P 500 up almost 1% here. Usually it's 1.3%. NASDAQ, 93-- oh, excuse me, 36 basis points. Usually up 2 and 1/2%.

But there was every reason for this market to sell off because of uncertainty. And yes, we had that VIX spike yesterday. Just checking out the VIX real quickly here, you know, whenever the VIX approaches 30, you can see some more dramatic pullbacks than we saw yesterday.

So I think all of this bodes well for the new year. We're in a pretty good shape. We still have to see what the election brings, and we're going to have one of those low liquidity downdrafts that we've seen over the last year. Those have become common.

But, you know, if you take a look at the NASDAQ 100 heat map here, a lot of these big-cap names to the left started out the day in the red. Here they are in the green. Apple, Amazon each up more than 1%. Even Tesla up 0.7%, had been in the red.

And then you check out the situation we were talking about earlier with China and the delisting situation of those three telcos for political reasons. Well, guess what? Pinduoduo, JD.com each up over 10% today in the upper left, leading the NASDAQ 100 higher.

And taking a look at the Dow as well, we can see lots of green here. Some of the staples in the red, but Boeing, which had a nasty day yesterday, up 4% today. Here's the closing bell.

[BELL RINGING]

SEANA SMITH: And that does it for the closing bell today. Again, stocks posting gains, as Jared was just saying. All three of the major averages, as you can see, in the green on your screen. The Dow closing up 167 points. The biggest gainers in the Dow today, Boeing by far the leader, up just over 4%. Dow Inc. up just over 3%, and Chevron among the top-three performers, up over 2%.

Taking a look at the S&P, up just around 26 points, and the NASDAQ closing up nearly 1%. Of the three major averages, the NASDAQ was the outperformer today.

Taking a look at the sectors, energy and materials, those two sectors leading the way. Energy, though, was by far the winner today with that sector, the XLE, closing up just around 5%.

We want to bring back in Dory and Sylvia into the conversation. Dory, let me just throw to you first. In regards to the recent action that we've seen so far this week, yesterday we saw a lot of selling pressure. Today, investors are finding a reason to buy. What do you attribute the last two days to, and what does that tell us about what we can expect, at least in the short term, in terms of trading?

DORY WILEY: Well, personally, I think it's discretion is the better part of valor until we get past this election, and you needed to kind of pick your spots. You saw oil really jump up today, which is kind of interesting. I still think energy and banking show some tremendous value out there. There are a lot of good stocks with some great yields that you can pick up in both of those sectors. But right now, I'm personally waiting to get past this election and figure out who's going to control Congress and the presidency, for that matter.

ADAM SHAPIRO: Sylvia, I don't get the impression you're waiting. I think you look for those opportunities like yesterday to buy some-- you like tech, and you're looking for dips where you might be able to get in on that. What advice do you have for people who want to join you?

SYVIA JABLONSKI: Yeah, absolutely. You know, I'm just-- I'm overall bullish on the market. I think Santa Claus was a little bit cranky yesterday. Maybe he didn't get his vaccine in time and, you know, felt some uncertainty about Georgia. But I think once these things are resolved, I think Q2, Q3, Q4 look better. You know, the services industry is likely to rebound.

But, you know, to your point, there's a lot of good-quality tech names that fell yesterday-- the Apples, the Microsofts, the Alphabets, the Teslas, you know, the 5G names. I think that these are great opportunities for investors looking for something on sale and really, you know, looking to get a discount. If they got in yesterday, they would have really benefited today as the market kind of came back.

SEANA SMITH: Dory, you didn't mention big tech and some of the attractive sectors and attractive names that you were just mentioning. Are you seeing any opportunity to invest not only in some of these big tech names but maybe some of the smaller underperformers of 2020 when it comes to tech?

DORY WILEY: Yes, I think they are, and I'm definitely looking for some spots to pick into on the tech names. You've got to have an allocation there. You know, the biggest performers last year in any asset class were silver at 47%, the NASDAQ 100 at 48%. So you've got to be in those two, and you've got to pick your spots in trying to get in.

But I just think, you know, if the Democrats wind up winning, Georgia, which is a distinct possibility, it's not priced into the market at all, and there will be a nice correction there to buy in to some of those other sectors.

ADAM SHAPIRO: Dory, when you talk about a nice correction, I want to follow up with this concept of an overvalued market. Just yesterday we were talking about the Shiller S&P 500 P/E being at its highest point since the dotcom burst. Although he always points out it's been at its highest point for the last 20 years.

But then we got this stuff from Grantham today saying that this market's headed toward a bubble. Should I be more cautious? Should those of us who are investors be more cautious, perhaps more than just this quarter?

DORY WILEY: You know, absolutely, and I think your question is, how do you deal with that, right? We got the irrational exuberance speech in 1996, February to be exact, and it took four years for the bubble to pop. So you can miss a lot of opportunity by being overcautious, so you've got to have your exposure. So what do you do? You've got to keep more cash than usual.

You know, don't necessarily overallocation stocks right now. If you wanted to underallocate something, underallocate bonds. The Sharpe ratio there, the return for risk is really not there. Overallocate alternatives, and you should keep an overallocation in cash as kind of your bond hedge against a market decline. And when you see that 5%, 10%, 15% drop that's probably inevitable to happen with this overpriced market, whenever it is, that's when you can kind of step back in.

SEANA SMITH: Sylvia, you're pretty positive when you look ahead to the rest of this year. You see things improving. How do you think that's going to translate to economic growth throughout the course of the year?

SYVIA JABLONSKI: Yeah, I think-- you know, I think we'll see some positive economic growth later in the year. Earnings are expected to be more positive, particularly in Q2 and Q3. I think, you know, once we get people back to work, we still have this big unemployment number out there, which is sort of harrowing. And we-- you know, we get this sort of sector and some of the industries that are that, you know, nearly purely shut down like the cruise lines and the airlines and things like that back up and running. You know, the service sector will help drive the economy forward.

But, you know, I also think that there are a lot of opportunities that will continue to drive the economy forward, and they come from, you know, the next generation of sector investing. So again, it's the 5G theme. You know, we've become this electronics society. It's machine learning, cloud computing, you know, quantum computing, AI. There are all these opportunities and generational shifts in how people are looking to invest.

And I think that sort of regardless of what happens with the elections and the market going into the new year, you know, the classic sectors will do what they will. They'll recover over time. You do have these awesome spots for investors to look at, which I think, you know, we don't talk enough about right now.

ADAM SHAPIRO: I do want to follow up with you on something Dan Roberts said in our last show, Sylvia, and it was kind of a diss on ETFs, especially when it comes to cryptocurrencies. What do you think? We're seeing a remarkable rise in Bitcoin, but, you know, what do you think? Is this sustainable?

SYVIA JABLONSKI: Look, I think that there's a supply-and-demand story there right now, right? So everybody wants a piece of crypto, particularly Bitcoin. And then, you know, now that's sort of filtering down into some of the other ones.

Having been, you know, at an ETF issuer for the last 12 years in my career, I can tell you that we tried really, really hard at my former employer to get a Bitcoin ETF out there. We'd love to get one out now at Defiance. I think, you know, it's something that is not currently permitted.

I like ETFs for sectors like this because I think the average investor-- you know, everybody sort of knows Bitcoin, but there are so many different cryptocurrencies. And if you get this basket which tracks liquid and passive crypto and, you know, gives investors-- sort of like takes the guesswork out of picking which one to choose, you know, it gives you an allocation to the whole sector as a new alternative asset class.

So I think it's viable. I think people are interested in it. You know, we're trying to figure out how to use it. And because that interest is there, I do think that there will be this need and an interest in an ETF if somebody is able to launch one. You know, right now they're just not.

SEANA SMITH: Dory, what do you think? Are you seeing any opportunity there within Bitcoin or within the broader crypto space at all, or is it something that's a little bit too volatile and a little bit too uncertain, I guess, at this time?

DORY WILEY: You know, it's really hard to say. I guess that's the magic question. You know, people are looking at it as a speculative investment, as a hedge, as an inflation hedge, as a gold hedge, all kinds of things. So, you know, I would be very hesitant to discount it. I think you-- probably everyone-- you know, especially in a market where you're looking for alternative investing, there's certainly a place for cryptocurrency. So I wouldn't overallocate heavy a lot to it, but there's certainly-- there's certainly a spot for it.

ADAM SHAPIRO: Sylvia Jablonski is Defiance ETFs' co-founder and CIO. Dory Wiley is Commerce Street Holdings president and CEO. We thank you both for being here and to discuss the closing bell and where we go in this first quarter.