Stocks rose Wednesday as tech shares looked to make up some of their declines from earlier this week. The Nasdaq outperformed, adding more than 1.5% and steadying after the index dropped more than 1% in each of the previous two sessions. Jason Ware, Albion Financial Group Partner and CIO and Dory Wiley, Commerce Street Capital President and CEO, joined Yahoo Finance's Jared Blikre, Seana Smith, and Adam Shapiro to break down today's market action on Yahoo Finance Live.
ADAM SHAPIRO: We've got Jason Ware, Albion Financial Group partner and CIO, here to help us get there, as well as Dory Wiley, Commerce Street Capital president and CEO. Dory, let me start with you. We've heard some pretty bullish calls that the S&P 500, we're going to have a year end record close, and into 2021, even better. What do you say?
DORY WILEY: Well, you know, pretty interesting. Everyone got very bullish when they heard there was going to be a do nothing Congress. At least, that's what it looks like right now until it gets certified. So the markets have taken off on that. There was good economic news last week. It's been on Friday. It's been good all week. We've got a vaccine coming out from Pfizer.
We backed off a little bit today. I think the COVID scare is kind of there, but there's probably also some profit taking. But as you said, we saw some revisions for our forecast for 2021. And most everyone I see is looking fairly bullish for a 2021. And I guess that makes sense, given all the bad news we had in 2020.
SEANA SMITH: Jason, how about you? Where do you stand just in terms of where you think we'll end the year and then look ahead into the next year?
JASON WARE: So I'd pick up on what Dory said, and I'd say that the vaccine news from Pfizer was absolutely a game changer in terms of the sentiment on the market. We're going to get to a vaccine I think quicker than most of us had anticipated a few months ago. You know, the virus has driven the economy since March. It will continue to drive the economy over the foreseeable future. So putting this pandemic ultimately behind us is most important.
Meanwhile, you know, we're getting through the election. I think the outcome is something that the markets can-- are OK with. And I think that's certainly undoubtedly good news. Earnings in the economy continue to track the way that they should, which is recovery. And we still have the Fed in the game, as we saw last week with the November FOMC meeting. So I think all of those things together certainly suggests that the influence on stock prices is probably higher over the near term.
ADAM SHAPIRO: All right, we're literally nine seconds to the closing bell start sounding. We're going to bring Jared Blikre in, in just a second. But some of the big stocks moving today, you've got Apple right now up about 3%.
DORY WILEY: Who have you cued up?
JARED BLIKRE: Adam, I think we've got another minute to go here. So I'm just going to take it. We got the S&P 500 now in the green, but the NASDAQ really the leader. And we can see this on the NASDAQ 100 heat map. A lot of these big cap stocks that just took it on the chin recently are not doing very well. So it's going to be the Dow.
We got Apple up 3%, Microsoft, 2 and 1/2% here. And it looks like on the sector action, tech is still, by and away, the big winner, up over 2% followed by communications services. And then discretionary, those are the three sectors that house the FAANG stocks. And then, in another reversal from the prior two days, we got materials down 1 and 1/2%, followed by energy, industrials, and finance.
So let's look at the travel sector because reversal there as well. A lot of losses not only in the airlines, but also in the cruise lines as well, just about anything travel related, except for Travelzoo getting hit right now. And--
SEANA SMITH: Again, you're looking at a mixed picture. We had the Dow ending the day in the red, as we shake out the final trades. S&P and NASDAQ-- you can see it on your screen-- holding on to gains. And NASDAQ was a big outperformer of the three major averages, closing up just around 2% flat. The S&P adding just around 8/10 of a percent.
That outperformance there in both of those averages having a lot to do with what we saw from some of those big tech names. Amazon leading the way, Apple another big outperformer. Google and Facebook not too far behind, as we see investors rotate back into some of those names that have been out of favor over the last couple of trading days.
You see, though, the Dow is still ending the day in the red. American Express the worst performer in the Dow today, off just over 4%. Boeing also is one of the worst performers, down nearly 3%.
Dory, let me just bring you back in here. Just in terms of where we end today, looking forward into next year-- I know you're bullish at this point-- how are you, though, allocating your portfolio? Because I think there's a lot of questions that we've been talking about this over the last couple of days as to whether or not now is the time to buy into that cyclical trade and rotate into some of those names that haven't beaten down over the last several months.
DORY WILEY: Well, that's the real question. Are we finally getting some normalcy in the market, moving from some of this technology growth back into cyclical value? And we can't tell if that's a trade or a trend, long-term trend. And everyone wants it to be a long-term trend. It's hard to tell.
And I would caution against jumping to any conclusions before year end, to be honest with you. Because the election hasn't been certified and done yet, so we need some certainty there. We'll lock it down. In addition to we've still got a valuation problem in the whole market. I mean, we've got the S&P PE ratio that's higher than it was in 2007.
So while I think the market wants to be bullish because it wants to get 2020 behind us, I still think we run-- we've got to caution yellow light out there. And I would be very careful about what you get into and rotate into before year end. Because you could have some really-- it's been a pretty good year, especially considering what happened. So you could see quite a bit of profit taking over the next 30 days to lock in those year end returns. I'd be very cautious.
ADAM SHAPIRO: Well, Jason, aren't we going-- I mean, what Dory just said, we should be expecting the profit taking. But then you get, as I had mentioned in my early start on the closing bell, Apple, which was, you know, by volume, one of the most active stocks today, they had been essentially flat this morning, and then, poof, boom, here they go.
JASON WARE: Yeah, you can't keep a good growth story down for long. And why would you want to? I mean, at the end of the day, you know, we're still looking at probably below long-term trend growth for this economy. You know, post-World War II, it's been north of 3%. Over the past decade or so, it's been a little over 2%. And, you know, we're not going to get any kind of major new stimulus bill from a mixed Congress. There's probably going to be less, rather than more, something closer to a trillion as opposed to $2 to $3 trillion.
So I don't think the economy is going to see any kind of major uptick in that growth. And if we're not going to see heady growth from the economy, then investors are going to look for companies that are growing faster than what the cyclicals space can provide. And that's going to be the Apples, Microsoft's, Amazons of the world.
But there's also companies out there and I think, you know, it's important for your viewers to understand that, you know, picking individual companies is the way to approach this, as opposed to styles, you know, value versus growth. Look for good companies. Own good companies for the long-term.
And there are companies that sit at that intersection between secular growth, but also having more of a cyclical tilt, a company like Starbucks, Intuitive Surgical, Visa. These are really great companies that are dominating their categories that have high returns on invested capital, but also have a pro-cyclical tilt if we do get a pickup in the economy post-pandemic. So looking at those kind of areas to complement the secular growth, I think is a great strategy for investors.
SEANA SMITH: Jason, what do you make of what we're seeing going on in the 10-year yield? We have the yield not too far from 1%. We were asking some of our market guests yesterday, just when is that level that they get a little bit concerned, just in terms of what that could mean for US equities? How do you read that?
JASON WARE: Yeah, it's a great question. And, you know, for so long, with interest rates being so low, that's been a big question on Wall Street, is, at what level does the 10-year yield start to compete against the returns you get in stocks, at least to some degree, on a risk adjusted basis? And again, what level does that start to slow the economy when rates move higher? And, you know, we're still around 1%, as you noted. And if you look at it on a real basis, that's still a negative yield. So there's not much competition there. And I don't think we're going to get there anytime soon.
I think if you talk to people that know more about this than I do, some of the folks in the bond market, they would say that north of 2%, 2 and 1/2%, we might start to see a bit of a change in how people allocate assets. I think there's some truth to that. But we're still a long way from that point. And it would take a big push from inflation, a big change in Fed policy, or a big move in the economy, and to more of a growth oriented posture for us to see that. We just don't see that happening anytime soon.
ADAM SHAPIRO: Dory, I'm curious. We've heard people talking about once there's a vaccine, once there's a vaccine. We saw Pfizer pop on Monday. They've closed down from where they were after that news broke. But then Moderna today, it popped. It's up about 8 and 1/2% at the closing bell. And they're going to be releasing, at some point this month, their vaccine trial results. So as we start getting all of these different companies with their results, do you expect that to have a long-term positive on the market? Or is it going to be people moving in very quickly to take a profit and then get out?
DORY WILEY: No, I think it'll be a long-term positive. There's still-- I still think there's some-- I'm surprised at the amount of confidence we do have in the market. But at the same time, I still think there is an over allocation to cash. And consumer's holding up pretty well. One of the areas that we follow very heavily here at Commerce Street is the banking sector. And of course, it's been oversold all year, down 30%.
We've had a nice rally lately. But the banks are at the strongest capital levels they've had in 100 years. They've underwritten capital very well. They adjust rate changes very well, so particularly the smaller banks. So that's always overblown in the market. The real question is credit and how will it hold up, particularly with office space rolling into MPAs and the consumer.
And the big banks have showed us-- you know, they came out-- 92% of the consumers that deferred payments earlier in the year for JP Morgan are now on track. That is an amazing sign. So I think people have some money, which is amazing, those that are employed anyway. And they are looking for reasons to be bullish in the market. And as Jason was talking about earlier with bonds, I just don't see people moving to the bond market while you've got such strong yields going on in the stock market.
SEANA SMITH: Jason, what do you make of what we saw from third quarter earnings? Because relative to expectations, we saw a pretty wide gap in terms of outperformance. But historically speaking, they're still pretty weak when you compare them to what we were seeing just around a year ago. When are you expecting to see any meaningful recovery in earnings?
JASON WARE: Yeah, so it's always important to remember that whether we're looking at earnings or economic data or progress on the scientific front, that, you know, the market is less interested in the absolutes of good and bad and more interested in whether things are getting better or worse. And what we're seeing in the trajectory in the economy, and in earnings by extension, is that things are getting better.
So while we're still lower on a year over year basis relative to where we were because of the pandemic, relative to where we were last-- in third quarter of 2019, things have sequentially gotten better from the low point in the second quarter of this year. So we continue to see progress toward getting earnings back toward record highs.
If you look at the analysts on Wall Street, they expect that next year, in 2021, we're going to see record level or near record level earnings again, something on the order of $165 per share in S&P 500 operating earnings. If we get there, then I think that's, without a question, a positive trend for earnings to be pursuing. So that's good. Investors celebrate that.
As you noted, we beat on expectations, broadly speaking, both in the second quarter when folks were expecting a 40% down tick in earnings. It was actually more like 30. And then this quarter, it was going into it, it was around 20%. We're getting closer to 10. So we continue to best that-- those low expectations. And I think those-- that that's good for the stock market.
ADAM SHAPIRO: And Jared, we were talking just a second ago about Moderna. And then there's some news out that they may be ready to give us the data on their late stage trial of their vaccine. Is that going to have some kind of positive ripple effect, do you think, on the market?
DORY WILEY: Oh, absolutely. I mean, we had such a great effect on the market from Pfizer and their announcement. And the numbers were astounding, you know, that 90% rate. So anytime we get anything positive about COVID, I think the market wants that. If you look at what happened in the last year, the most sensitive subject that we've had on the market is not earnings. It's not credit. It's not deficit spending. It's COVID. Everyone was afraid of COVID. So anything positive on COVID, the market's going to respond positive to.
ADAM SHAPIRO: Jared, what do you think? I mean, because this Moderna news on Friday, it's literally breaking. But they're saying that they have completed the case accrual for the first interim analysis of the phase III study of their vaccine candidate. We don't have the results yet, though.
JARED BLIKRE: That's correct. And we're seeing the stock up considerably, including the day's gains. It looks like it's up 7 and 1/2%, actually. So it could have actually sold off a little bit. Hard to make sense of the current situation without just digesting a little bit more.
But they had seen-- and this is also reading off the report here. They had seen a significant increase in the rate of case identification across sites in the past week. And they're saying, as a result, they expect the first interim analysis will include substantially more than 53 cases, the targeted trigger point for the analysis. And it looks like shares initially rose just a little bit, but not maybe the game changer that it would appear to be at first blush.
I'm still trying to get a quote here. And here we go. So it looks like shares are just trading steady, not too far off from where they settled just moments ago.
SEANA SMITH: Jason, what do you mean just in terms of-- is it COVID that's the biggest risk to the market here in the short-term? We try to wrap our heads around just what could maybe break this rally, what could trigger a pullback or maybe something even worse. Is it something that has to do with one of these vaccines if we get anything negative about that? I mean, how are you reading that possibility?
JASON WARE: Yeah, it's a good question. And we've long said that the biggest risk to the market over the near term is failure in these vaccine trials. And seeing, you know, Pfizer's news earlier in the week was obviously a positive. I think the fact that Pfizer's on an mRNA platform that's very similar to Moderna speaks well for Moderna's coming results. So I think we're going to get here sometime probably in December or early December.
So I think failure on any one of those platforms would certainly be a setback for stocks. It doesn't mean you can't own the market if you're a long-term investor. But I think that would create some volatility.
I think another potential risk over the near term is if we see some major changes in the election outcome. Now I think that's a low probability risk, but it is a possibility. And if we were to see this extend out beyond what we're already getting in terms of filing these lawsuits and calling into question the validity of the results, that could create a bit of short-term noise to the market.
But I don't think that's a high probability risk. And I don't think seeing failure on the vaccine front is a high probability risk either. So the good news is, is I think the two things overhanging the market are working in the direction of stocks going higher, not lower. And we'll see how they flush out over the next couple of months. I do expect some good news on both fronts coming for investors.
ADAM SHAPIRO: Dory, with that in mind, could we see perhaps more of a rush towards the end of the year with the fear of missing out and people trying to get in, regardless of what you had warned about at the beginning of this discussion, be careful, people will be taking profit?
DORY WILEY: You know, I'm not sure I caught all the question. But could we see a dip before year end? Was that your question?
ADAM SHAPIRO: Yes, but there's also going to be the fear-- there are going to be a lot of people who worry about missing out if this market is going higher towards-- to the end of 2021.
DORY WILEY: Yeah, I actually expect to. In fact, amongst a lot of traders-- I went to our trading desk when the market went nuts, I guess it was on Monday. And it's been a pretty good week. And our first reaction was kind of like the movie, "Trading Places." Sell, sell, sell. Because it was just such a topper move and then there was nothing but downside risk from there. You know, the old adage, sell on good news, and buy on bad news. So I think there could be a little bit of that.
There's a lot of good news here-- get the election behind us, get a vaccine. I mean, those are two of the best things we've been hoping for, for the last three months, right? So I actually do expect, no matter who's president, no matter what's going on, the market will fall off a little bit because it needs a little realism. It is still a stock pickers market. And we still have some overvaluation in some areas.