Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland break down the market action with Matt Maley, Miller Tabak Managing director and Equity Strategist.
JULIE HYMAN: So why is Matt Maley less bullish? Let’s bring him in now. He’s the Managing Director and Equity Strategist at Miller Tabak. Matt, it’s always good to talk to you. As you said in your notes to us this morning, you are turning less bullish right now. Why?
MATT MALEY: Well, yeah. I’ve been very bullish the last four months of the year and into the new year. It’s just that the market is getting, is kind of like what we had this time last year, where it was priced for perfection. And I just see some things out there. I mean, we could talk about valuations of course, but they’re a lousy timing tool. But there are other things out there that do concern me. And if all of these things don’t fall into place, it’s going to be very, very difficult for the market to rally significantly further. And it almost feels like it’s being pulled magnetically to the 4,000 level on the S&P, and maybe we’ll get there.
But one of the things that really concerns me is this whole situation with the coronavirus. I mean, we’re starting to see some things that everybody’s planning out the vaccines are going to work and everything’s going to open up and we’re going to have no hiccups along the way. But we hear people like the Centers for Control, for Infectious Disease who are warning about, that this new variant is going to be a big problem. We have last night, Chancellor Merkel of out of Germany saying that these new variants could cause a big hiccup for the reopening situation.
And even the Biden administration is now talking about restricting some travel around the US because of areas like Florida, which again, are seeing these new variants starting to increase. So if we do get extension of lockdowns and God forbid, more stringent lockdowns, a lot of these predictions for a big increase in economic growth and earnings growth this year are not going to come to fruition, which is not great for stock market that’s priced for perfection. Not calling for the end of the world here, but just getting a little bit more cautious.
BRAIN SOZZI: Matt, what stocks are you most concerned about?
MATT MALEY: Well, I mean, a lot of, the reopening names, number one. I mean, we see this big situation where we’re seeing some of the airline stocks really starting to rally nicely now, cruise stocks and such. I mean, again, the Biden administration talking about restricting travel a little bit more. That’s going to clobber the airline stocks, which have seen a nice rally.
I’m also a little concerned about some of these tech names. I’d liked the chip stocks. They look very, very good, and there’s a shortage of chips that’s hurting other areas, but will help them in pricing in over the long-term basis and even in the intermediate term basis. But some of these names I’m really concerned about what’s going on with the social media stocks. I think we’re going to have a lot more restrictions there.
Paul Meeks, one of the best known technology investors of the last 25 years, he sold all of his Facebook. He’s talking about big restrictions, big regulation coming to these names this year, and I agree with him. So it’s just something that I’m a little bit worried about there. That doesn’t mean there can’t be, there aren’t good opportunities. And there are going to be opportunities, especially if the market corrects in areas like banking and energy stocks, some of the ones that didn’t do well last year.
MYLES UDLAND: What about the role of retail in this market? It’s obviously been everything we’re all talking about all the time. It’s kind of undeniable at this point. How do you think about it from your side of the exchange?
MATT MALEY: Well, it’s again, I don’t want to sound overly cautious here, because we have certain people like Jeremy Grantham calling for a major bubble to pop, but I do think we can have a deep correction. And part of that is because of this, what’s going on with the retail investor. And they always come in, there’s a key sign, again, always not a good timing sign for exact timing, but they tend to come in when the market’s at a top. And some people are talking about, there’s not a lot of complacency out there. And to a degree, that is true, because we see the VIX, even though it’s come back down from two weeks ago, it’s still relatively high.
But the thing that’s worse for me, is that the amount of speculation in the marketplace is off the charts. And it’s very reminiscent of what we saw back in 2000, in the late 1990s, early 2000. And it’s funny, people got absolutely creamed in GameStop and AMC when they got too high, and they came crashing back down. But they don’t care. It’s like they’re running to the cannabis stocks now. It’s kind of like they’ve forgotten about the pain that some of that stuff.
And again, you get these kind of crazy moves. And it’s a sign of really high speculation. And that’s usually a dangerous time to be invested for the market. I guess my big point is that raising a little cash here is a good idea. I mean, is the market really going to rally 20% over the next month or so on the upside and we do have, I think, 10% to 15% or even more downside risk? And if I’m wrong and the market still rallies a little bit from here, you can go back in. Because we’ll know in a month or so whether these new variants are going to cause a problem or not.
JULIE HYMAN: They had there the opening bell obviously, Matt. Signify Health ringing that as we look like we’re opening up higher here. As you look around the market, are there any, is there anything overlooked? Like if you’re raising cash now and you actually wanted to deploy that somewhere within equities, you talked about semiconductors, but I don’t think you can argue semiconductors are undervalued right or overlooked right now, right? That story has been well told. Is there any story that hasn’t been well told? Are there any discoveries left to be had?
MATT MALEY: It’s really hard to find those, to be honest with you, because the whole market has rallied so strongly with all this liquidity from the Federal Reserve and the global central banks. But the one which I’m a little bit, I was very bullish on, and we’ve talked about it in the past in the last couple of months of the year, is the energy stocks. Crude oil is getting overbought on a near term basis. And so are these, like the XLE and the XOP, two of the key energy ETFs.
But I think any kind of pullback would be a great opportunity to buy them. Now this is, fossil fuels, I mean, they’re, if you’re buying for them with the 40-year outlook, you don’t want to be owning fossil fuels. But they can still be great trading vehicles, and they can still be, I mean on a few years basis, can still be quite good. And the key thing there is number one, they’re still inexpensive compared to where the price of oil is right now. Number two, many of them pay very good dividends, which are safe. Not for all companies, you do have to be choosy, but very safe.
And number three, they’re still incredibly under owned by the institutional community. That’s a huge amount of money that’s going to have to shift. They don’t even have to rally a lot more here. As long as they hold anywhere near current levels, those institutions are going to have to shift into that area. That’s going to put a huge piece of demand into the supply demand equation. So I think it’s going to be a big winning group for the year. It’s not what I want to be aggressive right now, but any kind of pullback I think would be a great one.
JULIE HYMAN: Very interesting, especially given JPMorgan this morning, or I guess late yesterday, saying that we are in a new commodity super cycle, which kind of goes along with what you’re talking about. Matt Maley of Miller Tabak, always good to talk to you. Thank you.
MATT MALEY: Thank you, Julie.