TD Ameritrade Head Trading Strategist Shawn Cruz joins Yahoo Finance Live to discuss client buys and sells of a volatile February, investor sentiment, and the outlook for the economy.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: In the meantime, for the first time since September 2022, TD Ameritrade clients returned to net buying of equities in February. That's according to their latest investor movement index. And here to break down all the buys and sells of a volatile February is Shawn Cruz, TD Ameritrade's Head Trading Strategist. And he's in studio with us, which is always fun. Good to see you, Shawn.

SHAWN CRUZ: Thanks for having me. I just said, it beats my kitchen as the background. So great to be back in studio.

JULIE HYMAN: Yeah, it's always good to see you all in person. So a return to net buying of equities. What does that tell you? What do you think was driving that?

SHAWN CRUZ: So I think we actually saw a little bit of a turn in segment where clients were willing to step out and take on a little bit more risk. And what the net return to net buying means that there is probably a little bit of follow through here. And I think everyone was trying to wonder, where are we gonna start to settle?

We've been in a little bit of this range where we feel pretty good about inflation, rates back off a little bit, markets rally, then we get a little bit of a scare. Rates rise again, markets back off. And we were in a little bit of a range there. And everyone's wondering, are we gonna break out to the higher? Are we actually maybe going to pull back and maybe even test some of those lows you saw in 2022? I think seeing this right now shows that there is the potential for a very solid base forming at these levels we're at right now.

JULIE HYMAN: Interesting.

JARED BLIKRE: Yeah, and I think that's important to note, too, that we've seen a lot of strength in this market overall, in the fact that it hasn't gone down as much on bad news. I think that's inherently a tell of a strong market. Nevertheless, we haven't seen it been able to break to new highs.

And one of the things-- one of the scenarios that I've talked about with various guests on these programs is, we have to be prepared potentially for a sideways market, which continues to frustrate investors on both sides. So you get these breakouts to the upside, suddenly reverse to the downside. These big down days that don't have any follow through. What's-- in general, what's your take in terms of sentiment and volatility? What should investors expect to navigate the market this year?

SHAWN CRUZ: So, unfortunately, I think they should expect that market you just described at least here in the near term. We're trying to figure out, one, where are we gonna peak out on that terminal rate for FOMC? And right now, the market is still trying to figure out what that is. If you think about it, everyone was pretty much settled on that 5% to 5 and 1/4%. Now, I think it's sitting right up there closer to maybe 5 and 1/2%. So we're gonna need to get, I think, a little bit more consensus and agreement and stability on what those expectations will be.

I also think if-- looking at our sentiment, we actually do a little bit more of a survey-based poll of our investors. And one thing we saw was they actually think we already were in some sort of a recession in 2022. Some think there might be another one coming here in the second quarter of this year.

So I think that might be the two big things investors are focused on is, where are rates gonna peak out at? And are we going to get a recession? What kind of recession are we going to get if we do get one? In the past couple of weeks, we've gone from the no landing narrative that everyone was talking about-- maybe we're actually gonna be able to sail through this and sort thread the needle-- to, all right, well, no, maybe we are gonna get one but not too bad.

I think those are the items that are just gonna drive this volatility for the market. And unfortunately, it's just gonna take time for us to get through this year and see how that data actually lands.

JULIE HYMAN: I'm also curious dig in a little bit on what people were buying and selling on the platform, right? Because on the buy list, you have net buyers of Tesla, Microsoft, Alphabet, Amazon, and 3M. Now, one of these names is not like the others. Like, what's up with 3M?

SHAWN CRUZ: You know what? It's-- I was hoping you were gonna ask me that because I saw that and I looked at that. And that was the one that just popped out.

JULIE HYMAN: You're like what's going on there?

SHAWN CRUZ: I was like, all right, I see, what they're doing here.

JULIE HYMAN: I mean, the other ones are pretty classic, like retail investor names, right? And then maybe 3M reported and people-- I don't know.

SHAWN CRUZ: So one thing we do see in a rangebound market and, to me, what confirms that clients are expecting the market to trade in a little bit more of range or trade sideways is they buy on weakness and they sell on strength. And we've actually seen that show quite a bit.

The 3 trade, the one sort of variable out there that maybe is a big unknown of how it will be, we got a little bit of a look at that over the weekend, is China. And whenever you start to see a massive economy like China come on, you immediately start thinking about industrials and energy as a part of that. And I think 3M is sort of one of those big industrial names that people like to think about when they think of a major economy coming back online.

I think what we heard from China over the weekend was a little bit disappointing in terms of that growth estimate coming out around 5%. That means maybe they're not gonna be as aggressive with trying to stimulate the economy. That might put a little bit of water on the story that maybe would help a company like 3M.

But I do think some of the other tech names that's consistent with, VIX down here where it's at, it shows that there's just a lot of risk appetite starting to form right now. And it makes sense you're gonna go into some of those tech names that really got hit hard over the past year.

JARED BLIKRE: I got a question about the bond market. We got the 10-year hovering kind of flirting with 10-- 4%, where it jumped above then it jumped below. And so with all of this, after bonds had an absolutely horrific last year, 2022, any interest maybe in investors exploring TLT, some of these other tickers that can give investors exposure to the Treasury market in the US?

SHAWN CRUZ: So it's been an interesting year in terms of discussions I've had to have. I think for pretty much the entire decade leading up to this year, when people ask about retail and fixed income, I could just simply say no one really cares. In the past year, that has significantly changed. So not only are they looking at some of these exchange traded products, some are actually going in and actually buying fixed income. It's something-- a conversation--

JULIE HYMAN: Not just through ETFs, but straight up?

SHAWN CRUZ: Not just ETFs. Straight up. And it's a conversation I've been having with our fixed income traders quite a bit. And hey, where you've seen some of the interest in activity? And it actually breaks out, I think, in terms of, one, where are they going out in terms of time.

So on treasuries, we're seeing a lot of interest at the front of that curve. Right around two years sometimes, as far down as three months. They're just going out they're taking advantage of that yield.

When they look at corporates, they're still staying in investment grade but they're going out to that 5 to 10-year tenor. So I think it's interesting in that they are going in and actually buying the actual bonds themselves. But they're going out into different tenors, I would say, when you look at treasuries versus the corporate space.

JULIE HYMAN: I want to linger on that for a second because like for people who have been in this industry for a while, it's hard to overstate how unusual that is, for retail investors to be buying fixed income directly or through-- I mean, the ETF industry didn't exist the last time we had yields at these levels that made people want to buy it. But like have you ever seen anything like that?

SHAWN CRUZ: No. That was a big change we started to see take shape last year. And we started peeling back the layers of, OK, we used to look at it as, one, are they buying fixed income or are they not? But it started to become such a noticeable trend that we started, you know, segmenting it out, taking a little bit look about what they're buying where and when.

I do think it's going to be interesting now because we start to see this show up midyear last year. So some of these bills and some of these other instruments might be coming due here in the coming months. It'll be interesting to see if they roll that over and stay in there or if they take that, say, OK, you know what? I picked up my 3%, 4%, or 5%, whatever it might be, I rode out the storm that we've had over the past couple of months. Now, I'm going to actually put that back to work in equities.

So I think it is going to be interesting to see where that pile of money, if it stays in fixed income or if they decide to put it back to work in equities. That, to me, would be the biggest tell of where their long run expectations are, just in terms of do they think the worst is behind us and now they're ready to get big get back in and ride it-- ride out for the long haul, or if they still think there's a little bit more turbulence to come and they want to stay out of equities in mass for the time being.

JULIE HYMAN: Interesting. Or they just want to keep a little bit in there just in case.

JARED BLIKRE: I've got five more follow-up questions on that. So really fascinating stuff there about the individuals buying bonds.

SHAWN CRUZ: You can get investment grade corporates right now they're giving you 6% or 7% yield, which I think is something that you would not historically have seen. You'd have to go pretty far out in the risk curve to something that had a legitimate risk of default to get 6% or 7% in some cases in years past. But now, you can get that in the investment grade space for fixed income.

JULIE HYMAN: I think you can probably sneak another one of those in. You want to grab one of those?

JARED BLIKRE: Sure. And how are-- are you acting as a custodian? Are these individual CUSIP that investors are buying? Are they going through Treasury direct? I'm just wondering where the information--

JULIE HYMAN: And the mechanics of how they're buying it, yeah.

JARED BLIKRE: Exactly, the mechanics of how they're buying it.

SHAWN CRUZ: It's-- so one thing, really funny. We had a conversation. We were joking around about how probably a year ago no one had ever heard of Treasury Direct. But now everyone has.

JULIE HYMAN: This guy probably has.

SHAWN CRUZ: No, everyone has, though, because the big I bond story last year. And that just shows that-- so now everyone knows what Treasury Direct is. We were just making a joke. There were actually memes about it, is how it came up. But we're actually-- we service Custodian it's the actual CUSIPs. And those are purchased and held through us.

JARED BLIKRE: Really, really fascinating right there, so.

JULIE HYMAN: Yeah, most definitely. Shawn, thanks for being here. Really good to see you in person, too. Shawn Cruz, TD Ameritrade Head Trading Strategist talking equities, bonds, everything in between.