Markets open higher on vaccine hopes, merger news

Yahoo Finance’s Alexis Christoforous and Brian Sozzi break down today’s market action with Laffer Tengler Investments CIO, Nancy Tengler.

Video Transcript

ALEXIS CHRISTOFOROUS: So we're seeing tech stocks taking off here. Do you think that this is the beginning of a rebuilding for the tech sector, or is this just going to be more wild swings for the rest of the year?

NANCY TENGLER: Thanks for having me, Alexis. Listen, I think the tech sector is going to be subject to volatility going forward, but I think the medium- and long-term trend is still much higher up from here. When you look at some of these companies like Microsoft that's trading at a price earnings to growth ratio of two times, that is not egregious, and this is not 1999. I was investing money then. This is not then.

BRIAN SOZZI: Nancy, what's the catalyst to get this tech sell-off stabilizing and then back on the track-- back on the right track?

NANCY TENGLER: Well, I-- hi, Brian. I do think we need to have institutional investors stepping back in. When you have an interest-rate environment like we're facing now-- this is not original to me-- you have investors willing to pay more for a multiple for growth. And if you look back to 2000, we were at six-- we had just come off of six rate increases, and that sort of sparked the tech sell-off.

I think what we'll see here is once we get through the noise of the election, we get some of the Robinhood traders back to work, the options trading dies down modestly. I think what you'll find is investors are looking at fundamentals, and these are still some of the best companies in the US economy.

ALEXIS CHRISTOFOROUS: But do you think, Nancy, we're going to be cherry picking these tech stocks? You talked about Microsoft not being egregious in terms of P/E, but there are a lot of companies out there that are, and a lot of folks consider them overvalued I'm talking the FANGs most specifically. So do you think we're going to see a rotation within tech over the next few weeks and months?

NANCY TENGLER: I do think that, Alexis. I mean, if you look at some of the stocks that have powered this higher, this is growth at any price. We're not advocating for that. We're advocating for growth at a reasonable price because tech capex is growing significantly as a portion of total capex. Software has overtaken hardware capex for the first time ever, above 50% of total capex spending. So I think you want to be selective in the group.

The chips stocks as well are an area where we're overweight. Look at a Lam Research which recently raised their dividend. Those are the kind of signals from management that tell us that the management team is optimistic. So we're looking for companies that have pretty pristine balance sheets, are still growing, and are raising their dividends.

BRIAN SOZZI: Nancy, what's your latest thinking on the markets ahead of the election? Certainly I think the last time we talked, since then, things have changed a bit, not just in terms of tone of the election but also tones in the market.

NANCY TENGLER: Yeah, isn't-- it's been an exhausting year, to be sure.

So I think what we know about the market historically is that it tends to telegraph what the result of the election will be, and that usually begins in August, accelerates in September and October.

This is a year that is unlike any other year, so I hesitate to draw any conclusions from market strength or weakness, frankly, in the near term. But if we were looking at the economy and took the election noise out of the mix, we are seeing really material growth. The global PMIs and the US PMIs, which measure manufacturing and services activity, are not only expansionary, but they're also growing and strengthening.

And so when you see that as a leading indicator, you have to have faith in the US economy. I don't know if it's V. I don't know if it's a W. We've called it a stair step. But I think that stocks will begin trading off of fundamentals as the election becomes clearer and certainly as it moves into the rear view.