DC chaos a 'one-off event' for Wall St: strategist

Crossmark Global Investments chief market strategist tells Reuters' Fred Katayama investors are looking past chaos in Washington after Wednesday’s disturbing rampage at the U.S. Capitol, instead focusing on the prospects for a bigger stimulus package now that the Democrats will control Congress and the White House.

Video Transcript

FRED KATAYAMA: Stocks on Wall Street climbing to record highs Thursday. With the Georgia runoffs over, let's find out what investments work best in a blue Washington. And for that, we go to Houston, Texas, where we're joined by Victoria Fernandez. She's Chief Market Strategist at Crossmark Global Investments. Good afternoon and happy new year, Victoria.

VICTORIA FERNANDEZ: Same to you, Fred.

FRED KATAYAMA: Yesterday we saw value really come to the fore and tech take a backseat. Today, it's the NASDAQ that's up over 2%. One day after, I guess, that mayhem in Washington, what do you read in today's trading?

VICTORIA FERNANDEZ: Well, I think really what the markets are doing is seeing what happened in Washington yesterday as a one-off event. And they're looking a little bit longer at the stimulus package that's going to be coming. For that, we're seeing the markets react. And it's a day-to-day reaction on the markets. But today, it's the idea that more stimulus is coming.

FRED KATAYAMA: Well, Victoria, we've seen stocks such as clean energy sectors really take off in the fall in anticipation of a Joe Biden victory. But now that it's clear that the two chambers of Congress will be blue-- or light blue, I guess, with the Senate-- and the White House being in Democratic hands-- and I know you've always had this barbell approach of growth and value. Is there any change to the mix of stocks within both categories, asset classes?

VICTORIA FERNANDEZ: Well, I think because we had both Georgia seats go to Democrats, you do have to start to look at some of these sectors that traditionally would react to a Democratic sweep or a Democratic wave. And you mentioned clean energy. To us, that's probably one of the first ones you're going to look at.

Within that energy component of your portfolio, you have to start looking at companies that are focusing on renewable energy. So for us, that's going to be a name like NextEra. We actually own that already, because we liked the kind of ESG component they had with solar and wind power. So look at areas that have a renewable focus in energy.

I also think you need to look at your health care allocation. Obviously, there's going to be some changes to health care. And we don't know exactly what that's going to be. But if you're in the sector, or names within the sector that really rely on that high profit margin, that's where they're really going to get squeezed. So managed care looks like it could come under some pressure. So look at your names there.

And finally, I think you need to look at sectors or names within the infrastructure area. We would anticipate that we're going to get some form of an infrastructure deal. It's the one area where I think you can get both Democrats and Republicans together. And so a name like Deere that we own could benefit from that from the machinery side. And even think a little more locally, like maybe a Home Depot, where there's smaller local projects that might be done.

FRED KATAYAMA: And Victoria, on the other side, on the growth side, are there any names or sectors that you would now underweight or adjust? Especially with tech, there's a fear of tighter regulation in Washington, not to mention higher taxes.

VICTORIA FERNANDEZ: Right. And you wouldn't really know that from what the NASDAQ is doing currently, because it's right back up. It took a hit earlier this week, and it's right back up again. You know we like that growth sector, that secular growth area. And we like those tech names.

We are not selling out of those names right now. We still have our Apple and our Microsoft. We like the 5G players we've talked about before, like a Verizon as well.

But really look at some of the companies that I think-- we talked about infrastructure with Deere and Home Depot. But look at kind of that IT infrastructure component. So maybe an American Tower, where they're building out things for 5G and for broadband. Even like a Broadcom, that kind of has different verticals within its business that have to do with industrial automation.

So I think there's areas within tech you continue to focus on. And we like that longer-term growth strategy.

FRED KATAYAMA: Well, Tesla-- Victoria, Tesla's climbing yet again today. Bitcoin rising another 5%. You've got the S&P 500 trading well north of 20 times earnings, like around 29 times. Do you sense that we're near a market top soon, or possibly have a correction?

VICTORIA FERNANDEZ: You know, I can't say my crystal ball is perfectly clear on where that market top is going to be. But you do look at where we stand right now. And it seems that the momentum is just going to continue to be higher, especially now with the anticipation that you're going to get a larger stimulus bill than probably what you had before. You have the liquidity from the Federal Reserve that's there.

Now, we are getting ready to dive into earnings season. So perhaps that throws a monkey wrench in the plans of the markets continuing to move higher and you get a little bit of a pullback. For us, that would actually be a buying opportunity, because we do think the trend, as the economy begins to reopen and you have that reflation trade going on, the trend is going to be higher.

FRED KATAYAMA: Within fixed income, are there areas that you would move into or shy away from?

VICTORIA FERNANDEZ: You know, we really like that investment grade corporate sector. Spreads are actually currently at pre-pandemic levels. And that's just because the Fed has propped them up with liquidity.

But dive in and look at those balance sheets on some of those quality names in your portfolio that can withstand some volatility. We think that's a good place to be.

FRED KATAYAMA: OK, investment grade corporates. Thanks a lot, Victoria.

VICTORIA FERNANDEZ: My pleasure.

FRED KATAYAMA: Our Thanks to Victoria Fernandez of Crossmark Global Investments. I'm Fred Katayama in New York. This is Reuters.