Market Recap: Thursday, April 8

Stocks rallied on Thursday, with the broader market reaching a new record while technology and blue-chip stocks flirting with recent records, as investors brace themselves for the flood of first-quarter earnings likely to show Corporate America coasting on an incipient economic boom. Comerica Asset Management CIO John Lynch and MJP Wealth Advisors President Brian Vendig joined Yahoo Finance Live to discuss.

Video Transcript

EMILY MCCORMICK: Welcome in to Yahoo Finance Live. I'm Emily McCormick in for Adam Shapiro this Thursday afternoon. We're just a few minutes from the closing bell. And we want to introduce our market panelists for today. We have John Lynch, Comerica Asset Management chief investment officer, and Brian Vendig, president at MJP Wealth Advisor. But first, we want to get to Yahoo Finance's Jared Blikre for more on the market moves this afternoon in these last minutes of the trading day. Jared, what are you watching these final minutes of the session?

JARED BLIKRE: Yeah, we haven't had a lot of movement in the last 30 minutes, just maintaining the gains on the day. And let's go to the YFi Interactive. Worth pulling up a chart of the NASDAQ. And we can see them bumping up against this 13,825 level all day. It just can't seem to punch through, but very constructive price action overall. We've been talking a lot about the mega caps and the strength and the record highs in Alphabet, Facebook, and Microsoft, Facebook just barely red right now, but Apple up 1.8%.

What I want to focus on now is what hasn't been working today. And that's been the energy sector, which has had incredible gains this year. But it's giving back some ground as we head into the close here. Exxon and Chevron each off more than 1%. And Royal Dutch Shell, that is down 3%. Not a lot of green in that particular space. Also, banking-- now this had been in the red mostly earlier, so we are seeing some gains now. JP Morgan up about 2/10 of a percent, Goldman Sachs up 1 and 1/2%. Fairly close to its record highs, and we did have a bit of a sell-off over the last week or two.

And then finally, let's check out the sector action because we're set for record closes in tech, communications services, and discretionary. Tech and discretionary are the two ones that are leading here, but tech really taking the cake. That is up 1.3%. We were talking about the weakness in energy. That's down 1.25%, one and a quarter. And then we have real estate and utilities rounding out the bottom performers. Those are the interest rate sensitive sectors. And we are seeing a fairly big slide in interest rates the longer end that we've been tracking. All right, here's the final bell on Wall Street, heading into this close.

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SEANA SMITH: And that marks the end of the trading day. Again, another record close here as we wrap up the day. S&P up just around that 4/10 of a percent. Dow eking out gains of 56 points. NASDAQ, it was the outperformer all day, closing up just around 1%. A lot of those large cap tech names were among the winners today. Apple and Microsoft, two names there leading the way. Sector action, like Jared was just going through, technology and consumer discretionary are the performers of the day. Communication services also in record territory.

On the other hand, we're seeing energy under a bit of pressure as crude starts to fall a little bit, falling below $60 a barrel. So let's bring back in our panel. We have John Lynch and Brian Vendig. John, let me go to you first. Just big tech being in favor here, leading the way once again today. What do you make of this rotation that we've seen in the past couple of trading days? Do you expect tech to remain in that leadership position?

JOHN LYNCH: Hey, Seana, good afternoon. You know, it's very curious. You see the best manufacturing data in 30 years, best services data in 30 years. 900,000 jobs created, and it appears cyclicals have ground to a halt these past couple of days. Obviously, interest rates have not moved or moved down. So, yes, that's been supportive of the stay-at-home trade, the big tech, the big five, if you will. So it's kind of curious the way that we've seen a pretty quick shift over the last handful of days. And it's something we'll be watching very closely because cyclicality has clearly led these last several months.

EMILY MCCORMICK: Brian, I want to toss it to you. We've seen the benchmark 10-year Treasury yield back on the decline this week. It's more than 10 basis points now below last week's highs. And I'm wondering, are we just in a little bit of a period of stagnation right now? Do you see these moves starting to creep back higher on the 10-year yield in the coming months? And what's going to be the catalyst for that as we look ahead?

BRIAN VENDIG: Thanks, Emily. Yes, I think over the balance of the year, when we think about vaccine adoption continuing to play out at levels that exceed expectation and the service sector part of the economy reopening, while at the same point in time, we're dealing with supply chain inefficiencies, I think it's fair to assume that as aggregate demand improves, inflation should improve and grow as the economy expands.

And thus, historically, when you look at interest rates, interest rates move usually in tandem with economic growth. It doesn't necessarily mean it's a bad thing. It just means that it's part of the process of going through this recovery. So our view over the balance of the year is, we should expect the 10-year Treasury to yield more than 1.75%, potentially closing closer to 2% or slightly north. And we all know that the Fed has a inflation target of around 2% on a full year basis, which I think is fair to say that is going to be exceeded as well.

SEANA SMITH: John, another thing that we've been closely watching here is the movement that we've seen in the VIX. It stayed below 20 today, right around 17. What's your read on that? How bullish do you think that is for the market?

JOHN LYNCH: Well, I think, you know, it should be-- if you're looking at a pause in a lot of the cyclicals and you're looking at a low VIX, that tells me we're susceptible to disappointment. Now we're expecting 25% earnings growth in the first quarter, the big banks report. I believe it's the 14th and 15th, a week from today and a week from tomorrow. So I would rather see, quite frankly, a slightly higher VIX, going into earnings season, because as we're seeing this underlying shift, you see staples outperform in the month of March, for example. Maybe there's just some underlying pause that the market's preparing for that a low VIX is not-- I don't get comfortable with the low VIX.

EMILY MCCORMICK: And Brian, I actually wanted to ask you just a little bit about your full year forecast for GDP. You mentioned you expect full year GDP levels to reach at least 5%. And I'm wondering, just as we look at equity prices now, do you potentially see a little bit more room to run when we think about the fact that we are getting the strong economic recovery? Or has the extent of this growth already been priced in?

BRIAN VENDIG: Sure, well, I think some of the pauses that we're talking about in today's movement, or at least over the last couple of days, is really due to the fact that there is some uncertainty that's out there relative to some of the fiscal policy discussions that are happening in Washington, some of the recent comments that Janet Yellen has made about a potential economic regime change for things globally. Taxes are on the minds of investors.

But I think as the economy continues to expand and those GDP numbers start to grow on a full year basis, I think those cyclical sectors of the economy are going to help to lead the way-- industrials, basic materials. I also think that as the service sectors reopen, we'll see some sort of action in the consumer discretionary space as well. And financials will also participate as well.

So I think there is breadth to the market moving forward. And even when you look at the market reaching some of these highs recently, it's been quite orderly. So I think we have to keep that in mind that there are uncertainties that are still out there with policy changes and variants. And this isn't going to be a smooth ride, but we are very optimistic about the economy and the markets over the balance of the year.

SEANA SMITH: John, what about higher taxes, higher corporate taxes that Brian was just mentioning there? How big of a risk do you view this, or a risk at all to the market?

JOHN LYNCH: Well, it's certainly a risk. I would have to characterize looking at corporate credit markets suggesting a lack of stress thus far. But when you look at the equity market consensus estimates for next year in that $195 to $200 range for the S&P 500, that could be represented-- if we go to 28%, it could represent upwards of an 8% or 10% hit, which would suggest-- to profitability, which suggests basically flat earnings growth from '21 to '22, which the market has not priced in yet. So I think it'd be very important.

Tax increases, as you know, are immediate, and spending will take place over a matter of years. So it really will be very important to see whether or not we get to that 28%. I suspect there's going to be some compromise there and we'll see something closer to 25%, so the hit to profitability won't be as severe.

EMILY MCCORMICK: Certainly something to keep watching on the policy front, but John Lynch, Comerica Asset Management chief investment officer, and Brian Vendig, president at MJP Wealth Advisors, thank you guys both so much.