Yahoo Finance's Akiko Fujita and Zack Guzman speak with Ryan Payne, Payne Capital Management President, about today's market action and outlook.

Video Transcript

AKIKO FUJITA: First let's begin with a markets discussion with our first guest today, though. Ryan Payne is Payne Capital Management President. And Ryan, looking at where things stand right now, all three majors firmly in the green. There seems to be some optimism that the hiccups in the initial roll out of the vaccine are now sort of being fixed, sort of being eased out. How are you looking at things as we look to a new administration coming in tomorrow?

RYAN PAYNE: Well, I think two things. First off, invariably markets are forward looking, right? So it's not exactly about the immediate coronavirus increasing cases, hospitalizations. It's more about what's the economy going to look like later this year. And I think when you start looking at, you know, we have a new president, we have a Democratic majority in both the House and the Senate, you know, the one thing that we can bet on here is we're going to see a lot of spending, Akiko, you know, everything from this $1.9 trillion bill they're trying to pass, you know, on top of the $3 trillion we already passed last year, plus the $900 million that we've already passed in December. And we could see some sort of infrastructure deal down the line, which would be another multibillion-dollar bill.

So we're just looking at so much liquidity out there. And I think what the market's telling you right now-- you're starting to see interest rates go up. You're starting to see commodity prices go up-- that inflation's a real thing and printing all this cash is certainly going to cause inflation as we look out, you know, later in the year.

ZACK GUZMAN: And on the other front, you know, valuations appearing stretched here. You would want to see earnings catch up to that as we-- as we move through 2021 as well. When you look at today's updates from Goldman and Bank of America, both those stocks under pressure, despite the top and bottom line beat we got from Goldman Sachs. When you think about that, is that also kind of the same story more focusing in on what the forward guidance looks like from some of these companies as they report, since that seems to be, I guess, based on today's moves, what the market seems to be saying?

RYAN PAYNE: Yeah, I think a little bit. I mean, if you look at the S&P 500 specifically, you're at 23 times forward earnings, Zack. And if you look that historically, that's expensive, right? We're in the most expensive-- they say 90th percentile of expensiveness when you start looking at the S&P 500. And of course, that's really driven by big tech.

Now, I think financials specifically-- as interest rates going up is a big deal for financials in terms of their profit margins, I think you have to remember, too, financials went up like 19% since the beginning of last quarter. So I think, you know, maybe a lot of the good news around earnings is probably already priced in. You might just be getting some profit taking here. But I think realistically, if we think inflation's going to continue to kick in-- interest rates are going to continue to go higher. I have to think, you know, because multiples on banks, they're a lot cheaper than the S&P 500, that's probably a pretty good place for your money still. And I don't think it's really about last quarter earnings, so much as what earnings are going to start looking like, you know, the latter part of this year. I think that's really where the market's looking.

AKIKO FUJITA: Ryan, looking at specific sectors, energy one that a lot of our guests have noted, we're seeing that sector up in a big way today, the expectation being that once the economy does begin to reopen in a big way, that's going to bounce back. How are you playing that space?

RYAN PAYNE: I definitely love energy. And I think I even said it on your show a couple of months ago, along with being very bullish earlier last year. So I do think the reopening of the economy trade has a lot to do with energy. And if you look at demand in China, they're already above pre-pandemic levels, because, as we know right now, you know, their economy's way more reopened than ours is because they're way ahead of where we are in this cycle.

So I think demand's going to continue to go up. Production right now is it like at a two-year low. So at some point, we probably are going to get back to about 20 million barrels a day. So I think energy here has a lot of room to move on the upside. And I think that's definitely part of that reopening trade that you definitely want to have in your portfolio.

ZACK GUZMAN: Yeah, credit where credit's due. You did-- you did talk about the-- the opportunity there in energy earlier in the year and obviously been a standout here in terms of a sector-by-sector check on the market. But when we think about some of these risks, I mean, you'll be honest. You talked about the valuation there and where we're at historically.

People, anecdotally, also talking about, you know, some of these TikTok videos out there. And you think about the retail investor saying, stocks only go-- go up. And that has been the trend. You think about know the $1.9 trillion package we could come see through here with the Biden administration. I mean, is that a reason to maybe believe that we are still going to be chugging along here higher, breaking through new high highs, or is there something out there that you are concerned about, considering that valuation level we're at?

RYAN PAYNE: Absolutely, and I'm sorry. I couldn't help the self promotion. But I appreciate that, Zack. So basically, when you start looking at growth stocks, specifically, I do think it's the tale of two markets. And there is rapids-- or you know, there's rampant speculation going on right now. You can look at just the small amount of-- you know, smaller option contracts are up like 50% in volume this year.

You start looking at valuations on growth. It's not cheap historically. So I do think there is a lot of speculation. I mean, when you start talking about Tesla, and you start talking about things like Bitcoin, which, to me, I'm still, you know-- I'm still can't figure out exactly, you know, when we're going to start to use Bitcoin as an actual currency as opposed to what I call the greater fool's theory.

You know, I'm buying it today. Some fool can buy it from, you know, higher priced from me later on this week. You know, that's how-- how speculative it is. So I do think you have to be very careful right. I think big tech right now is probably fully valued. They have a lot of regulation issues coming down the pipeline.

And again, if you're buying the S&P 500, you're not really buying 500 companies. I've talked about this a lot. You have about 25% of that index that drives the whole index now with Tesla in there. And those stocks don't specifically really participate in the reopening of the economy.

So I think it's really important that you take advantage of that rotation. And I don't think it's any coincidence that technology has under performed since the last quarter. It's up like 9%. But then you start talking about old-school sectors, like materials-- we mentioned financials. Materials are up like 30% since the beginning of last quarter. And that's right around the time we had all that positive vaccine news.

So I think if you're going to really participate in the reopening of the economy, you've got to spread your money out into everything we've talked about today, energy, materials, financials. And you got to start to, like, take some profits or dial back on anything that you have growth related because valuations are high. Speculation is high. That's not really a good combination for, you know, good long-term growth, like we've seen over the last decade in those stocks.

AKIKO FUJITA: So-- so building on that, Ryan, the retail play that Zack just alluded to, how does that change the way you look at some of these names, especially the consumer-facing ones that aren't, to your point, trading on fundamentals right now?

RYAN PAYNE: Well, I mean, in my mind is it's, like, history doesn't repeat, but it does rhyme. And it starts to look a lot like '99, 2000, and it's probably not going to end well, which is very good for my business, by the way, because being diversified right now-- I'm preaching diversification-- that's really going to come in handy as we move forward. So when you have things that aren't trading on-- you know, have sectors that aren't trading on fundamentals anymore, and you just have to go back to 1999-2000.

Like, I took a chart of Apple back then. Apple had the same trajectory upwards that Tesla did. And then the stock proceeded to lose 80% of its value. Now, again, it's at a much better place today, two decades later. But you have to remember when the NASDAQ went down 80%, when the tech bubble burst, it took you to the year 2015 to start making money again.

So I think the bottom line here is it's OK to be early on these trends and start re-diversifying now, even if they start going up a little bit more from these levels. Eventually, if history is our guide, it's not going to end well. And you want to be ahead of that trend not behind it.

AKIKO FUJITA: You might hear from the Tesla bulls if you're talking about the bull talk that we can see--

RYAN PAYNE: I'm a target.

AKIKO FUJITA: --on that stock. Ryan, always good to talk to you, Ryan Payne, Payne Capital Management President.

RYAN PAYNE: Thank you.