Markets mixed ahead of Powell, Mnuchin testimony

Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to break down the latest earnings report, weigh in on the state of carnival and airlines stocks and discuss overall markets around Tuesday's opening bell.

Video Transcript

ALEXIS CHRISTOFOROUS: Investors are hitting the pause button after the Dow's big rally yesterday, biggest rally in about a month. And here we have the opening bell at the New York Stock Exchange.

[BELL RINGING]

All right, trading underway here on this Tuesday, May 19. We've got the Dow Jones Industrial Average opening down 70 points after rallying about 4% yesterday, its biggest rally in about one month, on hopes of a vaccine for COVID-19 for the biotech company Moderna.

Let's bring in Victoria Fernandez now. She's Chief Market Strategist at Crossmark Global Investments. And as usual, we have Brian Sozzi and Jared Blikre with us as well. Good morning to you all.

Victoria, what do you make of market action yesterday and today? It looks like we're taking a bit of a pause. But is this market just getting overly excited with every little bit of health-related news we're getting on COVID-19? I mean, yesterday, those very, very early trials from the Moderna potential vaccine really sent the market into the stratosphere. Was that really warranted?

VICTORIA FERNANDEZ: Yeah, Alexis, you're absolutely right. I mean, the market is really trading on headlines right now, which we can't be too surprised at, because the fundamentals really are making it tough to decide what's going to happen going forward. We really can't extrapolate out manufacturing numbers, services numbers, because we know they're all plummeting in the second quarter. So people are trading off those headlines.

And we know that just because that the states are beginning to open up, that doesn't necessarily mean things are going to get better. But if we have positive news on a vaccine, like the Moderna news yesterday, investors are going to grab on to that. And we saw the markets really rally with that.

But we did have some strong earnings this morning that brought the futures a little bit back. And now we're opening up, I think you said about 70 points down on the Dow. Premarket, we were down about 150 before the Walmart numbers. So hopefully we'll turn this around today.

BRIAN SOZZI: Yeah, Victoria, those Walmart numbers were pretty gangbusters. For an economy that is supposed to be in a severe recession, to see same-store sales up 10% we're quite strong. Do you stay with the Walmart here? Or do you try to rotate into a Target?

VICTORIA FERNANDEZ: So we actually own Walmart, Brian. And that's a name that we would continue to hold. We actually have a little bit of exposure to Target as well. These are the two names-- and we've talked about it in previous quarters-- that really dumped a lot of money into developing their online business. That has really helped them out during this COVID-19 shutdown.

I mean, even Home Depot, even though the stock was down, their domestic sales were up 7%. So we're seeing sales still occur in some of these larger companies that were allowed to stay open over the past six weeks or so. I would anticipate that because of the online sales that they've seen, because of the infrastructure they've put in place to pick up in store, both Walmart and Target will do well.

ALEXIS CHRISTOFOROUS: I want to get back to this biotech company, Moderna, because I've been watching its incredible rise. I mean, shares climbed 20% alone yesterday. It's now toying with a market cap of $30 billion, Victoria. We know it's one of the companies rushing to get a vaccine out for COVID-19.

You know, it's hard to say that that valuation actually holds up for a company like Moderna. What do you do if you're an investor toying with the idea of maybe getting in here at this level?

VICTORIA FERNANDEZ: I would be a little bit nervous getting in with the run up that we've seen over the last 24, 36 hours in this name. I mean, we have to remember, this is just phase one. It wasn't even a report on all of the patients in the trial. It was just a report on eight patients, which leads you to believe the efficacy is going to be pretty strong.

But we still don't have solid numbers yet on everyone in the trial. We have a couple more phases to go through on this. So anything could happen. I would be very cautious to get ahead of the market and jump in at a stock that is up, what, 60%, 70% in such a short period of time.

BRIAN SOZZI: Victoria, isn't it a concern, too, with these biotechs that are putting out potential COVID-19 vaccines, they might not make any money initially off of this. And the market might be too over optimistic. We could see a pretty big selloff.

VICTORIA FERNANDEZ: There's a big debate right now on whether these companies should make any profit at all on the vaccines or the medicines that they're making in regards to COVID-19. Are they going to be able to recoup their costs, sell them at cost for the governments? Is it going to be here in the US? Is it going to be global? How are they going to distribute this?

So I think there's a lot of concern getting into a biotech name based solely on the fact that a COVID-19 vaccine or treatment is coming. Again, we don't know how that's going to affect their revenues or their bottom lines. So really dig into the balance sheets, and make sure that's not the only reason you're going into the name.

- Victoria, I'm curious what Crossmark is doing with the travel sector right now, and airlines and cruise liners in particular. What kind of exposure do you have there? Have you cashed out any of your positions recently?

VICTORIA FERNANDEZ: We actually have, Alexis. In our Global Equity Income Strategy-- it's a dividend-paying strategy we have-- Carnival was a holding in that strategy for a while. We actually sold out of that probably a little over a month ago. Close to a month ago, we sold out of that holding. We just thought that it's too much-- the runway for that is going to be really long to get people back on cruise ships.

It's a little bit different when you're looking at airlines. I think you're going to have more demand on airlines, whether it's business related, and even travel related. I think people will be quicker to jump on an airplane than they will be to get on a cruise ship.

We own Delta in our Covered Call Strategy that we have. And we're watching it very closely with our research group, determining if we want to come out of that name. But for now, we're still holding it.

ALEXIS CHRISTOFOROUS: All right, I want to get over to Jared Blikre, who's watching this early morning action. We're about five minutes in, Jared. What do you see moving the needle here?

JARED BLIKRE: Well, it looks like tech is leading the way here. Most of the other sectors-- in fact, all the other sectors are under water. We can take a look at the NASDAQ 100 heat map.

And see, the big FAANG stocks are mostly in the green, except for Alphabet here. Microsoft and Apple up about half a percent. Just looking down the list here, I said chip stocks were outperforming, mainly in video. A lot of the other ones are actually trading to the downside here.

We can take a look at the Dow Jones. Of course, Walmart is the leader. Boeing under a little bit of pressure here, down 1%. Nike up just slightly.

So kind of a mixed bag. It looks like a lot of the stocks and sectors that were leading to the upside yesterday-- and admittedly, it looked like a lot of short covering-- those are in the red today, while tech outperforming.

ALEXIS CHRISTOFOROUS: All right, Jared, thank you. You know, Victoria, I'm sure you saw the IMF now expects the global economy to contract by 3% this year, perhaps no surprise there. In January, it had forecast a Gross Domestic Product expansion of about 3.3% this year.

In that environment, where were you guys putting your money right now? Or are you just holding on to more cash?

VICTORIA FERNANDEZ: So we are holding on somewhat to cash in our portfolios. We did not increase to a large cash position, however. But we haven't been actively buying things. We've been finding opportunities that we think fit trends, that even though maybe happened because of COVID-19, we're not in there buying names that we think are just a COVID-19 play.

It has to be a trend that we think is going to extend past this, that's going to be a longer-term trend that we can invest in. Those are going to be things like data infrastructure, because we know there's going to be a lot more people utilizing their data services. It's going to be things with 5G, with cloud services, or even internet type businesses, whether it's in regards to medicine, documents, different things that people will be using that they've now become accustomed to through COVID-19, and we think will continue once everything gets back to I guess whatever we consider normal, once things start to open up.

So look for those longer-term trends. And those are the names we're investing in-- ServiceNow, American Tower. Those are some of the names we find advantageous at this point.

ALEXIS CHRISTOFOROUS: All right, Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments. Thanks for your insights this morning. And stay well.

VICTORIA FERNANDEZ: My pleasure. You too.