Blancato also recommends buying longer-term Treasuries because he says interest rates will likely stay low for awhile.
FRED KATAYAMA: Vaccine hope, sparked by AstraZeneca and Pfizer, helping lift the markets Monday. Our guest, Phil Blancato, Ladenburg Thalmann Asset Management, says, the action that he's seeing right now, the optimism, is what he terms exceptional. He joins us now from Nutley, New Jersey.
Welcome back, Phil. Stock's recently have been stuck in the trading range, but today, the tech stocks are back in the forefront. Are you worried by this mercurial bounce? The levels at which we're trading and the valuations in a lot of the earnings picture that we're seeing?
PHIL BLANCATO: I am a bit worried. I think we've gone so far, so fast. When you think about valuations, and I understand we have to look at it from a traditional standpoint, interest rates being lower than they've ever been. This means we should tweak our analysis, but certainly we're at a point where stocks are not inexpensive, breadth of the market continues to be very narrow. And for that reason, I'm concerned.
FRED KATAYAMA: And with the breadth narrow and all that, if you're concerned, would you take some profits now, and if so, in what areas?
PHIL BLANCATO: I would. I think there's a chance to take some profits from these large tech names. I still want to be overweight tech. When you get an opportunity like-- oh, obviously growth actually.
When you get an opportunity to take away some profits and rotate to where-- think of the mindset. If we can rotate through some of the big value names, so those core economy names, think of the Costcos, and the Caterpillars, maybe some cyclicals, the reason why, they're still cheaper. And if we are close to the end of this, let's assume one of these vaccines work, and we begin to open up at a faster rate come the fall, then you've got to really benefit by beginning your rotation now.
FRED KATAYAMA: And as for the vaccines, is the market putting too much hopes on vaccines? It seems every single time you get some positive news out, it just brushes off everything else that was bothering the markets until that point.
PHIL BLANCATO: Well, truth be told, we've never had a vaccine for a virus ever. Think of it from that standpoint. Nothing that's ever worked at this rate. We've had therapeutics, but nothing's ever really fixed the problem.
This is the first time, whether it's Messenger RNA or some therapeutic, we're changing-- it's really exciting what's happening, and for that reason, of the 160 that are out there, I'm in the camp that one of them is going to work, but what I'm not in the camp in, it's not a golden lever. Just to produce enough vaccine to get the world inoculated, but specifically the United States, is going to take time. So for that reason, I think you want to participate in your portfolio, but you want to protect as well.
I mean, don't be overweight equities here because anything could-- could take away the steam from equities right now. It could be a minor shift that the latest bill in the Congress and the Senate doesn't go through. It could be, to your point, a vaccine takes longer than we expect.
So for that reason, be neutral in your equity portfolio. I wouldn't be overweight equities here. There's just-- the valuations don't make sense, and we're banking on something we don't know if that's going to work just yet.
FRED KATAYAMA: And Phil, bonds are pricey as well. If that's the case, where would you put your money if you're going to reallocate some out of equities?
PHIL BLANCATO: So let's think what do we do in an expensive environment? First, rotate towards larger cap, both growth and value. Why? You're going to get less volatility there, and you might earn a decent dividend. Your earnings yield divide-- forget p divided by e, divide e by p, earnings by price. Stocks are still a better deal than bonds when you do that math, but rotate towards larger cap.
For the bond market, though, think about it, every major Wall Street bank last week came out and said they're putting money aside for defaults, they're concerned about loan losses. They're in great financial shape, which is very different in 2008, but if they're saying that now, inevitably, the bond market is going to have stress. Now I know the Fed is buying in that triple B market and higher. What about lower than that? So for that reason, be careful of your bond credit quality.
You want to add a little duration here because we're in low rates for a while, I think that's OK, but be very cautious of the high yield market, that is a speculative market. I would rotate towards higher credit-- higher credit bonds. Even consider a little bit of treasury to stem some volatility, you're not going to earn a lot, but be higher credit, higher quality in your bond portfolio, higher quality your equity portfolio. So you're participating in the markets, but you're also protecting the asset.
FRED KATAYAMA: OK, participate and protection. Thanks a lot. We'll remember those two Ps, Phil. Thanks to another P, Phil Blancato of Ladenburg Thalmann Asset Management. I'm Fred Katayama in New York, and this is Reuters.