Stocks tumble, snapping 3-day win streak

iQ Capital Managing Partner and CEO Keith Bliss joins Seana Smith to discuss the House passing a $2T coronavirius relief bill and recent market volatility.

Video Transcript

SEANA SMITH: Well, for more on this in regards to the markets, let's bring in Keith Bliss. He is of iQ-- Keith, iQ Capital managing partner and CEO. And Keith, when we take a look at the market's reaction to this, we were initially well off the lows of the day. I guess we still are. But the Dow is still off just around 600 points. Why don't you think this passage of the bill is providing a little bit more of a boost to the market right now?

KEITH BLISS: For a couple of reasons. Number one, as everybody started parsing apart what's going to be in the bill and really seeing where the money's going. But having said that, they're still trying to decide what's going on there. But we all considered that the money is probably not going to get into the hands of both the companies and the workers for another three to four weeks.

Is that going to be a short enough time span to actually save some of these businesses and get them back up and running? And that's the whole key here, is to keep them primed and ready to go so that when we do go out and start buying goods and services again, the companies and the businesses will be there waiting for us.

The other reason why you're not seeing it reverberate back into a positive gain for the stock market is it's Friday. And long investors have learned a long time ago, and traders have learned a long time ago, is that you go home long over the weekend at your peril. We've seen that the last few years. So that's why you accepted upper trending markets like we had in December and January, which were basically on autopilot going up.

That's why you'll see sometimes stocks tend to stumble on a Friday, especially in uncertain times like this. People just don't want to go home long, and that includes institutional investors, high speed traders, algos, as well as the individual investor.

SEANA SMITH: Keith, what about the volatility that we've seen in the markets? We talked about the last three days, we had pretty solid gains. Today, we're giving back a chunk of that. But just in terms of volatility going forward, is it likely that that will remain now for some time?

KEITH BLISS: It is, at least for the next three months. If you take a look at the VIX contracts, which is what we use as the proxy to gauge what implied volatility will be in the market, we're in the front month. So contracts, of course, are traded by months. Futures contracts are traded by months.

And the front month for the VIX contract is still wearing a 60 handle. And that is extraordinarily and historically high. So certainly, traders are anticipating to have outsized volatility in the market. Anything over 20 on the VIX, by the way, spells outsized volatility to me. So we're extreme levels.

And then the other thing is that if you then start to look at the May and June contracts, so three months out, we're still riding at levels in the 30s and 40s. So certainly, traders that are in the market, no matter how they are, whether they're trading to skim profit or they're looking long term or expecting this outsized volatility, and as a result of that, Seana, I think what you're implying is that continue to expect 500 to 1,000 point moves in the Dow for the foreseeable future.

SEANA SMITH: Keith, but a couple of notes stuck out to me today, and I want to start with what was out from Bank of America. Now they were talking about their bull and bear indicator, which is just interesting, just in terms of this is a key measure that is used to track positioning.

And what that indicator suggested was that it had hit zero, a level that it described as a, quote, "maximum bearish." So when we try to just, I guess, extrapolate what that would mean here for the markets, are we setting up for some type of big rally ahead?

KEITH BLISS: Yeah, I do believe so. I mean, listen, my work, my own quantitative work that I've been using for the last 20 years, told me that the markets were first oversold on February 21st and then got vastly oversold on the 24th, is a situation that we see rarely in the markets, going all the way back to the 1928 time period. We've only seen those types of oversold rankings, which we picked up on the 24th, only a handful of times.

So and meanwhile, I was telling everybody, yes, go buy the market with both hands, and it continued to draw down right in my face. I do think we're going to have that, Seana, what we saw just a couple weeks-- the last week, at the beginning of last week, was total capitulation. You saw everything going out. Margin calls were happening. People were selling gold, bonds, every asset they had, to take care of the margin calls that they were getting.

And there was really no room for people to step in and buy stocks. Everybody was preserving capital. So I do think you're seeing great value in companies, and dare I say, even great value in a company like Boeing, if we believe Boeing aerospace is going to go out of business. And that's a bigger issue. But Boeing traded all the way down to $100, a level we hadn't-- you know, last week, a level we haven't seen in years.

So I think there are great values out there, and that will allow smart money-- people with a lot of dry powder in their portfolios who raised cash maybe at the end of December or November will step in and start scooping up all these values. So even individual traders need to be aware and see that trend coming at them and kind of ride along if they can.

SEANA SMITH: Keith, what about that recent economic data that we got out? So there was a report out this morning just in terms of consumer sentiment. That was dropping. It took a diving down in March. We also had that jobless claims number out yesterday morning, 3.3 million jobless claims for last week alone.

When we take a look at that, obviously, that means that it's a huge hit to the consumer. The consumer has been so important in this market and this economy now for several years. How do you interpret that data?

KEITH BLISS: Well, lots of different ways. I mean, the data-- you're right, Seana-- on the surface, when you look at it, it's absolutely stunning. I mean, something that we've never seen before-- truly we've never seen this before. But I-- but I certainly try to analyze and take a step back, what it really means.

I almost think that number, the first time jobless claims number yesterday was irrelevant. We knew the number was going to be bigger. And of course, there's lots of debate that the number should have been bigger. The systems to process unemployment claims probably got clogged. And a lot of people gave up.

So it will be bigger, and next week, it's going to be huge as well. But this is what the stimulus measure was put in place to alleviate was to get these people off of the unemployment rolls, put them back to work overall. And I think we'll start to see that. But again, like I said earlier, it's going to take a few weeks.

As it relates to the economic data that we got today, the Michigan survey is, again, no surprise that people are nervous. I mean, we've been now hearing and dealing with the coronavirus for a couple of months. The markets sold off in a great way since the end of February, so four weeks before we got any kind of bottoming out or leveling, which I believe we did this week or at the end of last week.

And therefore, you're going to see certainly the sentiment and the confidence numbers take a hit. What I will say to you, though, is that if you look at it, I thought the Michigan numbers were going to be a lot lower than they actually were. So I thought that was kind of interesting. Inflation expectations are still in good line with what a healthy economy would have or an economy that was booming like ours.

And as long as we can get to the bottom of this, we can see some sort of bending or flattening of the curve. People can start to get back to work. I'm not suggesting that that's the right move or the wrong move or it will happen. But if we do see that in the next two to three weeks, and I think you'll see both the economy pick up as well as that economic data that the market does pay attention to when it trades.

SEANA SMITH: All right, Keith Bliss, thanks so much for joining me.

KEITH BLISS: My pleasure.