TD Ameritrade Senior Market Strategist Shawn Cruz joins Yahoo Finance Live to break down how markets are faring after Biden’s first day in office.

Video Transcript

- I also want to shift our attention back here to the market action we're seeing play out as we've been highlighting today. A bit of a rotation here away from the small caps, back into some of those beaten down FANG names. So is that trend expected to continue for the rest of 2021? I want to bring on our next Market guest here. Shawn Cruz is TD Ameritrade's senior market strategist. He joins us again here.

Shawn, good to be chatting with you. I mean, this is something that's interesting as we get further and further along in earnings season. Of course, we saw a few beats. Netflix could perhaps maybe be the trigger for maybe some of these renewed looks at the major FANG names. So talk to you about what you're seeing play out right now.

SHAWN CRUZ: Yeah, I think no matter what sector you're looking at here for the upcoming earnings season, forward guidance is going to be critical, really, to how investors respond in terms of either buying the stock or maybe selling it and finding a better place to park their investment dollars. And Netflix was a great example of that. And so if you look at some of the stocks that performed incredibly well throughout 2020, it's what they call the FANG names, the stay-at-home trade.

The question on a lot of investors' minds is, was that as good as it's going to get? Did you pull forward all the growth you're expecting for the next year or two-- and in some cases, three years-- all into 2020? And we shouldn't expect as much growth moving forward.

Netflix gave an example of one, there's still plenty of growth markets out there for them. And that's why they came in on the international front incredibly strong. They're able to improve profitability. And I think profitability is going to be key, because one thing a lot of these companies did over the course of the past year was very similar to what they did during the financial crisis. And that was really clean up their income statements in terms of expenses and optimize things on the expense front to improve-- at least protect the margins, I should say.

So the question now is going to be is, is what you've done to clean up your margins-- is that going to really put you to a place where you can continue to grow earnings moving forward? So that's really going to be the catalyst for a lot of these companies. And I think even if you look at small caps, the question is going to be, are you in a good place to benefit from any sort of stimulus or infrastructure deals that are going to come as well?

- Shawn, we're getting a clearer picture of what President Biden's legislative priorities are going to be, at least on the first 100 days. Give me some specific names here that you're watching that you see as big beneficiaries on the back of it.

SHAWN CRUZ: So I'm looking at maybe some of those names that were on the forefront of a lot of the trade tariff back and forth that we heard over the past couple of years to see if any changes in policy maybe affect those stocks. You can think of companies like Caterpillar, companies like Boeing. You could even look at some of those tech names. That's really what I'm looking for from the administration in terms of on the international front.

If you're looking domestically, I think you want to look at a lot of those industrial companies that are highly levered to the US economies. And you can actually look at not just industrials. You can look at material companies as well. If we do get a lot of infrastructure spending, that can benefit those companies because ultimately, they're going to be the ones that are doing the work here. And then also you can maybe even look at some of those renewable energy type of plays-- the electric vehicle market. A lot of those companies have done incredibly well, as the infrastructure is certainly expected to incentivize investment in those areas on top of just more general roads, bridges, that we're also used to.

- Yeah. On the topic of maybe that trade-off in some of these stocks that have been beaten down due to the pandemic-- interesting to see the moves we're seeing play out in the United Airlines today after we got the update from the CEO kind of stressing how some of this is going to be in place for a while, permanently reducing the cost structure by $2 billion a year and projecting a longer recovery for some of these. All major airline stocks in the red today. Boeing down in kind. So I mean, what do you think about maybe the thesis that piling into some of these beaten-down companies would be the best scenario or best strategy for 2021? Do you think that that now is facing some debts?

SHAWN CRUZ: There's a saying in hockey: sort of skate to where the puck's going to be, not where it is. So if you want to position yourself for some sort of a recovery-- and there's a lot of dispersion in terms of where economists and analysts expect that recovery to occur. Is it going to occur very quickly here in the first quarter? Is it maybe going to take a little bit longer to play out?

But no matter what, I think the expectation is at some point over the long run, we will get back to what we expect to be business as usual. For the airlines, it's really going to be a matter of lifting restrictions and also consumer sentiment and how consumers are feeling about getting back to traveling. The one thing I will say, a lot of these airlines almost adjusted their business models to make up for the drop in passenger traffic and went into cargo deliveries, adjusted their fleets, modified their planes to be able to do that. And I don't think they're just going to completely move away from that.

I think that's going to be part of the business model as it evolves moving forward. And that's going to have different implications for margins, going to have different implications for revenue growth. So I think as we see how these airlines recover when we do start getting passenger traffic picking up, I think that's going to be a big tell of who's going to maybe stand to benefit within the airline sectors. Southwest is not going to recover to the same extent United or Delta might, at least at first. But I think you're going to want to pay attention to how that changes as we start to recover. There's going to be different business models between these airlines, and you're going to want to make sure you're almost a stock picker in that regard.

- Yeah. And all those airlines-- we're seeing red across the board in that sector. It's certainly been a bumpy ride for those companies over the last year. Sean Cruz, TD Ameritrade senior market strategist. Good to talk to you.

SHAWN CRUZ: Thanks.