Market trends, BOJ's yen move, 'R' dilemma: Stocks in Translation

Stocks (^GSPC, ^IXIC, ^DJI) have been on the rise as first quarter earnings boost market sentiment. Sectors such as utilities (XLU), energy (XLE), and technology (XLK), have emerged as the driving forces behind these market gains. However, the question arises: can this momentum be sustained?

The Japanese yen (6J=F) has witnessed a resurgence thanks to the likely intervention of the Bank of Japan. This move by the central bank is aimed at strengthening the yen, but it raises questions about the potential implications for global markets.

Additionally, a notable theme emerges: sectors and industries starting with the letter 'R' – rates, regionals, retail, and more – seem to be lagging behind their counterparts. This begs the question: what underlying factors are contributing to the underperformance of these 'R' names?

Yahoo Finance's Jared Blikre is joined by Evercore ISI Head of Technical Analysis Rich Ross and Yahoo Finance Producer Sydnee Fried for the latest edition of Stocks In Translation. Together, they delve into the catalysts propelling market gains, the historical implications of the suspected yen intervention for investors, interest rate-sensitive sectors, and more.

This post was written by Angel Smith

Video transcript

Welcome to stocks and translation, our essential conversation cutting through the market, mayhem, the noisy numbers and the hyperbole to give you the information you need for your portfolio.

I'm Jared Bry.

And today we have Rich Ross, he is senior director, managing director at Evercore.

And we also have our all star producer Sidney Fried.

Thank you for joining us here today.

Now, on the docket, we have our theme markets are roaring back.

Very specific terminology.

We have the Dow and the S and P essentially back to highs chip stocks jumping once again, a slew of volatility halts in the OG meme stock Gamestop itself.

So are we so back?

And our word of the day is intervention.

No, we did not make that up, but we are gonna tell you why a peak in the Yen helps pave the way for the next China Bowl potentially.

And this episode is brought to you by the letter R. Uh why you should be tracking res rates, regionals and reggae.

We're gonna tell you everything that's behind that alliterative call.

Now, Rich and Sydney are first start.

We want to tackle the theme of the day markets roaring back.

We've got the dow, the NASDAQ, the S and P, basically back at their highs.

Um, a month ago, you know, people were a little concerned the higher for longer things seemed like it was gonna take hold.

But we're back at these highs.

Where do you think we go from here?

I think we go, I just put a note out this morning, put a more specific target, 5500 this summer.

But I have quite a spicy upside target on a year to day basis.

I think we get to 5800 by year end with upside to the next big round number in Q one of next year at 6000.

So probably one of the more bullish, if not, maybe most bullish uh strategists slash upside targets out there.

Yeah.

And let's talk about some of the constituents.

Um The sector breakdown is interesting.

We've seen utilities rise uh rather recently, but don't count out the mag seven and this something you've brought a lot of charts and you're talking about today.

So let's start with the OG one of the mag seven NVIDIA.

That's been the biggest runner.

Yes.

So look, semiconductors in, in our estimation are the underlying commodity of the bull market.

They're the underlying commodity of technology, technology drives the S and P by virtue of its market cap.

So it's sort of like if, if you want to know whether you should buy or sell energy stocks starting with crude oil is a pretty good place to begin.

And, and again, there was a lot winded way of saying semis are probably the salient tell in the markets right now.

And of course, NVIDIA, the, the lead dog is sort of the alpha dog of the semiconductor group which remains in an an outstanding position.

And the last thing I would say about NVIDIA, uh for those that look at charts like myself or those that look at spreadsheets like um actual investors, it's, it's one of the rare examples where the stock's gone up 700% from the bear market lowest, but yet the multiple remains the same.

And that's really something for everybody, whether you invest in the momentum and the strength or the valuation, same level 700% higher, that's quite bullish in my estimation.

Yeah, the multiple thing kind of grabbed my attention as well.

I want to talk about Microsoft, you say Macro Hard Microsoft, I like that.

Uh Just explain it for us a little bit here.

Yes, certainly about Microsoft.

Uh quite some time ago when we became bullish was really the poster child if you will, the logo for what I've deemed a Microsoft landing.

And what's interesting is that software has really as, as a sector has taken a back seat to semiconductors, the economy has been more resilient.

So the more cyclical semiconductors have really gotten the lion's share of the gains up 28% year to date on the benchmark S MH ETF but importantly, as it pertains to Microsoft, while the sector has underperformed relatively, fairly dramatically with the IGV, the benchmark software ETF essentially flat up up just 50 basis point year to date.

Despite this strong global bull market, Microsoft has outperformed the group, but it's largely underperformed the other mag we'll call the mag six tesla belongs in its own category.

No disrespect to tesla, Just not the same chart, not the same story.

But, but again, Microsoft is in an outstanding position.

It's outperformed semiconductors as a sector.

I'd like to see a little bit more over the back half from Microsoft.

But I think we get it.

It's a stock in an outstanding technical position with the fundamentals uh to boot.

Let's talk about meta.

Um This is a stock that just off of the lows lost 75% of its value.

They went through a year of rebuilding of turmoil and now they're looking pretty good back up to the highs there.

What do you think of the technicals?

Look again, meta is in an outstanding position?

Clearly, we had a hiccup, maybe that's a polite way of saying the stock fell 10% post earnings.

Keep in mind this was probably the most crowded and that has sort of a pejorative connotation to it.

It was the heaviest, it was the most owned, the mega cap stocks going into earnings.

So the bar was uniquely high for meta, not, not to make excuses for a 10% gap down um on those earnings.

But importantly, the stock is stabilized.

It's still in a, in an outstanding position.

And again, at almost four or 5% of the S and P really has, has more bullish implications more broadly given its strength.

But again, each of those big mega cap tech stocks to include NVIDIA, um again, in an outstanding position And that is really one of the key pillars of this bull market.

Let me ask you about Apple has not done much this year, hasn't done.

It's been in a sideways trading range uh since last year.

Do you see it finally breaking into which direction?

Yeah, I do see it breaking but but higher, not lower to your point, which is 100% accurate.

The stock has lagged and continues to lag, not just the S and P but again, that, that mega cap cohort if you will on a year to day basis, still down 3% again in a world with an S and P up almost 10% year to date global market surging.

But what's no notable is the reaction post earnings just as we saw a gap down in meta, again, shaken, not stirred.

Didn't, didn't break the chart.

Apple tests and holds key support at the low end of the range and now you, you're really setting the stage for a trip back up to the high end of that range of 200 a breakout above 200.

And the last point I want to make on a relative basis when you've gone through these periods of relative underperformance in Apple.

This is where you have been paid to embrace the stock after those periods of underperformance.

So I think Apple is in an outstanding position.

And again, from a market cap standpoint, 6% of the S and P really important.

You take Apple and Microsoft together, you're talking about almost 14% of the S and P right there rich.

You just sound so bullish on these mega caps.

What I mean?

Is there one that's worse off than the others?

Is it all roses from here on out?

So maybe I don't even know if we include that, but maybe two that are worse off.

Yeah.

And, and again, it's just a different chart.

It's not a matter of liking it.

And, and again, keep in mind, I'm the head of technical analysis.

It's a, it's a department of, of one.

So we, you know, we're small but mighty uh in the tech department.

Yeah, exactly.

But uh you know, my, my comments are really uh speak e essentially just to the charts themselves, the technical.

So when I talk about Tesla, not being as strong as the others.

Again, not, not to knock E Elon Musk, never a good idea to make enemies with the world's richest man, but only to suggest that to, to your point, the big stocks and we could bring Tesla into the equation and talk about that chart as well if we want to.

But the, the, the, as I call them, the original six sort of in honor of the NHL, they're in an outstanding position, uh uh not to varying degrees again.

But the charts are quite similar.

When you look at Amazon meta alphabet, you're talking about these big multiyear bases, meta and alphabet have broken out to new all time highs, Amazon just on the cusp.

But, but keep in mind even when you talk about Amazon, as much as some people, the bears like to point to the late nineties and say, oh it's the tech bubble all over again.

Amazon is unchanged over the last three years.

You can draw a line that connects you to the highs that you made in 20 one.

So I find it very hard to believe that that we are in this, you know, sort of penultimate moment of, of greed when you're talking about Amazon at two trillion in market cap essentially unchanged over the last three years.

And, and again, me and alphabet, not, not too far behind in terms of stocks that have just now reclaimed levels that we saw uh almost uh in Olympiad ago.

I gotta go.

Yeah.

Well, I just want to break this one thing down for me if you're uh a really beginner investor first time investor.

You're the technicals guy, this is the time get in on most of these big stocks.

If you have nothing, you're not invested, you make a great point.

So when you look at a chart like that and in my head, you can sort of see, it's almost like the picture of a smile, as we said in Amazon, that's just now made it back to those old high.

So the bears come out and they say, and, and then that's fine.

By the way, when I use that phrase, I'm not knocking, everyone's entitled to their opinion.

Uh The point being you've made it back to this prior reference point.

So people draw the line and they say, oh, it's a double T this is where the story goes to end.

And, and at times it does not just because you've made it all the way back to a prior reference point doesn't mean you've earned the right to break out and start a new bull market.

So it's my job to say which of these moves are more likely to break out and, and be the catalyst for a new bull phase and which are likely to fail.

So here's how I do it.

I try to connect the dots from the top down and the bottom up.

I think if you are a novice investor, you say, don't anchor to the lows and say, oh, how am I supposed to buy meta or, or NVIDIA up 700% off the lows.

You say I'm buying Amazon unchanged over the last three years.

And I'm not saying that just because I'm bullish.

I'm saying that's what we're told to that, that that's what sort of the good book of technical analysis teaches us that when you have these multiyear basis of support and now the forces that drove the bear market in terms of higher inflation, higher interest rates, tighter policy, all of those are receding on the margin that gives you the tail wind.

All of those macro forces become a headwind now from a headwind to a tail wind.

And I think that's how you get those multiyear base breakouts and a and a new bull trend in those big cap stocks.

Yeah, I lo I love those multiyear bases.

We're also seeing it in some commodities.

Uh We can touch on golden a bit.

Want to get to our word of the day though.

This is y intervention.

Uh We recently saw the Japanese Yen weaken to levels not sedan versus the US dollar since the 19 nineties.

Um at the peak this month, they were 100 and 60 yen to the dollar.

But the bank of Japan is thought to have intervened recently to strengthen the yen.

And we've seen some consolidation around these extremes here.

So my question to you, rich is we've seen a lot of boj action before in 2022.

Their interventions are not always believed by the market, sometimes the market just rallies, you know, if they wanted to weaken the market rallies is this time different.

What, what does it mean for investors?

I think the first point you make is, is outstanding, which is that interventions have a sort of dodgy track record of success.

They sort of, you know, provide a short term bomb if you will.

Uh but again, rarely is, it's a panacea that cures all of the ills that, that have weighed on, on dollar yet.

And when I say we on dollar yen, of course, it's in yen terms.

So higher on the charts is, is a weaker yen in your wallet.

Um But again, I think you have a lot of macro cross currents coming together at, at the same time, which is we, we have the, the prospect for the first interest rate cut, uh whether it's in September, December.

Again, these are up for debate.

It seems like it continues to be a moving target, but these are the forces from the top down that are driving that weakness in dollar yen.

Our economy has been more resilient, our policies been tighter.

Uh But again, we're finally starting to see that narrative ebb as it were as we eye that first rate cut here in the US.

So oftentimes we see things get pushed to the brink and, and in terms of risk, appetite and then it comes together or, or it snaps the snaps importantly are the exception, not the rule.

And I think this is another one of those cases.

The last point I'd make on Dollar Yen.

Most are overbought on the charts in 50 years.

So again, just because something's overbought or oversold doesn't mean the move is over.

But at extreme, we, we really take note of that momentum and I would say the most overbought in 50 years, that's pretty extreme in my book.

So I I in essence, Dollar Yen captured the fear that we saw that was coincident with that April drawdown in the S and P of 5 to 6% and backing off with that intervention again, fundamental catalyst tend to occur at technical inflection points.

And I think that's exactly what we've seen with that BOJ intervention or so called intervention as it were.

All right, for our viewers on the streaming platforms, we're gonna take a quick volatility pause for everybody else.

We're going to carry on with the show here.

All right, we were just talking the intervention.

Um You gave a great explanation of where we are in the business cycle with what the yen uh might be telling us.

I want to ship to China because all of these cross currents are kind of linked here, especially in currency land.

Uh We've also seen the yuan carry heightened importance especially as China tries to reopen.

So have we seen finally the bottom in China here?

Yeah, I'm I'm gonna stop short of calling a a bottom because I feel like you only get one shot at the apple in terms of calling bottom.

Yeah.

E exactly.

But I will say this, you know, some firms use the phrase uninvestigated by, by some estimations to really unstoppable.

And when you look at charts like the Hang saying, uh for example, which, which kind of obviously give, gives you that Hong Kong look at at China.

But again, it's as good as any sort of the venerable Hang Hang Sang.

If you will hard not to look at that as a double bottom, furious break out of this multiyear downtrend.

I really think it's in an outstanding position.

You finally started to see some of the benchmark ETF S like the K web, the China internet ETF which is chock full, all those big mega cap stocks that they have in China um also responding in kind.

So I think China is in a really strong, let's call it a tactical position, even if we'll step back from calling it a bottom in the short term.

Let's call it a double bottom in the Hang Sang and a breakout from a multiyear downtrend.

So you're in the best technical position you've been in, in years in China.

And I think that's saying something rich China has really cracked down on tech in recent years.

Uh in the first year of the pandemic, Chinese authorities targeted Alibaba's Jack Ma, they threw cold water on that DD ride sharing IP O So what's changed since then?

If anything?

Yeah.

You know, quite, quite frankly, I'm not sure uh much has changed and I think it's one of those clouds if you will, that, that, that uncertainty or opacity that, that you discussed.

There's a reason why in a global bull market, China has been in a multiyear downtrend and I think those are some of those key forces which for some have made them unin invests again though these are not my words, these are words from, from others, but at a minimum, even if you said it's not uninvestigated, I I think it's enough of a concern such that when you offer someone, I mean, you think about the strength in Europe, in Japan, in the US in Taiwan, obviously on the back of semiconductors uh as well, you have a lot of options as a global investor.

So to embrace China with, with all of these legitimate concerns out there has been a difficult bridge to cross for some.

Why do you have to take those risks that you know, are, are somewhat opaque as it were the uncertainty when you I have so much goodness going on out there.

But again, every market has its price and you know, a bottom is a function of both price and time they've been in the penalty box now for over three years, valuations getting down to that trough prices.

Also at, at multi year lows.

So, you know, beauty is in the eye of the beholder.

I mean, the, the number of times I've gotten D MS about K Web.

Oh, it's finally bouncing back.

It's finally bouncing back.

I have to say to me technically, it does look better this time to your point.

Which is an excellent question.

I don't think, think those risks have gone anywhere, so I personally wouldn't want to take them.

but um could be in for a monster bounce here.

And I think markets have a great way, you know, you in trading, they say take it to a level that trades, you know where the interest is.

So at the right price, the story doesn't have to change the price changes for it and that changes the story because the risk reward to some could become more compelling.

Same story.

But price and valuation at a lower level could be the catalyst for some that sounds like it's straight out of a Wall street movie here.

All right, we gotta take a quick commercial break for the letter R. This is what the episode is brought to you by and rich.

You like the R names.

And I just realized your name is an R name.

But beyond that, we have Reits rates.

Russell, retail, regionals, regulated utilities and reggae.

I'm really keen to uh to hear about this one.

But what's with all the art?

Yeah.

Well, first I just like reggae.

I mean, I don't know if people listen to it anymore but, uh, you know, as a, as a genre I feel like it sort of disappeared had its moment in the nineties when I was back in school.

But all of that said in terms of making money rather and then having fun, um, it's interesting that all of these things that start with the letter R that you allude to and, and we didn't make these up.

I mean, this is how, how they are written, um are also the most interest rate sensitive and, and this is the lagging part of the market.

Yeah, I if you will, the, the part of the market that's just not participating in, in this bullish brio that, that we're seeing around the world.

So again, things that are interest rate sensitive retail stocks as, as um illustrated by the X RT which is an equal weight retail ETF but we could even use the S and P consumer discretionary sector if we wanted to call that retail.

Exactly.

So it's flat year to date.

And there's only one other sector of the 11 major gig sectors in the S and P that's lower year to date.

And those are your res and again, what's the common theme here?

Interest rates, higher interest rates weighing on your rate sensitive res obviously concerns over commercial real estate.

Again, res sort of get painted unfairly uh because it's not a pure plan, commercial real estate by stretch.

In fact, the exposure is lower than is traditionally believed.

But all of that said Russell 2000 another are small cap stocks.

The lower end consumer, the smaller cap company that needs more cash has less cash on the balance sheet.

There's financing needs, it's going away on that small cap stock.

Hence your Russell under performance.

So you've gotten your res, you've gotten your rates.

We've talked a little bit about reggae.

Um now regulated utilities, an interesting story because utilities the most interest rate sensitive traditionally and, you know, number one this year right now and number one, it's amazing, right?

And, and, and that's why we play the games and you know, everything that you read about in the, in the textbooks, you know, I went to business school right around the corner at NYU.

Um and, and, and again, they teach you about it in the book and then we play the games in the real world every day from 930 to 4.

And if you told somebody that the biggest concern on the board, where's higher interest rates, higher for longer, tighter policy, sticky inflation, et cetera and yet the best performing sector, the most interest rate sensitive.

So, hey, that's what makes this business fun at times.

And I would buy those utilities.

So maybe if I had to put a bow on that thought, I would say, wow, the interest rates sensitive side of the tape utilities have started to, to respond in kind, surging up 13% taking out that multiyear downtrend.

So utility is not necessarily scared about higher interest rates.

But now we need to see this summer.

Some of the strength that we've seen in the large cap cohort start to make its way down to that smaller cap, more interest rate sensitive, more economically sensitive company.

I would like to add on reggae uh that I played the steel pans in uh what like elementary.

Exactly.

Uh I don't think I could do it anymore, but it, it was like a requirement at my school.

So yeah, we, we, we'll offline about that, but I was actually gonna go back to res because we, we've been doing a lot of segments on reeds uh these days kind of as like if you don't want to invest traditionally in real estate, should you invest in reeds?

What dangers remain in kind of investing in?

Yeah, look again, I think, you know, I don't want to compare reeds to China, but only in terms of the narrative that you outlined in terms of some of those legitimate concerns.

You know, people talk about commercial real estate mo mostly people that are bears but, but let's be fair.

It hasn't been a great situation for the economy.

But unfortunately, I feel like people see reeds and they just think commercial real estate.

But office res again, just one part of, of the reed landscape and you know, you know, I don't want to do the sector a disservice because we, you know, it's really one of our, our best silos or verticals that we have and we have the experts in the field that are so much better equipped to handle it.

But I would say this from the, from the chart standpoint, whether commercial real estate I I is the sector or not, we know that it's not, but it gets painted with that brush.

So for the purpose of investing, you kind of still it in a little bit of that penalty box.

And, and let's be fair.

Even if commercial real estate it does doesn't take up the biggest slice of the pie within the re landscape.

There are clearly other sectors are interest rate sensitive as well.

Um And, and again, as, as my clients as, as you start out, you said rich, you sound really bullish and I am really bullish and people say, well, it's a relative world.

So I have to sell something I need to be underweight, something and, and quite frankly, if you had to be underweight something at this juncture, you're probably underweight, something that has the most exposure to higher interest rates.

Um and, and commercial real estate of any of the other S and P sectors as we await the short squeeze inevitably.

Yeah, and, and look like to, to be fair to your point, you, you're bottom.

I, you, you don't go any lower on an absolute basis.

In reason, in my humble opinion, you, you've been doing the heavy lifting of putting this bottom in the charts.

They don't look too dissimilar from the charts of the Russell 2000 charts of the, the biotech, the XB I ETF also, you know, the longer duration we don't maybe don't think of them as having that same sort of economic or interest rate sensitivity, but as a longer duration asset we wait around for, for drugs to, to kind of cure all all the evils out there, the higher interest rates are going away.

So the charts look remarkably similar is my point.

Very good.

Uh Something really interesting is happening today.

I don't know if you've been watching the tape, the headlines.

Uh We've been dancing around this, the latest meme stock moves today and it's now time for our Hollywood segment who wore it better.

What, what could be better than this?

We all remember the initial hype surrounding uh the reddit fueled surge in certain retail oriented stocks like gamestop like a MC.

This was a meme stock craze in the 1st 90 minutes of trading Monday.

This week, Gamestop was halted due to volatility nine times by 11 a.m. Eastern as it surged to as much as 120%.

I went back to the Game stock peak on January 28th, 2021 found the stock had 18 halts that day and there were five consecutive days where the stock traded in a range of 100% or more.

So, basically, just crazy volatility.

It's impossible to know where we are right now.

What the future is gonna hold if volatility is sustainable.

But as of right now, who's wearing the volatility better?

Is it 2021 vintage Gamestop or is it today's Gamestop?

I, I think today we're in a, in a much in a far superior position outside of the meme stock craze.

You know, at that time, it sort of captured the zeitgeist of coming out of the pandemic and all of this liquidity, this pent up savings.

Um keep, keep in mind, interest rates were still low at the time, they had just begun their kind of climb.

And in fact, the the 500 basis points surge in interest rates in in fed funds was in part to arrest this tide of liquidity that was unleashed in that corner of the world.

Um So I think, and, and, and I'll hold my comments to, to the world and rather less on the meme stock craze.

So I think the world is in a better position.

Um And I like the fact that the entire market hasn't been in infected a as it were by this meme stock craze and this time around.

Yeah, it's still in a couple of headlines this morning.

Old habits die hard.

But again, I think the key focus here is interest rates and and, and quite frankly, the bull markets that you're seeing around the world.

So when you have higher interest rates, in theory, it weighs on the most speculative stock, it higher, more speculative than these main guys.

Exactly.

And higher interest rates and tighter policy are, are explicitly or implicitly designed.

Not, this isn't their only purpose clearly to stop the mean stock craze or, or frenzy, but clearly that is part of the, what you're trying to do when you tighten policy, make it more difficult to want and least speculate in that, which is somewhat profit, challenged rich.

We're gonna have to leave it there for the, for the record.

I believe I would agree with you.

I think we're actually wearing the volatility better today, which means we're, we're withstanding it a little bit better.

We do have to go.

So we thank everybody for watching us here at stocks and translation.

Keep your dial tuned to Yahoo Finance.