Meme stocks ‘is a separate side show’: Strategist

Art Hogan, National Chief Market Strategist, joins Yahoo Finance to discuss the meme stock frenzy, outlook on the market, and the global minimum tax deal.

Video transcript

ALEXIS CHRISTOFOROUS: I want to continue our discussion on the markets now and bring in Art Hogan, chief market strategist at National. Art, good to see you. I want to stick with these meme stocks and the fact that a lot of investors might not even know they own these stocks because they're part of the Russell 2000 Small Cap Value Index. I'm talking about AMC and GameStop among them. What do regular investors who don't want to play the meme game need to know about what's going on in that space right now?

ART HOGAN: Yeah, it's such a great question, Alexis. And I think that-- I think you and Jared hit it right in the last section, where he said it's its own animal. And you said it's a frenzy, right? So understand that that's what's going on right now. It's a separate sideshow. It is its own animal. It is a frenzy. It's a mania. But if you are along the Russell 2000, the IWM, part of the movement you've seen in the Russell 2000 has been because of companies like AMC and GameStop. And that will continue to be the case until they reconstitute that index.

And actually, these names are going to get kicked out because they're too large. This is the function of if they're going to be put into the Russell 1,000, right? So that's what happens once a year, where it just so happens that that's happening this month. But in the near term, understand that if there's a handful of meme stocks that are rotating in and out of favor, it could have a potential move on the Russell 2000.

But understand very small, the percentage that AMC or GameStop, back in the day when GameStop was the only game in town. In meme land, I think that that had a bit of a move on the Russell, too. But I think the Russell, too, really has been driven. Because it's domestically focused, focused on the US economy. Small cap tend to be cyclical. There's a lot of energy and financials in there. So I think there's a lot more fundamental drivers for the Russell 2000 right now versus that poll that has been the meme stock frenzy.

ALEXIS CHRISTOFOROUS: So Art, I know you long enough to know that you are a fan of the diversified portfolio. You particularly like the barbell approach. Growth on one side, economically sensitive cyclical stocks on the other. I want to focus on growth for a minute. Because that covers a lot, right? Where within there are you looking right now? And are you more cherry picking than looking at overall sectors?

ART HOGAN: Yeah, so we like three thematics. So thematics are cloud computing. That includes the edge, cloud security, and 5G. And so if you take those three themes, you can find plenty of things to cherry pick through. And I think it's important to look at companies that are actually trading on a price to earnings, not a price to revenue. And that's been true for the entirety of this barbell approach. You can also get exposure to-- or express those opinions in ETFs. Either way, it makes the same sense.

And when you do that and you balance that in a portfolio and rebalance that every two months, keep that barbell level, I think you're going to outperform the S&P 500. So I think it's the concept that the market is never binary. It's never either or. It's not always just growth or always just value or cyclicality. So I think that as you navigate the markets this year, it's important to think thematically, look at companies that have earnings, right? And look at that and apply or express that opinion in either ETFs or single stocks on the growth side.

ALEXIS CHRISTOFOROUS: All right, I want to talk about taxes, everybody's favorite subject. Because the G7 members have come to an agreement what they want to do is impose this 15% minimum corporate tax on foreign earnings globally. I think when investors hear taxes, their ears perk. They get a little nervous. What do you think? If this really comes to pass-- and that is a big if, right, Art-- what might the real impact be on the equities market?

ART HOGAN: Yeah, it's such a great question. Because you know what I want to do? I want to learn how to play the piano and speak a foreign language. But that's going to be difficult for me to accomplish. I think this is a great thing to say, that the G7 wants to do this. The OECD has been talking about this sort of minimum corporate tax globally for a long time. And what that would prevent is corporations finding places to put shell companies and operate them, passthrough companies, and operate in places that are really not doing business to pay lower taxes.

So, theoretically, this makes a great deal of sense because we'd actually be collecting more revenues globally from corporations. But in practice, you have to not just say we want to do this, but then you have to go back and say to your legislatures, let's pass this. And that's much more difficult. It would be difficult for the United States. And this is in general our idea. We presented this. The rest of the G7 said, hey, that's a great idea. Let's agree to this. And then let's think about how hard is this going to be to actually put in practicfe.

So before you start thinking about what this means for your portfolio, I'd take a step back and say, how hard will this actually be? And remember, this is the same concept around the TPP that we had. The G7 agreed to that. The OECD countries said this is a great idea. But everyone had to go back and get that approved. And not everybody approved that.

ALEXIS CHRISTOFOROUS: Right, and I'm with you. I, too, would like to learn an instrument and a foreign language. Don't think that's happening any time soon. All right, I want to get your take on cryptocurrencies. You and I don't talk about it often. It's mixed today. We had that big cryptocurrency conference in Miami over the weekend. What's your exposure there?

ART HOGAN: Well, what's interesting is-- so I sort of looked at crypto because the blockchain is the new technology, right? And hearken back to '98 and '99 and 2000, where the internet was the new technology, right? And we don't know how big these things are going to get, but we certainly know they're going to be an important part of our lives. Lo and behold, some 20 years later, we're discovering what the internet actually means to us and what a difference it's made to our lives.

And of those hundreds and hundreds of companies that became public in that time frame, over 800 companies became public that were somehow attached to the internet, there's less than a handful that are still around and thriving and growing concerns. I suspect that the beginning of a new technology, the blockchain, we will likely see dozens and dozens of coins and currencies minted.

And then, sometime down the road, we'll discover, hey, the blockchain is a really important part of us doing business and transforming transactions for us. But we don't know of the cryptocurrencies that are out there, which of those will be the ones that actually make it through this ride. So we'd be very careful. We suggest to investors that treat this as speculative. So like any other speculative asset class, you want to have anywhere between 0 and 5% of your money in there. And understand it's that basket of money that is treated with speculation. You could lose it all.

ALEXIS CHRISTOFOROUS: All right, wise words, Art Hogan, National Securities, thanks so much for being with us.