Will Trump and Biden halt the stock market melt-up?: Opening Bid

The first presidential debate between President Joe Biden and Former President Donald Trump caused a stir in the political landscape which could filter over into the financial landscape. As the election season heats up and polls change, uncertainty around who will win in 2024 may have an impact on the stock market. As new markets begin to emerge, how each candidate may handle and regulate those markets may differ, adding to uncertainty.

Yahoo Finance Executive Editor Brian Sozzi is joined by Bradesco BBI Head of Equity Strategy Ben Laidler for Opening Bid to discuss the market's potential reaction to the presidential election, the level of uncertainness rising in the markets, emerging markets, and the AI of it all. The pair also discuss what Roaring Kitty's new stake in pet retailer Chewy (CHWY) says about the markets more broadly, and how much growth is left in Nvidia's (NVDA) stock.

For more expert insight and the latest market action, click here

This post was written by Nicholas Jacobino

Video transcript

Welcome to the latest episode of Yahoo Finance's opening bid podcast.

I'm Yahoo Finance's executive editor, Brian Sozzi.

Now let's make some money and get a lot smarter.

Here with me now is Bosco's BB.

I, uh, new head of equity strategy Ben Lalor.

Ben, Congrats on the new position.

Good to see you, man.

Yeah, thanks for having me on.

Uh, so there's a lot to a lot to talk about, but I loved, and I think this is a pretty, uh, a pretty good starting point.

I love this note that you sent over to the team ahead of this one.

You noted that the election cycle is likely a volatility event, not a fundamental event.

Talk to us a little bit about that, because from the vantage point here in the U SI know you're in the UK.

But from the vantage point in the US, uh, I think investors are are getting pretty worried about what they saw after that debate between, uh, former President Trump and current President Joe Biden.

And it's not yet reflected in the market.

That nervousness and there's a seems to be a at least to me, a rising sense of uncertainty.

I think that's right.

Um and, you know, we've just had this gangbusters sort of first half rally, right?

So I think we are set up for a little bit more volatility in the second half.

And one of the key ingredients for that could be this early start of the US presidential cycle.

Um, yeah, The US is 65% of global market cap.

So we can, you know, complain about the French election.

Surprise the Indian election.

Surprise the Mexican election surprise, you know, until we're blue in the face.

But the granddaddy here is, you know, November the fifth, Um, and we're coming into this a after this big rally with volatility, S and P volatility at, you know, nearly record lows, summer doldrums, you know, potentially, um, you know, seasonality.

So I think we we are set up for, uh, more volatility, but I don't think investors should necessarily worry too much about that.

And I say this with a little bit of trepidation, right?

Because, you know, stock market forecasters are generally terrible at politics, so that's the health warning.

But But, you know, these are the two best known presidential candidates.

We've ever had, and neither of them are dealing with arguably the biggest political issue out there or macro issue out there, which is this yawning deficit and these rising levels of, of, of, of debt.

So and I think you know, the one takeaway from the from the debate last week was the market has sort of made its peace with Donald Trump being the next president.

Um, you know, we saw markets sort of edge up a little bit.

We didn't see that volatility.

So I say with a lot of trepidation that maybe that's the volatility event rather than a fundamental event.

But, you know, uh, time will tell Ben, Let me let me press you on that one.

You have a former president, Donald Trump, who oversaw people storming the capital.

So there's that, among many other problems that he's facing various, uh, convictions, you name it.

You haven't a current president and Joe Biden, who went on prime time TV and couldn't put a couple of sentences together.

And there's real concern if he could just govern effectively for four more years.

If I'm an investor, why not take my profits that I have today ahead?

of what appears to be, uh, just calamity calamity at the end of this year, I. I think investors have been a little bit more simplistic than that.

I think investors are looking back to the first trump presidency and thinking, you know, that was fairly pro business.

I made a lot of money.

Um, maybe we're gonna get, you know, a repeat of that.

And, you know, Joe Biden's is the president today.

And, uh, you know, the economy is gonna grow 3% this quarter and inflation has come down, and we're about to start cutting interest rates.

So not everybody is obviously feeling that.

But, you know, the market is on track for the best year since 1995 which was 40 years ago.

And we're on track to have the greatest number of all time highs, you know, since then.

So again, I, I think the glass is half full, not half empty.

I do think there's gonna be more volatility.

Um, but I think markets will get through this.

I think the the the pillars of this bull market are not dependent on the politics and are a lot stronger.

I think for that any one president.

If if I am nervous about the election, what is my play from a market perspective?

Uh, so my simplistic answer is the US is just so super sized and enormous that if the US doesn't work, there are very, very few places to hide.

I can come up with one or two, maybe China's one.

But you know, there are very few places to hide.

So if you're if you're if you're very bearish on the US, you know it's bonds or cash.

Frankly, um, but I don't think you should be that bearish on the U SI think you know the election is one of the ingredients of this wall of worry that I think the market is just gonna keep climbing along with inflation, along with recession fears.

Along with, you know, tech Bubble.

I think we can get through it all.

You know, there's an element of truth in all of that, but not enough.

I think to, you know, derail this this bull market.

But I think the other one is that this bull market, I think, should broaden from here.

It's been very much about the US exceptionalism, tech exceptionalism and um the I think the story for the second half is you know, that will necessarily broaden out, um, and the the other assets which are more sensitive to rate cuts and a growth recovery, which is basically the rest of the world, I think should perform better.

So Europe Emerging markets, you know, sectors, you know, real estate financials.

So I think it will be.

I think tech will be fine.

I think the US will be fine, but I think others I think the leadership will broaden.

Uh and I think that will be very healthy.

Ben, there's nowhere else to go.

So if the US is still about on on the cusp of hell in a hand basket status, let's wipe that away Any overseas markets.

Uh, any emerging markets that investors who don't want to be in cash because it's trash, as the old saying would go if they don't want to be in cash?

Is there someone else somewhere else?

They could go all of the above, quite frankly, because, you know, they all have a lot in common.

Um, they performed very resiliently despite this sort of super dollar, despite higher for longer US rates, you know, traditionally, that would have been a catastrophe for all these other assets.

So they performed very well or or better resiliently.

So I think that is, you know, an interesting signal, but the catalysts are still coming.

I think when the US starts cutting interest rates, um, which I think gives the green light for these other parts of the world to continue to cut interest rates.

We've had something like 70 rate cuts so far this year versus only 16, uh, rate hikes.

The US is right at the back end of that.

But this global interest rate cycle, um, has started and I think will accelerate.

And the assets that are most sensitive to lower interest rates and stronger economies are in the rest of the world.

It's not big tech.

Big tech is just delivering.

Regardless, I think it's Europe.

It's emerging markets.

This is where earnings are depressed.

This is where valuations are depressed.

This is where you've had literally 10 years, if not more of underperformance.

So, by definition, the these markets are under owned.

And then the icing on the cake here and it goes back to what I was saying earlier.

The US just been so super size and these other assets being very small, even a little reallocation out of tech or the US goes a very, very long way in some of these other assets.

So I I've been looking at Europe, and I'd be looking at emerging markets.

They're both tiny.

They're both very sensitive to stronger growth, lower interest rates and and just, you know, a little bit of, um, a little bit more investor interest.

I can remember a day, Ben.

I imagine you could recall this too, when the US wasn't working in terms of markets.

Uh, meaning that US stocks weren't doing that.

Well, the first thought would be go to China.

It was a growth market.

It was a hot market that was always the place to go if the US wasn't working.

But it whoever wins the White House in November, they both have taken hawker positions against China.

What's your vibe?

Uh, on the china market?

And is that dead money?

Uh, because of the the rhetoric that has come out of the White House, that was the narrative coming into this year that China was unstable.

You were coming off two years of, um, you know, declining.

You know, Chinese stocks.

And of course, you know, whenever you hear that, um, the opposite tends to happen.

So China has rebounded, you know fairly strongly why, Because the expectations were washed out.

Because valuations, you're on a single digit price earnings ratio less than half the US.

And interestingly, you know, China has at least as many tech stocks, if not more, uh than the US does.

Uh, so we're not comparing apples and oranges here, and you know, they have some policy flexibility, and they're beginning to use that.

Maybe not as aggressively as we would like.

Um, but you know, China's never as bad as you think it is.

Or neither is it as good.

So I think you know China's not Unin invests.

I think it's a very bottom up market.

It's a very big place.

Um II.

I think China's gonna be fine, as I say, the fact that it's perceived as being unstable the fact that it's very under own may make it a little bit more defensive and a little bit less correlated.

If you do think the US market comes off hard here which I don't think is the best case.

But if you are looking for places to hide, China is one of those few places which is big enough less correlated and cheaper enough that, you know, maybe an interesting place to hide.

If if, if you are bearish on the US you mentioned, uh, rate cuts a moment ago, When does that first rate cut happen in the US?

Based on your analysis and then when that rate cut happens, do you think that is already priced into stocks here?

But I think the rate cut will start Will come.

Well, the first one will come in September.

But I think the big picture I don't really care as long as the next movie is down.

Uh, that, I think is absolutely key.

I think the market is happy to wait.

Um, and that's been the story this year.

I mean, as you know, we came into this year expecting six or seven cuts.

Now we're expecting two, and the market's up 15% and, you know, annually at the strongest levels in 40 years.

So the market is fine as long as the growth keeps delivering and the rate cuts are on the horizon, and I'm absolutely sort of in that camp.

I think when that first cut does come, though, it's a big signalling event, especially for the rest of the world and for all these sort of non tech, more interest rate sensitive assets, which I think will all breathed a huge sigh of relief and will rally very strongly.

So I I think the first rate cut is a big catalyst.

It will really release the pressure valve, especially in the rest of the world.

But a lot of these and and be the trigger, if you like, for this rally to begin to broaden out.

I mean, this has been a real one legged stool so far.

You know, two thirds of your S and P 500 return in the first half of the year were from the mag seven.

Yeah, yeah, for those new investors watching and listening to this podcast, why are rate cuts so important to stocks and and assets?

Well, two reasons.

So one.

I think it's a massive insurance policy for markets.

If if if if the rate cuts are coming, I think the you know the economy is gonna stabilise.

Maybe we're gonna get better growth in the future.

Um, it takes recession risk, I think, or reduces recession risk.

And it boosters corporate earnings.

That's one the other one is.

I think it supports valuations.

And there are only two ways to make money in stocks, you know, higher earnings and higher valuations.

And I think rate cuts help both of those.

That's why they're important.

All right, Ben, hang with.

Hang with us.

We're gonna go, uh, off for a quick break.

Uh, don't go anywhere.

We'll be right back.

So, Ben, uh, thanks for hanging with us.

We were really, uh, talking about, uh, the impact to stocks from from interest rates or lower potential interest rates.

And really, I would argue one of the biggest beneficiaries this year because of the potential for lower rates has been tech.

Uh, sure.

Results have been very strong.

Fundamentally.

NVIDIA, Microsoft, apple meta, you name it.

All those results have been strong, but I think that sector has really benefited from the prospect of lower rates.

But have we reached a point where where tech stocks some of these big tech stocks that have led the market are nearing a peak.

They just from a valuation perspective.

Ben, I I'm sure you can appreciate this.

To see NVIDIA, priced at 22 times forward sales almost two times Microsoft.

Uh, most investors have never seen that type of valuation gap before.

Listen, I think tech is absolutely fine.

This has been very fundamentally driven You took at that long term price chart of NVIDIA basically matches how earnings have, uh, have risen.

Uh, but I'm not going to argue that you're gonna see the degree of performance going forward that you've just seen, right?

NVIDIA is, you know, close to being the biggest company in the world right now.

We're really saying this is gonna double again, which is what it's done this year.

We're really saying this is gonna be a six trillion.

Um, you know, valuation stock in, you know, a year's time.

You know, I don't think so.

Um, I, I think that I think that tech earnings growth story will slow from here.

Um, but I, I think you know, I think these valuations are very well supported, but I don't necessarily think they're gonna go higher.

Which is why I think this bull market will broaden from here.

Uh, we we you talked about, you know, interest rate cuts.

Yes.

You know, interest rate cuts will help tech, but they're gonna help everybody else a lot more.

Um, where valuations are a lot lower where they're much more interest rate where they're much more economically sensitive.

And you're getting a much more bang for your buck.

I think in those other sectors as interest rates come down as earnings firm up and as valuations potentially move higher so tech is fine.

But I think the story for the second half of the year is gonna be this delayed broadening of the bull market, delayed rotation and changing leadership away from tech.

I keep looking for anecdotal signs of of a of a peak in in tech be look.

And we have calls now of NVIDIA.

Potentially, uh, pundits are out there saying it's a potential $10 trillion market cap.

You had a video CEO what, a month and a half ago.

Signing a a woman's chest out there on a tour of the company's various products.

Like, to me, this just seems like a a another bubble waiting to happen.

I mean, does this feel like what happened in the late 19 nineties?

So I think the important thing to remember about the late 19 nineties was we were absolutely right on the tech adoption and the earnings story.

What we got wrong was we just paid far too much money for it.

So, you know, Cisco's your NVIDIA equivalent.

You know, I think Cisco's sales were up seven per seven times since then.

So you know the Internet adoption story all delivered, But we were paying 100 and 10 times price earnings ratio for Cisco at the peak back then, and therefore Cisco's share price has never recovered.

I think what's different this time round is NVIDIA is less than half that valuation right now.

And the earnings story is still, you know, delivering.

Um, so, you know, Is this a bubble?

No, not yet.

Could it become one?

Yeah, absolutely.

And I So I think this rotation I think you do it for because I think of that re that sensitivity to rate cuts and these firming economies.

But I also think you do it for sort of risk mitigation purposes as well.

You know, I, I believe in Tech, but it's not.

You're not gonna have the degree of leadership and our performance in the second half that you had in the first half of this year.

I'd love to get your thoughts on this one.

I So we are.

We're a wing today.

That roaring Kitty Keith Gill, uh, disclosed a 6.6% stake in Chewy.

Now Chewy is a A real but business growing, sales making money.

They're opening vet clinics.

We've talked to the CEO Sumi Sing numerous times.

This is a real company doing real things.

So I, I mean I. I get it, but I can't help to think.

This is classic fear of missing out.

And I think a lot of you know the market's rise is now luring in more retail investors who see what a Keith Gill is doing.

But also they feel like Ben, they they've missed out on something really, really big.

They probably missed out on video for the video's move for the past year and a half.

I mean, what's the impact of Fomo or fear of missing out in the market here right now?

So I think Fomo is one of the two sort of technical supports you have for markets.

Sort of here.

So again, I think this is very fundamentally driven.

Right?

Earnings are accelerating and rate cuts are coming.

But if you know we are overdue a pullback, right?

We've had one pull back so far this year.

Typically, you see three a year, your average intra year S and P 500 draw down is 14%.

We've seen nothing close to that.

Um, so you know, we're gonna get some volatility.

We're gonna get a pull back.

So you know, the two things that that help you there One.

We have record amounts of cash on the sidelines, and I think this is maybe less about retail investors that have sort of been structurally long tech for a long time here.

I think it's more about everybody else.

Um, you know, institutional investors who are structurally under have been structurally underweight tech.

Um, we have, what, 6.5 trillion in money market accounts right now?

Sort of all time high.

So you know, II, I think there is this sort of bubbling fomo.

I don't think it's extreme yet, but I think you get a pull back in markets.

I think that money will come off the sidelines A and B if it's more sinister.

If you know we've got a jobs report coming up on, uh, you know, on Friday if if the economy starts to stumble here, the Fed can easily cut interest rates.

Um, you know pretty aggressively.

So I think those are the two sort of supports the markets, but to your point, fomo is absolutely one of them.

What is that?

Trigger Point, Ben, That that would pop some of that fomo.

Is there a date point you're locking in on?

Is it something?

Something like a roaring gty going out there and buying some shares in Chewy UHS disclosing a 6.6 per 6.6% stake.

So I think the the fundamental risk is that we get an inflation resurgence, that inflation hasn't really been put back.

Uh, you know, under control, as I say, You know, markets are happy to wait for that first cut as long as they know it's coming.

Markets are not ready for the Fed cycle not being done.

So I think you know that's your one fundamental risk.

I think We're fine.

I think the economy is cooling.

I think there was a productivity boom going on, but, you know, it wouldn't be the first time I've been wrong.

And I think you're right.

You can't.

No, you You're always right.

I mean, you're always right until you're proven wrong.

Um, and I think the second one is just, you know, we get this exuberance.

We had a little bit of that, you know, before the pull back in, um, in April.

But I, I think we're a long way from that.

Um, you know, right now, we you know, we haven't seen big inflows into, you know, money market funds.

Retail investor sentiment, you know, is is not off the charts, you know, either, um you know, the VIX is pretty low.

I mean, I guess that's the one indicator which is sort of flashing yellow, But fomo were watching, but it's it's not there yet.

Where do you see there's been some chatter?

Uh, recently over the past few weeks, I think it was ultimately triggered by by Tom Lee over Fundstrat.

Really making an aggressive call in the S and P 500 looking out over the next decade.

Where do you see some of these major indexes going and and what are the drivers?

Yeah, so I think we're in the early innings of a bull market, and your typical bull market is, you know, five years and 100 and 50%.

So, what are we are five years?

100 and 50%.

Yeah, that's your That's your typical average bull market.

So?

Well, what a quarter of the way through that right now, This may be a little bit a little bit less big, just because our starting point was just much, much higher.

You know, we never had that recession, which crushed earnings valuations, never got crushed down to, you know, 1112 times, which is historically what you've seen.

So this may be a little bit, you know, uh, a little bit smaller than that bull market.

But, you know, at this stage, who cares, right.

We are in the sort of foothills of this.

Uh, the earnings recovery story has barely begun.

We might get to 10% earnings growth.

You know, in this coming quarter, which starts, uh, you know, next week.

But, um I I think we have further to go.

And I think with the Fed about the cut interest rates Yeah, valuations are high.

But, you know, 40% of your index is these tech stocks, which I think more than deserve these high valuations.

And I think lower, you know, lower rates will will support higher valuations for everybody else.

So, you know, I, I guess so.

Longer term, I don't bet against the US early innings of a bull market.

Just this might be a slightly less big bull market than we've got used to historically.

So I did some quick math, So I'm trying to define a bull market.

And so what?

Five years?

If we're in the early innings, you think the S and P 500 could rise more than 100% over the next five years?

Yeah, that sounds about right to me.

I mean, that's not too dramatic, right?

That's earnings could easily do 15 compound out at 15% a year.

I think if, uh, the economy keeps, uh, you know, chugging along and you get a little bit of multiple expansion, which I think lower interest rates would justify.

Um, I, I think you know the mass works.

Put it that way.

You know, the economy needs to play ball with that, but, uh, the mass works.

Ben I. I think you just given me a case of Fomo.

I don't know why I keep owning these CD SI.

Gotta get the hell out of those things.

Ouch!

What?

You know, as you, uh, you know, you think about the rest of the year.

What are your Some of your biggest fears about the market so overdue I pull back.

You know, as I alluded to earlier, We are going through the summer, the sort of summer dole drums we are, You know, we do have the election coming up, so I think again, I think that's a volatility event that you buy that you don't sell that.

You know, if you're bullish on markets that you welcome because it lets you buy stocks cheaper, but that easy for me to say.

But when you're in the middle of it, a 5 10% draw down.

It obviously feels a bit a bit scarier than that.

Uh, I'm looking for those sort of tail risks that the Fed isn't done, which I don't think the market is pricing, which would force me to, you know, reconsider my view.

But again, I don't think that's happening.

And, you know, markets may well get ahead of themselves.

Um, which may well give you that, you know, sort of short term draw down, but again, uncomfortable at the time.

But that's that's sort of an opportunity.

So that's what I'm watching.

But again, II, I think this is a very fundamentally supported, uh, you know, market earnings are recovering.

Uh, and rate cuts are coming.

And if you don't believe me, look at what's going on in the rest of the world where you know, they've been going on for six months here in the remaining, uh, minute we have left.

Ben, let me just go back.

Maybe we could tie this in a knot here to to the election.

What president would be better for the market?

Biden or Trump, though the market's already told you.

I told you last week it told you it's made its peace with Trump.

And it thinks Trump, rightly or wrongly, is is gonna be better for this market.

Uh, Ben, uh, later, Laa.

Really good.

Good to see you.

Uh, Congrats on that new position.

What do you What will exactly you be doing there?

What's, uh what's your day to day look like?

I'll be doing, you know, equity strategy around the world.

Obviously.

A bit of a focus on emerging markets.

So given the you know who we are but again, given that the U A You know, the US is, uh, the big gorilla out there.

I'll be doing a bit of everything.

All right, Well, good to see you over there.

Uh, Bosco BB.

I's, uh, new head of equity strategy.

Ben Lather.

Really getting me excited about getting out of those C DS and getting the stocks potential S and P 500 up 100% over five years.

Uh, I think I need to call my money manager, Ben Lalor.

Good to see you.

Thank you for joining us on this latest episode of opening bid.

That's fine.