There's a 'tinge' toward value stocks right now, strategist says

JJ Kinahan, TD Ameritrade chief market strategist, evaluates stocks in periods of volatility, stemming from the Omicron variant scare and supply chain backlogs.

Video transcript

- But how should you be trading this latest stretch of market volatility, in large part, I would argue, because of these inflationary readings we are seeing? JJ Kinahan is TD Ameritrade's chief market strategist and is here with us now. JJ, always good to see you. Let's start on tech stocks. We're seeing the weakness from last week, which really, I would say, caused by that shift from the Federal Reserve and Chair Jerome Powell. We're seeing that weakness extended to today's session. Our tech stocks just-- do you just avoid the space, JJ, given this change in tone?

Well, you know, it's really interesting, Brian. As you said, NASDAQ down now for the last five trading days. But I think we tend to throw tech into one big bubble, so to speak overall. And I think one of the things that we see with our clients, well, I think, makes sense. In times of trouble, they actually tend to go to-- you just got done talk about Microsoft being the company of the year, I believe you said. Microsoft and Apple are two of the stocks that actually get this sort of halo effect, if you will, and that our clients consider them more blue chip on the way down but then give them the benefit of growth on the way up.

I think what you have to be a little bit careful right now if you're investing in the tech space is some of those areas that were so rapidly growing during the lockdown. It is interesting that overall, there seems to be a little bit of a tinge right now, if you will, to going to more, perhaps, we'll say, value stocks. We're not necessarily seeing our clients, you know, so attracted to some of the stocks that ran so well over the summer, et cetera.

- Yeah, JJ, it's Julie here, give us a little bit more on that. Because we've been talking this morning about the sort of really seeming shift in sentiment that we've seen just over the past week, past two weeks, right, since Black Friday. And I wonder where and how you are seeing that reflected on the platform. Because it's hard to sort of get our arms around it. Like what-- is it omicron? Is it something else going on? Like what are people talking about right now?

JJ KINAHAN: Yeah, I think that that's a great question, Julie. And I don't know if there's any one answer. I'll see it as a few different things. I think you have a little bit of nervousness around the supply chain, which is reflected-- I know we'll talk about our IMX in a moment. But the talk, some of the stocks that our clients sold last week, which are-- or last month, I'm sorry, and continued through last week, which a lot of them retailers, Amazon, Walmart, Shopify, because there was some nervousness around will they be able to continue to supply the demand that people are going to have going into the holidays?

I think you also have to take into the effect that, although, last month, our clients did take a little bit more exposure to the market overall, which may be a surprise to some, we are heading to end of the year. So I think some of the names that you're also seeing being sold are stocks that have had a pretty good years. People starting to say, OK, I'm going to regroup going into 2023.

And I think one of the last things is that one of the things we saw over the last two weeks that we didn't-- you know, was a little different than before is that people sold, they weren't necessarily immediately buying things. I think there was a little bit of as we head into year end, I'm trying to figure out where to put my money. And with all the things going on, and as Brian mentioned at the top with the Fed news, I think there's a bit of confusion about where to go next so to speak.

- Hey, JJ, and it's Brian here, I wanted to expand on that because it is indeed the case that the bond markets also appear to be confused. I mean, bond market traders that I've talked to over the course of 2021 have said, the volatility we've seen in the risk free rate market has been enormously volatile by historical standards.

Now, just over the last five day period, I believe the 30 year was down 8 basis points, 10-year down 5 basis points. So you can interpret what you will, the narrowing on the longer end of the curve. But when you talk about the risk free rate being this volatile, what does that do to the market distortions? And how does that kind of impact where you might want to put your money based off of those moves?

JJ KINAHAN: Yeah, absolutely, Brian. I think that, you know, before it was like, OK, yields up, I sell tech, yields down, I buy tech. And now it's like the relationship's a little bit off and that tends to throw people off also when relationships they aren't necessarily working right now. And one of the other trends we've seen a lot this year to your point-- now, I'm going to guess, we're seeing evidence of it starting again, is when the 10 year rate gets below the 1.5 level, what you start to see is people go after stocks that have good yields and use them as a way to play rates without necessarily going into the bond market itself. So the derivative play, if you will.

You know, stocks like AT&T that have high yields, Verizon, and again, blue chip type stocks, where I think, again, to your point, some of the confusion exists is what to do with energy. People have had energy recently, it's done very well. Well, now with energy, you know, good day today, but let's face it, it had a rough week and a half, two weeks. And those are usually attractive yield plays as are, of course, the utilities.

So that's what I'm really watching heading into the end of the year is to see how our clients play , rates and what they think about if they continue with this derivative play, if you will, or if that picks up, or they're a little more patient to see if the yields can come back, and then play them through the government bonds, et cetera.

- All right, well, keep us posted on those moves. JJ Kinahan, TD Ameritrade Chief market strategist, always good to see you. Have a good week.