well the stock market action we've seen
in 2020 has been
anything but ordinary and joining us now
to provide perspective on what active
traders are thinking about in the market
right now is Randy Frederick
he's Vice President of Trading and
Derivatives at Schwab Center for
Financial Research thanks for joining me
today Randy
Hi Alissa it's great to be with you today
alright well this has
no doubt been a very historic year for
the market in so many ways so
what's the general consensus among
active traders
in terms of the sentiment right now
well I think you know the year started
out pretty well and in January things
were looking good and then of course the
virus hit and it all kind of went to
just went south very quickly and we came
from
finishing up the longest bull market in
history to the shortest and quickest
bear market in history and now
right back into another bull market
depends on how you measure it some
people would look at the bull market as
having started when we went up 20%
that's typically how I look at it but by
any measure
since we recently just last week in fact
hit an all-time high
everybody regardless of how they look at
it would argue would not
disagree with the fact that we are now
in another bull market so the
sentiment's very positive
I think in many ways a lot of the old
traditional
analysts are looking at valuations
and saying gosh stocks are really
expensive from a historical standpoint
but things are a little bit different
now part of the reason is that of course
interest rates are at zero
and they're likely to remain at zero for
several years
and that tends to push people into
riskier assets like equities which has
which then in turn
justifies a higher valuation level so
while stocks are stretched and they are
expensive
I mean the S&P 500 is up you know
what 30
53% since the bottom on march 23rd so
substantial
and in fact the NASDAQ's doing even
better but most of it has been driven by
a lot of those really big cap stocks
and if there's anything that the virus
has done is it's exacerbated the
difference between
the haves in terms of the big wealthy
mega cap stocks
and the have-nots in terms of the small
companies that have been struggling
to survive in this in this
environment frankly
yeah there's definitely been certain
sectors that have been hit
much much harder than others so when
you're talking about the
economic outlook for active traders
how are how are they kind of using that
to
to almost inform their decisions about
what groups you know that they are
playing
as we may consider continue to see the
market
move higher right so the thing that we
know is that
throughout the majority of the last
decade even a little longer than that
since the bull market began way back in
09
technology and consumer discretionary
stocks which are typical cyclical
leaders but more so
I think technology even than the other
have been the leaders in not every
single year but
they've been the leader for the for the
entirety of the bull market overall and
in many of those years I think it was
like four out of the
four or five out of the last ten the
technology's been at the top
and we've seen the same thing again
again this year this year at least it
makes a little bit of sense because
the way i've been saying it is that the
technology stock silicon valley if you
will has been trying to convince
us everyone consumers that they were
indispensable that we couldn't live
without them for a very long time some
of us were skeptics
when the virus hit and many companies
our hours included
had to send many people at home to work
then
we found out that technology was
indispensable and we had to have it in
fact had these guys not
created the kind of abilities for us
to
stream things over the internet to link
up to our offices to do all the things
that we do from home
in fact if this had hit 10 years ago we
wouldn't even be able to do what we're
doing right now so all of a sudden we
find out that the companies we didn't
we didn't realize we couldn't without we
find out that we simply can't live
without them so
technology continues to be a leader it's
been a leader for a very long time
and while the nasdaq index is not
strictly technology it does tend to be
very heavily weighted towards the
technology stocks it's one of the
reasons
why it's a stronger outperformer it's
been you know it's up 25% here
today relative to the S&P which is only
up about 6%
so what we find from more active traders
is that they're willing to look into big
cap tech stocks
and some of them aren't necessarily tech
stocks but we kind of think of them as
such so for example
companies like Facebook and
Google and Amazon they're not all tech
stocks some of them are consumer
discretionary some of them are
communications
but because they're technology driven
and we kind of got introduced to them as
tech companies and we think of them that
way
so now we find that people continue to
put money into the same big companies
that have continued to outperform
and while the valuations have gotten
very high in a lot of cases
they're justified in the sense that they
are indispensable at least at the moment
and frankly once we get out of this
virus
situation hopefully sometime by the
beginning of next year
they will continue to be leaders in all
likelihood because they are so strong
and they do have so much capital to work
with
yeah it's really seemed like a almost a
tale of two economies
you know when you just look at the stark
contrast between the strength and tech
and you know industries travel and
entertainment and
and things like that getting hit really
hard
but when you're looking forward at
the growth that we've seen for for
technology
uh how how much longer can we expect
that to continue at the
rate that we've seen it in this in this
rally with the extremely strong gains
that a lot of these companies have
produced well that's really an answer no
one knows
that's really a question nobody really
knows the answer to but again um
because interest rates are so low many
of these companies even those that
didn't need
capital have sold bonds um at
very very low interest rates so they've
essentially filled up their chest full
of working capital that they now can use
and liquidity that they can use for the
next several years at extremely low
rates so they have lots and lots and
lots of
of capital to reinvest in in the
business to to be innovative to grow
to add employees to add new
technologies the ones I would caution
people about
are any companies that have strictly
benefited because of the virus those
that were not necessarily on our radar
screens that we weren't paying attention to
those companies that have benefited just
because we're home
now there may be some life left in them
but at some point when we do finally get
back on our feet and we get back to
something closer to the old normal
and I think frankly the new normal won't
look like the old normal in the sense
that many of the people who are working at
home now i think will stay home not as
many as our home now
but certainly more than were working
from home prior to when the virus hit
so to some extent there's at least some
some longevity there but
those that have benefited from things
like our inability to go
to the movies or to go to a casino or to
go to a sporting event or
or to go listen to music or something
like that gaming companies potentially
companies that have forced us to work
out in our homes as opposed to going to
a gym
those kinds of companies that have had
very sharp run-ups just since the virus hit
I think there may be some concoction
there in terms of their ability to
continue to move higher
but the big giant mega cap companies who
were who are a big part of our lives and
growing more and more as a bigger part
of our lives even before the virus
have just gotten bigger since the the
pandemic and will likely continue to get
bigger going forward so
how far they can go no one knows
technology sector in general has always
run with higher
P/E Ratios than most of the other
sectors anyway
and what people often do is they'll look
ahead to the next quarter
and base the value of what they're
willing to pay for stock now and what
the company might earn in the next
quarter
that's been impossible for two reasons
now one is that many of these companies
have suspended their guidance for the
for the rest of this year
and secondly we know that those earnings
aren't going to come back
in all likelihood anytime soon so i
would say that people are paying now
what they think a company might be able
to earn say in 2021 that's a little bit
further out into the future but that's
sort of how the virus has kind of
changed
our perspective and our time horizons
more recently because um it's just
forced us to look out further than we
might have otherwise
yeah and what's your advice for active
traders
in terms of how they should be
thinking about different moves for their
portfolios when we see
very news driven events
you know we have an election coming up
coronavirus vaccine talk I mean
there's a lot of different headlines
that are still
looming that could really move the
market so
what's what's the thought process there
for how to handle
those uh potentially big shifts
in market conditions because of that
well i think the most important thing of
all and this is something now I am
Schwab's Short-Term Analyst so I do
speak to people who trade a little bit
more actively but one thing i always
emphasize because this is very important
is that if you trade actively you should
not be trading actively with your entire
portfolio
i believe and we believe as a company
that everyone should be an investor and
that means have a very long term time
horizon
if within your entire portfolio you want
to carve out a portion of your portfolio
to trade more actively with
I always say that should be no more than
20% so within that 20%
that you might be trading more actively
by all means you can be news driven you
can be event driven
you can trade based on ups or down
up or down moves and volatility all the
things that we've experienced this year
but don't make wholesale changes in your
overall portfolio your long-term
investing based on things like the
election
the best example i think is that there
was a very very strong sentiment
prior to when President Trump got
elected in 2016
that it would be a big negative for the
stock market clearly that has not been
the case in fact if you compare
President Trump to all of the presidents
since World War II
the performance of the stock market
under his term has been fourth best
out of all the presidents since world
war ii so that's pretty good
um now it was in an uptrend when he came
in but even then he has outperformed the
trend that was
created under Obama for for his period
his first four years so
I think that's a there's a big I think
belief right now that potentially
maybe
a Joe Biden Presidency might might be
negative for the for the markets because
uh potentially he wants to raise taxes i
i'm not saying that's right or wrong i'm
saying don't just assume that that's the
case
because it may not be the case at all in
fact what
markets have historically liked best is
when we have it's not really
it doesn't really depend on the
presidency it depends on what the makeup
is between the presidency
the house and the senate generally if
there's a mixed
where you have republicans in control of
at least one of the three or
democrats in control of at least one of
the three then
the changes in government tend to be
rather subtle
and fairly slow and somewhat more
predictable the market generally likes
that when you have a republican or a
democrat in charge of all three branches
then that tends to cause a lot of
volatility in the market because it
opens the door for significant and very
radical and very drastic change
which oftentimes is very disruptive to
the market so i would say
based on the election those are the
types of things that are more important
than just who becomes president
interesting well thank you so much rady
for providing your perspective today we
really appreciate it
you're very welcome
