RiverFront Investment Group Global Fixed Income Co-CIO, Kevin Nicholson - to break down the recent market buying trends and what they mean for for Wall Street and the U.S. economy.
SEANA SMITH: We want to continue this discussion. And for that, we want to bring in Kevin Nicholson. He's the co-chief investment officer of Global Fixed Income at RiverFront Investment Group. And Kevin, great to speak with you again. We have to get your reaction, though, to, really, what we've seen play out over the last several trading days. And today, for the second day in a row, we're seeing pretty big gains. We have the Dow up nearly 600 points. When you take a look at some of the buying action in the market today, do you think some of that worry that we saw initially over the speculative trading, that that has worked its way through the market?
KEVIN NICHOLSON: I think so. I think that the market is really focused right now on stimulus. The market is reacting to the potential of a bipartisan stimulus package coming out. And you've seen that today with the rotation in the marketplace. You're now seeing cyclicals back leading the way again, like they were a few weeks ago. And you're even seeing tech react strongly as well today. And we believe that it's going to continue to be strong going forward, especially with the Fed being so accommodative and the potential for fiscal stimulus.
ADAM SHAPIRO: Kevin, I want to turn to some fixed income. And it's good to see you. But we see the 10-year now above 1%. There are some people who say it could go higher, maybe 1 and 1/2% by year end. That's really not going to be a hurdle, though, for the economy or for investors, is it?
KEVIN NICHOLSON: No, I don't think so. You know, I see the 10-year being kind of range bound right now. One of our thesis was that the 10-year was going to finish the year around 130. You have a yield differential with the 30-year Treasury between 10s and 30s right now that will lead us to believe that the 10-year has about 20 more basis points to go.
But as far as the market is concerned, the market will continue to rally, I believe, going forward, as long as we don't get the 10-year having runaway yields. I think the closer you get to 2%, that is going to start to weigh on equity markets a bit.
SEANA SMITH: Kevin, I know it's not in your near term forecast, but when you talk about 2%, I mean, is this something that we could potentially be talking about in 12 to 18 months? Or is this something you don't even see on the horizon any time soon?
KEVIN NICHOLSON: No, I mean, I think that we could see 2% in 12 to 18 months definitely. You know, I think that the big thing here is whether or not you're going to get inflation and whether or not inflation will be sustained. Obviously, we know just from the calculation that you get in CPI and PCE that we will see a bump in inflation in March and April of this year. But the big thing is, will it be sustained? And if it is sustained, then I definitely believe that we will see yields much higher.
ADAM SHAPIRO: One of the things you point investors towards are the energy sector and financials. And I just want to point out that today, energy is up about 1 and 1/2%. But year over year, it's down 26%. Why should an investor consider the energy stocks?
KEVIN NICHOLSON: Well, I mean, a lot of people are considering energy stocks right now because they think that once the economy reopens, that you're going to have a lot more demand. Right now, people are sitting in their homes, and they're not driving nearly as much. So you don't have that demand for gasoline and things of that nature, oil, that you would normally have. So I think that that's why people are looking at it.
Right now, for us, we've been underweight energy for probably the last year or so. But it definitely has made a move up, and it's something that, you know, you have to start to consider, especially as the vaccines come on board. And as more and more people get vaccinated, you definitely will consider the potential for the demand for oil to go higher and for energy to do better.
SEANA SMITH: Hey, Kevin, what about tech? Because we heard from Facebook and Apple last week. We've got Google and Amazon after the bell today. A lot of these names were the leaders when you look back at 2020. A lot of them continuing to lead here in 2021. Any reason to still buy some of these large cap tech names?
KEVIN NICHOLSON: Well, I mean, I think that what we've seen through this pandemic is that tech itself has been very durable and that tech will lead the way. And I think that that's going to be-- is going to continue because a lot of what we're seeing is that people are no longer going to be forced to go to the office. There's going to be more working from home. And so I think that that is going to play in the hands of tech companies.
And for us, we continue to like tech in our portfolios. We think that you have to have a blend between-- a healthy blend between tech and, you know, some cyclicality in your portfolio, such as industrials, and a little bit of materials. Because we think that the infrastructure play will be huge going forward, as that is something that you could probably get bipartisan agreement on down the road.
ADAM SHAPIRO: Kevin, what about stay-at-home stocks? We've got a guest coming up in the next 30 minutes who's going to say, be careful. Some of them are starting to show a little bit of technical exhaustion. Would you agree with that if you had a chance to even review that?
KEVIN NICHOLSON: Yeah, I mean, some of them are getting exhausted. Well, and especially those that stood in the way of, you know, your traditional platforms that will eventually reopen and that will allow their customer base back into their facilities I can't speak on specific companies for compliance issues. But you can only imagine where I'm headed with that. But, you know, so you have some companies that have benefited from being able to exercise from home. And they may come under some pressure going forward.
SEANA SMITH: All right, Kevin Nicholson, co-chief investment officer of Global Fixed Income at RiverFront Investment Group, always great to talk to you. Thanks for taking the time to join us today.