TD Ameritrade Chief Market Strategist JJ Kinahan joins Yahoo Finance Live’s Akiko Fujita and Zack Guzman to discuss what investors are focused on amid higher inflation and earnings season.
AKIKO FUJITA: JJ Kinahan, Ameritrade chief market strategist. JJ, it's good to talk to you--
JJ KINAHAN: Hey.
AKIKO FUJITA: --today. I guess you look at the market reaction today. I mean, the CPI number came in pretty much in line with expectations. So investors had been anticipating this. We've been talking about inflation remaining much more persistent than initially thought. What are you hearing from investors right now as they brace for more rate hikes coming from the Fed?
JJ KINAHAN: Well, you know, the investors, as you said, what we see is exactly what's expected. So I think our attention quickly changes to what we have coming at the end of the week in terms of earnings, and particularly, we start with financials. But I think what investors are really focused on is what are these CEOs going to say about two primary things, number one being inflation.
And for the financials, it'll probably be more wage inflation and their ability to retain workers and pay up, as fintech has done so much in the last year and a half. Many of these traditional financial firms have to spend money on both infrastructure and on people in order to keep up. And then on the other end of that, the non-financials, perhaps it's more can they go through supply chain issues, be that because of COVID, be that because of the cost of inflation, to deliver goods to their end customers.
ZACK GUZMAN: Yeah, and JJ, I mean, you obviously at TD Ameritrade have some good data in terms of what your clients might be active in to kind of move along into this new chapter of shifting away from transitory, seeing this all play out. Maybe not a surprise to see some profit taking in some of those sectors that had been hot in the run-up, including the names like Micron and Moderna. But what are you seeing when you kind of dig into that data now?
JJ KINAHAN: Yeah, absolutely, Zack. So we released our IMX. It's our investor movement index. And what it does, it's not a survey it actually measures what people actually truly do buy and sell. And as you have up on the screen right now, some of the names that were sold, which I find kind of interesting because you see things like, you know, Moderna being in the drug sector, but [AUDIO OUT] we saw Micron and Taiwan Semiconductor as two names being sold. So very interesting to me that our clients are either taking profits or a little bit of backing off on their exposure in terms of what they see in chips.
The really interesting thing was in December, our clients actually took less exposure to the market than they had all year. In fact, what's interesting to me is they were net sellers of equities. That being said, we've seen them come back a little bit more as the year has begun. But I think more than most peers at the end of last year, there were just so many questions and, as we started the show, primarily around interest rates and what was going to happen there.
And so I think one of the things you saw was people selling either to take profits or for tax reasons, and not necessarily buying right away. So I think earlier this week, you started to see how quickly that sentiment can change and people coming in to buy the dips, which, you know, let's face it, it's been a strategy. Not to say it's always going to work, but for the last 10 years, people who have used it have been pretty successful.
AKIKO FUJITA: JJ, in terms of what people are buying, I mean, you had Tesla and Rivian up there as well. I mean, these are names that some would argue have been the high growth names that could see a bit of a pullback here, as we anticipate this higher rate environment. As we've come into the first two weeks of the trading year, what are you hearing from clients? I mean, do you think this trade sticks? Or do you think there's going to be a bit of a rerating on the valuation, especially on a name like Tesla?
JJ KINAHAN: Well, you know what? To me, it's really interesting. First of all, the EV space in general was so interesting for our clients. At this time, we saw Ford, Rivian, and Tesla as three of our biggest buys. So, you know, I think Ford is a way for a lot of people to play this space also.
For Tesla specifically, this is a name that really is a confidence gauge, in my opinion. It was so interesting to watch how our clients have traded this over the last few months. That is if it gets down near that 950 ish level, you'll see clients start to come in, and they'll actually buy it up to about 1,050. When it gets above 1,050, it seems to make clients a little bit nervous. So the amount of buying you see there starts to dissipate a little bit. So this is a name that really relies on the trend of confidence in the market overall.
What's interesting is this is my barometer, so to speak, of people who are more confident in the market. And then when people are a little bit nervous, the two names we look for is Apple and Microsoft, which are two names people went to, you know, as the year started as always names that are well held by our clients anyways, but maybe a little bit more than we normally see because, again, these are blue chip, so to speak, stocks, but also get that growth component when things are going well. So it's really interesting how you tend to see retail clients start with Apple and Microsoft and as we gain momentum, quickly go into Tesla.