Underperformance of Large Cap Technology and outperformance of value. Guy, what did you make of the action today so i know you remember everything, so you may recall yesterdays show every once in a while something sticks with you, like an onion or Something Like that, yesterday there was something said on the show that resonated with me. We were talking about the vix. He correctly said just because you have an elevated vix, its not any deby definition a negate thing for the market today illustrated that exactly im shocked by todays performance. The reversals we saw yesterday should have followed through today. Maybe that happens tomorrow, i dont know what i make of it is the resilience of this market continues to be unprecedented, in my opinion. Still label me a skeptic lets pause this conversation we have some breaking news from moderna. The stock is up in the after hours session. Meg . This is the phase one study of modernas covid19 vaccine program. The full results being published in the new england journal of medicine this medicine. The study showed that the neutralizing antibodies the vaccine generated in all participants and the dose level at 100 micrograms, they found these neutralizing levels were about two to four times higher than what you see in people who have recovered from the disease. Neutral asizing antibodies block the virus from being able to infect cells pfizer saw about two to three times higher neutralizing antibody levels. We spoke with modernas chief medical officer. He said the results are similar between the two vaccines and he was encouraged by the pfizer data and the moderna data. Of course the question is going to become how long does this protection last. And we just dont know that. These results were as of day 57, so they are going to start a phase 3 trial on july 27th of 30,000 participants and that will give us the answer about how protective this looks to be now. Meg, these are the full results of a study that had been sort of i dont want to say alluded to but summarized, high level summary of the data and this is the full result . Yeah. Thats really good context on may 18th moderna stock went crazy up about 20 it basically put out the top line results we didnt have any of the details. Critics argued it was difficult to tell what we actually saw they only had data on eight of the 45 patients with neutralizing antibodies. This is the full 45 and it has fuller results on all of that and also on safety they did see some fever, some fatigue, some muscle pain in the trial, but nothing they said that would stop them from continuing and certainly nothing at that 100 microgram dose. The stock is popping in the after hours session on the back of these full phase 1 data up by 6 lets go straight to an analyst for some more context on this and what it means for moderna. Micha michael, great to have you with us how significant is this . Great to be here. Look, i think the real takeaway for investors is this should further increase confidence that we are getting a robust immune response and there should be great e. Er confidence this wille protective to a degree in transmission of covid. Ie that all of the individuals produced neutralizing antibodies at this level of two to four times those who actually recovered from the virus does this prove further that the same technology that pfizer and biointech are working on may be even more valid . Absolutely. You know, there was a lot of skepticism both on the platform when this data first came out from moderna a couple of months ago and of course didnt report the full results yet there was a lot of controversy, as you recall. Biointech and pfizer coming out with their data, which is very good biointech traded up a lot on that now were validating that with published data th we should feel good those two platforms are looking very good. Does it look like this mrnabased vaccine is going to cross the finish line, in your view i know thats early, but things are being expedited these days in terms of concurrent faphases being conducted. Our confidence remains high this data, of course is going to support a vaccine that is effective and meets the threshold for the dfda and if government to push this forward. It validates an mrna plat tomorrow so far. Its going to be thousands and thousands of patients. We should have a little more confidence after they do that. Is moderna a buy . Moderna is a buy. We have a buy on a price target of 90 we think its going to trade up with more data to come we are seeing moderna shares jump 10 dan nathan, there was a lot of criticism when they first offered these top line results, yet here they are, the full results and they are as good as people had hoped. Yeah. Here we are a couple months later from that time period the stock had been very volatile in that period until may and obviously had a huge spike prior to this data coming out, the Options Market was implying about a 28 move between now and about a month from now it was just showing you the level of anxiety that investors or traders had about this data i think thats probably dating back to may 18th its worth noting you kind of linked the data we saw with the pfizer drug. Listen, i think investors are getting a little bit more comfortable about the fact that we are going to have multiple Vaccines Available at some point in the future. Im just not certain if you want to extrapolate this to what this means. Did the market rally into the close today because this data was leaked or in anticipation of good data . I just dont see tens of millions of mercamericans takina fasttrack vaccine thats done within 6 months for something they dont know whats going to happen especially when we have tens of millions of americans who wont wear a mask to avoid the spread of the disease. I think its a little too soon to be extrapolating what this phase 1 data means right now. Guy talked about the vix. A borrowed analogy for him yesterday, you mentioned horse racing and not necessarily knowing which one is going to come out on front. I think its positive that we have a ton of players now pushing for a vaccine. Who is going to come out ahead, we dont know, but i think its overall a positive thing for the market, absolutely. Carter braxton worth . Talk about moderna had that spike with the previews may 18th here we have the official news or the validated news. Its not even as high as it was on may 18th. Two months later the data is in and yet traders right now are not even pushing it higher than what it was on the 18th of may when the first news broke. B biotech in general, this is a great area of the market when uptrends get too ahead of themselves, take a look at this chart. The ibb spent the past four years consolidating and is just now breaking up. Guy, your quick thoughts as we watch moderna up 11 . Yeah. First of all, its amazing you got that analyst on because he initiated yesterday i think to your point with a 90 price target thats a great call by him he should be proud of himself. Now at 84 it looks to be spot on i think 88 was the prior high if youve been low on this stock, you might be able to ride it up to 90 without question the way to play this entire space continues to be ibb. Were watching actually 10 was an understatement. Were edging up toward 15 now in the post market session. Shares of moderna up about 15 lets get back to the broader markets. Carter, what did you make of how the markets closed in a way i suppose the biggest news of the day is to have the banks come out with numbers and see no Real Movement goldman was up a decent amount independent of the overall market, the banks are so important. Theyre sort of the transmission mechanisms for the whole economy. Some not quite right if they cant follow through the whole notion of value growth, value is just going to perpetuate growth. I dont know what really changes that what about the energy space, what about big heavy financials, what about industrials what is likely to lead the market we saw signs of life in some of these value sectorinphese v s of these value sectorinectors, industrials, materials, energy, all outperformers. Though we had notable underperformance among beloved big cap tech stocks like microsoft, netflix today are we going to look back yesterday and say that was the start of either a consolidation period for big cap tech gains or the start of a rotation . Yeah. I think the answer is absolutely yes. Ill stand by that only because of the magnitude of the reversal and given the ridiculous move to the upside in so many of these stocks they were historically stretched. Thats not casting aspersion on any one of these companies but the magnitude of the moves has been unprecedented with the reversal you saw yesterday, again, its a historical reversal. I think its only happened once before for me to sit here and say its not a big deal is disingenuous i think well look back and say july 13th was a huge day i terms of the reversal and the flow of funds in this market. I think its a start of a possible trend ly weve seen volatility in the vix and seen sentiment swing from left to right so quickly on the drop of a dime of any news or developments. Yes, i can see it starting to be the beginning of a trend or part of a rotation, but im a little bit more cautious before saying this is the beginning here carter, i have to go to you chart master, was yesterday significant and was today followthrough sure. I think youre faced with two unwelcome choices. Youre volume invest in the worst sense, almost dumpster diving, going down and finding a Regional Bank or a beaten up retailer or Industrial Energy whose logbook is shrinking there has been a call for value outperforming. Its been going on since, let me tell you this and this is kind of fun if you think about the only period that value outperformed from the dotcom peak down over the ensuing three years, sort of 99 to 2000 to 2003. Value didnt do very well. Amazon lost 95 of its value its not so much value its that value can maybe hold up an arch period and steep one out of control. I thought yesterday was very obviously very important i thought the followthrough today or the lack thereof, amazon was down 4 , netflix was down 6 . These stocks were getting destroyed. Tesla was down 10 the fact they came back is extremely bullish. The fever hasnt totally broken just yet but that may be one step forward and two steps back for these names. And the point about what does the rotation look like, cyclical tech didnt get destroyed the came way that some of this highpriced software or internet names did. The move into some names like that might indicate some sort of rotation the last point i would say is if you look at the banks that were down today, they reported poorly if you look at citi and wells fargo. Jp morgan outperformed if you start to see that q2 is the worst of it, the worst sort of numbers, then you might see a rotation into cheaper banks. So the value trade might be a quarter or two. Despite the rally into the close, our next guest warns us summer correction is around underway mike wilson, great to have you with us. You think were about a month in for this correction youre calling for . Yeah. Its not that its a major correction it started on june 8th i think Everybody Knows the market peaked there, s p 500 we had a big pullback in june when the cyclical flash value stocks really underperformed and for good reason. Theres concerns about democratic sweep, other election concerns, all kinds of things that weighed on the beta trade and then we had this big rally back in the last couple weeks where we basically touched the old highs yesterday and got rejected i think were having a classic zig zag correction this summer i think its not done yet. I think all those concerns are still lingering in the background you know, covid cases are still rising we have an earnings season thats going to be somewhat messy. Today the banks put up good numbers generally speaking swept for wells. We have to consolidate some more the question you were asking a minute ago is the right one. Is there something more going on under the surface here i think its been going on the whole time Growth Stocks have done great. I agree with that. The other side of the barbell now is clearly cyclicals those stocks have done extraordinarily well since march 23rd when the market bottoms you cant look at this year to date because were in a recession and we have a new starting point the loser is defenses and really high quality stocks that were working last year because you were attend of the cycle i definitely think the cyclical is going to outperform growth even from here because they have more operating leverage and their expectations are still low. Were bullish on the recovery. We think this is a pause, not the end of the bull market, its the beginning of the bull market we got such a fast start we have to have a little bit of correction. California is reinstituting the lockdown measures they had in march. Is there a slowing of the reopening process . Yes, were seeing that generally speaking the reopening will continue. The new york area is doing well with the reopening, you know, slowly i think were learning as we go. My guess is were going to continue to make progress on that obviously vaccines are part of that discussion as well. I just think the Economic Impact of the virus itself is behind us the market is looking forward. Stocks are Long Duration assets. 2020 is a writeoff year. 2021 is going to have a much better year. It will be much better if we get a vaccine earlier than people expect you are expecting new highs after the election, so im wondering in that call what does the leadership of the market look like to get to those new highs . I think its what i was just talking about, which is its going to be a combination of some of the former leaders i would call that Growth Stocks at a reasonable price. Guy mentioned it earlier ridiculous performance some of the valuations are ridiculous on some of these stocks but there are some wonderful Growth Companies that have fine valuations they need to grow into those and they will. Then youre going to get this new cohort of the cyclical stocks that have been left behind for the better part of a decade whether that be banks, materials names, energy stocks, industrials. A lot of that could be driven by an election outcome where you get infrastructure spend mike, we got to go. Thanks so much for phoning in. Always good to hear from you mike wilson of morgan stanley. Bonawyn, you agree with this notion of a vshaped we kov edy im going to hold back on v more u or nike swoosh type of recovery the value play or values under performing has been a trend for a while. Theres been quite a bit of people pounding the table saying, listen, there needs to be this rotation out of megacap tech until theres a bit more clear cut answer to this covid crisis, until the volatility of the market calms down, people are going to continue to look for fortresslike Balance Sheets i stand by that. I think it will be a bit more i lo elongat elongated. President trump is expected to speak in the rose garden shortly. As soon as that somes comes up, go to it guy, back to the markets in the meantime, what do you make of what mike wilson said . Mike wilson does extraordinarily thoughtful work without question when he says things, i absolutely listen. I respect what hes saying i just dont necessarily agree with that bullish a thesis i do think the market is expansive and i think the reversals we saw yesterday technically did a lot of damage. Today sort of mitigates that, i understand, but there are a lot of things that happened yesterday that were going to be talking about in the days and weeks to come. Tconsumer confidence in the march and april period dropped 30 points. Its up 6 Points Industrial production dropped 16 or 17 to 1. 5 from the low we dont have that data yet. Certainly the move out of the banks in terms of almost record provisions, thats not the kind of thing that happens if youre all clear. Of course the big wildcard or one wildcard to factor into the markets is the tensions between the u. S. And china thats why we are awaiting President Trumps comments regarding china. Its not just trade. Its also mike pompeo yesterday saying that china did not have a right to claim resources in the south china sea, which of course china says it does have a right to do so so we have this ongoing back and forth rhetoric which all contributes to heightened tensions yeah. You guy verss have heard me says before i dont think the Trump Administrations policy toward china, while i think its bipartisan that we all agree we need to take them on, we are very much in a cold war with them on the tech front were in a bit of a hot war theres lots of examples i can point to increased tension with china just means headwinds to Global Growth we know were seeing deglobalization. If this sanctioned tit for tat results in a rollback of tariffs or put forward of more tariffs, when we know who pays for that u. S. Consumers pay for that, manufacturers pay for that, farmers pay for that i dont think it makes a heck of a lot of sense i think, again, looking at the state of the recovery through the lens of the stock market is a big mistake. If you look at what has happened in the economy just in the last four months, we had that march april period where it looked disastrous and that may june period where it looked less bad our economy is probably scarred for the next couple of years or so were going to have structural unemployment i think when we think about the back half of this year, its in the going to look like a v i think the u would be optimistic it looks maybe like a swoosh i suspect after the financial crisis, remember we heard about that double dip . We may get a double dip because weve front end loaded all of that stimulus. At some point, someone is going to say enough is enough, we cant continue to throw trillions at this without structural changes. As we await the president , lets check in with kayla tashi. Unclear if he will take questions from reporters the white house hasnt given a reason for this fairly lastminute press conference we know a couple of things about some deadlines that await the president. On july 2nd congress sent to the white house the hong kong autonomy act which was passed unanimously by both clahambers n would impose sanctions on beijing. Today is the last day of that deadline for the president to sign that law. If he chose not to sign it, he would face a veto override in members of congress because support for this legislation is so high. Peter navarro speaking with reporters on sunday said he expected the president to sign that bill into law this week and also to finish what he started in the rose garden in may. You may remember, melissa, in may the president had a similar eve