Some strategists are raising red flags about the market rally. But David Mazza, Roundhill Investments Chief Strategy Officer, says "we may be at the start at one of the greatest FOMO trades we have ever seen." Mazza warns that "could change in a heartbeat," but he makes the case that there is a lot of cash on the sidelines that could still come into the market.
- The market melt-up, that is persisting. And if yesterday is any indication, it may even be broadening here. As we inch closer toward a bull market in the S&P 500, the rise is still riding on a select few star tech stocks. The question on everyone's mind-- what's the Fed going to do at next week's meeting? So traders, there favoring a pause. But next week's CPI report ahead of the decision, that could change that.
We're back with Dave Mazza, who is the Roundhill Investments chief strategy officer here. So first to set the stage, what do you believe the Fed will do at next week's or at their next meeting?
DAVID MAZZA: So we know we're in a quiet period here, so we're not going to hear anymore from officials until the meeting. But it seemed as though at the end of last week, they were really trying to guide us toward the pause in June. Now, there is strong opinions from economists, from strategists that people are still saying they should do 50 basis points. Others are saying, do nothing.
I do think it's likely prudent, and I think what we are going to see is the pause here. But that sets up July. Now we have-- and these numbers can be very variable looking at the data from the CME on predicting where traders are positioning for the Fed meeting. July looks like it's in play now, which is interesting.
So until we see employment start to come down-- and this is crazy to say-- we want worse jobs-- but until we see that, it's really hard for them to take their foot off of the accelerator significantly. But we have baked in a ton of interest rate hikes in an extremely short period of time, and so we can't ignore that and its impact to markets.
- When we talk about the market melt-up too, as we have been during the past few days, one of the things implied in that is that the market's going up despite, maybe, lack of catalysts or despite maybe great headlines. And so can it keep doing that, I guess, is the question.
DAVID MAZZA: Well, again, this can sometimes seem crazy to think about, but we also know there's so much cash on the sidelines. And I hate that term because what does that really mean? Are you actually invested or not? But what we do know is there's a significant amount of money that moved into money market funds because cash was the only asset-- was becoming to be the only asset that was earning an actual return last year, and again, because rates rose so much,
But I actually think we have the potential for that money to move out of cash and move back into equities, and we actually may be at the start of one of the greatest FOMO trades that we've ever seen. Now, that could change in a heartbeat because there's just so many conflicting signals out there.
But we do know that people really positioned and bought bonds and bought cash for the first time in a long time because it was attractive. But if you keep seeing the NASDAQs now in a bull market-- I've been missing out, it gets really hard not to say, I want to participate in that.
- Is there a specific set of companies that continue to drive the majority of that than going forward.
DAVID MAZZA: Well what's fascinating, and we've seen it, the big seven-- so your [INAUDIBLE] plus Nvidia and Tesla, we know that their contribution to index returns, whether it's S&P 500, NASDAQ, has been remarkable. But if we take a step back, again, they are not inexpensive. I think it would be hard to bring someone on here and say that they are, but I'm sure someone out there believes that.
But regardless, they are powering the economy. That's where the earnings growth continues to be, particularly if you think about in the back half of the year into 2024, where some question marks remain. So I actually think we're going to maintain this concentration. We did see some broadening out yesterday. Financials, actually, got back into the action for the first time.
But broadly, I actually think we're going to see this idea of the haves and have-nots economy, haves and have-nots market continue to play out and by that, I mean the haves are the megacap growth names.
- Yeah. I mean, and I keep watching the S&P versus the S&P Equal Weight like a hawk to see if we're going to get, maybe, a little bit of gaining in the equal weight index to show that broadening out.