Expert: 'I've had far fewer defensive conversations than I would have expected' About The Market

The stock market can’t seem to stop going up. We’re at all time highs. And yet, opinions on the strength of this rally still seem divided. Does the market have more room to run, or are we overdue for a correction?

We asked Sylvia Jablonski, managing director of capital markets at Direxion, to give us her sense of sentiment on The Street right now. 

Benzinga: Taken the first few weeks of 2020 into account, what can you even say about this market right now?

Jablonski: So, I think if we take a look at where we are today...December was one of the best months for stock gains in 50 years. I think U.S. stocks are still a good place to be. 

For investors just trying to come in and evaluate, the valuations might be a little bit high and the risk of getting in them might be higher, too. But if we continue seeing lower rates and ongoing positive earnings or earnings beats, we may continue to see some positive momentum in the first half of the year. And I think that slightly flatter growth with a recession risk and friendly Fed would really keep the same decent backdrop for the markets this year. 

Benzinga: Are there particular Direxion funds you are seeing noticeable volume increases in of late? I’d imagine the leveraged defense fund got some attention after the flare up with Iran. 

Jablonski: Biotech and health care are big ones. I'm talking [the Direxion Daily Healthcare Bull 3X Shares CURE and Daily Pharmaceutical & Medical Bull 3X Shares PILL]. And I think this story is really that you have this massive aging population of Baby Boomers. You've had really good stories of M&A activity, of drug approvals, and it's sort of a late-cycle performer. Most of them have been meeting or beating on earnings; there's a lot of disruptive technology; cost savings and merging of minute clinics; insurance firms and pharmaceutical companies are becoming more efficient, and I think the dividends have been strong. 

And the biggest thing is that these names have been absolutely hammered for four years as compared to the S&P 500. You have low multiple trading here on health care.
Another one is we've seen a lot of flow into China [Daily CSI China Internet Index Bull 2X Shares CWEB, and Direxion Daily CSI 300 China A Share Bull 2X Shares CHAU]. I think regardless of the trade deal, China, Asia, they're being included in the MSCI emerging market indices. They're going to have a huge percentage in the major emerging market and China-related benchmark. 

Benzinga: What about energy here? Are people that you talk to bullish energy after it was so beaten down in 2019?

Jablonski: We're actually not really seeing a whole lot in energy. And I think it's more or less because it has been the worst-performing sector. 

Energy is just sort of there. It's not popping as much as you would think it would with Iran, for example, or some of the oil stories. It’s not falling that much, but it’s not popping that much. And I think that a lot of investors are more interested in high-quality, large-cap growth...but we're not seeing a lot of flow and a lot of interest from investors. 

I get the whole ‘It’s undervalued compared to the rest of the S&P’ but there also doesn't seem to be this notable catalyst for it to take off. 

Benzinga: Are you getting a sense that there is a lot of fear in the market right now? Iran aside, is this a particularly fearful time overall or have we just got swept up in this Iran situation?

Jablonski: In terms of the conversations that I have with various people, and those tend to be registered investment advisors and professional wealth managers, a lot of people seem to be very bullish. 

I definitely have talked to the super cautious, allocating to commodities and alternatives only types of guys that just think we're sort of way too long in the tooth. And there are a lot of compelling reasons for why this would turn faster than everybody thinks. But I would say the majority—minus the blips that we've seen during the year that came around, mostly China news—are pretty bullish for the next six months. And I've had far fewer defensive conversations than I would have expected.

Benzinga: How do you expect the election to play out in terms of investor sentiment?

Jablonski: So I think it sort of depends. [If Trump gets re-elected] it would be much of the same. Meaning that because the economy's good, because the markets are good, a lot of investors and advisors tend to think that we might see much of the same for the next four years because people are happy with the jobs number, are happy with their wages, and a lot of that tends to drive elections. But I think if we have a shift, then that all changes. And I think that [investors] will start to look at things like global infrastructure and perhaps utilities, gold, and clean energy ESG types of things. I think it totally depends on which side wins.