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Jacob Sonenshine [00:00:00]
All eyes are on a trade truce deadline. Shawn Cruz of T.D. Ameritrade, what are you seeing in terms of trading activity in a trade sensitive sectors?

Shawn Cruz [00:00:09]
It's been interesting. We've seen a little bit of rotation out of some of the bigger industrial names and a lot of that is a little bit of profit taking. If you look at a lot of this trade sensitive sectors that are a little bit more cyclical they had strong January, they had a strong performance in January. So as we start to see them really move higher throughout January, clients took a little bit off the table but took some profits but they did find other areas to put to work and I think they took on a little bit more of a defensive tone where they were really moving into health care, is a very popular sector TD Ameritrade clients in January.

Jacob Sonenshine [00:00:37]
So would you say that they maybe sacrifice some returns for the last month or so but they've also direst a little bit.

Shawn Cruz [00:00:43]
That is exactly why I think they do sacrifice those returns. But I think one thing we've learned and especially there's volatility events going into the end of 2018 is that you don't want to try and pick the top. It makes sense to scale out of positions, go in there and you select equity exposure and health care is that a very strong performance so far this year as well. But I think it's a little bit more of a defensive play because they want to take a wait and see approach of what's going to happen with these trade docs.

Jacob Sonenshine [00:01:08]
So if there are a good, if there's an agreement and say we'll see if there's an agreement on setting semiconductors, we'll start there. Do you expect clients to go into Semis pretty quickly before they pop? They've been up a lot. What are you seeing in terms of semis?

Shawn Cruz [00:01:23]
I think they're going to wait and see what that news is exactly looks like. Then they're going to weigh the impact on the various companies. We did see them take some profits and some of semiconductor names but we've seen some pretty strong performance out of those companies. And like I said they're not going to sit there and just hold all of these names and try to pick the exact top as they start to see some pretty good performance out of those names.

Jacob Sonenshine [00:01:43]
They're going to take profits and they're going to find opportunity maybe in a little bit more of a value oriented play. Now since a lot of people are saying and it makes sense that the trade issues all of the tariffs going both ways in China and the U.S. could take a while for all that to unravel. So if that's the case what kind of hedging activity are you seeing or do you expect people to start buying puts against a lot of things? What are you anticipating there?

Shawn Cruz [00:02:07]
Well I think the markets are not anticipating in all out resolution by the March 1 deadline but I think markets are really hoping for is that there's enough progress to where you'll see the administration maybe go out there and say we're going to extend that deadline so those tariffs aren't going to kick in March 1st like we initially said they would. That's what I think the optimal outcome for the market is and we've seen the VIX pullback so much lately. I did not expect to see the VIX below 15 until we got more certainty out of what the trade talks are going to look like what the outcome is going to be. But now hedging costs are incredibly low. So if you do want to go out there and say buy puts to hedge your portfolio, the cost of hedging is incredibly cheap right now. The VIX at these low levels when you think about it it wasn't very long ago that we had VIX up around We've almost cut that in half right now.

Jacob Sonenshine [00:02:52]
So if you are saying that and then maybe some advisors or people in similar positions to you at TD Ameritrade, would you expect to see a lot of demand in the coming weeks or months for those types of hedging contracts?

Shawn Cruz [00:03:10]
I think if you're an investor out there you have a large portfolio and you have there is uncertainty not only around the trade talks but there's also Brexit there's plenty of events that could really stoke volatility going into the first half of this year. So if you're sitting there and you're looking at your portfolio it makes sense that with hedging costs this low with Vix this low that you should want to go out there and find ways to hedge your portfolio. And that's a conversation we're having with a lot of T.D. Ameritrade clients right now.

Jacob Sonenshine [00:03:35]
All right Sean Cruz thank you.

As the broader market has surged to start 2019, retail investors have taken some risk off the table of late ahead of the March 1 trade truce deadline between the U.S. and China. 

That's according to TD Ameritrade Trading Strategy Manager Shawn Cruz. 

Before we dive into those details, President Trump said he'll delay further tariffs on Chinese goods that will begin March 1. This sent the market even higher, with the S&P 500 now up 12.07% year-to-date and the Dow Jones Industrial Average up 12.32% on the year. 

"A little bit of profit-taking" was heavily in the mix for some retail investors, said Cruz. The iShares PHLX Semiconductor ETF (SOXX - Get Report) is up 20.59% year-to-date, for example. Many investors have bought up chip stocks on speculation that the U.S. and China could reach an agreement in which China would resume buying more semiconductor equipment from U.S. - based chip makers, which include Nvidia Corp. (NVDA - Get Report) , Advanced Micro Devices Inc. (AMD - Get Report) and Intel Corp. Intel Corp. (INTC - Get Report) . 

Cruz said clients rotated into defensive sectors like healthcare.

On the trade sensitive stocks, retail investors took a "wait and see approach of what's going to happen with these trade talks." 

Looking forward, most do not expect trade relations to completely resolve soon, and there could be volatility ahead. "Now hedging costs are incredibly low, so if you do want to go out there and , say, buy puts to hedge your portfolio, the cost of hedging is incredibly cheap right now with the VIX {volatility index} at these low levels," Cruz said. Simply put, there hasn't been much volatility as stocks have risen, which means demand for puts have been low, making it cheap to buy those contracts now. 

See more about why Nvidia may be able to deliver on its guidance here.