David Mazza, Managing Director and Head of Product at Direxion, joins Cheddar to discuss how traders can navigate all the headlines surrounding earnings, the economy, and inflation, why traders are not giving up on semiconductors, and how traders are navigating rising crude prices.

Opening Bell

How Traders Can Navigate Earnings, the Economy, and Inflation 

Welcome back to Cheddar is opening bell in our next segment trader nation brought to you by direction, E. T. S. We explore how investors and traders can position their own portfolios for the future with directions, expanded suite of E. T. F. S markets open higher this morning. All this coming as netflix reported weaker than expected earnings with more earnings coming out after the bell today after recovering in March stocks have benefit Rocky in april again, joining us now to discuss what matters more earnings, the economy or inflation. Dave Mazza, managing director and head of product at direction. Dave welcome back to the show. So how can traders take all of these factors into consideration and admittedly there are many and really what should traders be focused on? Yeah, we were in an environment where negative headlines are are really easy to find and it's actually difficult to parse through and identify anything that feels positive, particularly on the back of the last few years where there's been a lot of benefits to, to being in the market Right here. I think what investors really particularly traders need to focus on is what what are we actually hearing what we're hearing from companies is that generally they're still strong. The consumer may be a bit mixed here and I think that bodes uh kind of negatively for the future but for the time, being companies are still growing earnings about 5% When we include beets will probably get north of 10% this particular earning season But the big the big headwinds and question marks, particularly related to geopolitical issues and the impact of rising prices on the consumer is still out there. So until we get a little bit more information and really understand what the federal service going to do, especially with the potential for for 50 basis points or even 75 basis point rate heights. I think it's gonna be difficult for the market to find its footing. Traders have been bullish on semiconductor stocks recently. What is driving that bullish optimism? Yeah, here's what's interesting. So year to date, semiconductors have been, you know, a difficult area in the market, particularly as it's the tip of the spear from an economic point of view. Uh, and and we know the challenges that I've had with supply chain in the semi space. But what we're seeing is traders are still bullish on the space. So on nearly every day that there is a dip, particularly significant ones, we see money flow into our leverage funds, the leveraged E. T. F. That's really a tool for tactical traders to take advantage of a bullish position on semiconductors to tickle his socks l but we see that money flowing through for the time being, traders are not giving up on semiconductors and in fact they're using the dips to add to positions. Now that's been a losing proposition year to date. But I think it's interesting that even with that, we have not seen the trading community step away from that. Where else are traders bullish these days. What other areas? Well, here's, here's what's interesting, so it's kind of they're they're taking a barbell approach, Right? So on one hand, you get your high growth through seven conductors here in the video A. M. D. And they're going to have some reporting earnings coming out in the next couple of weeks. But they're also really plowing into more cyclical areas. That's your, your oil and gas space and your financials. More recently, some of that's come off the table and there's been some profit taking. Um, but really what we're seeing is at least from the trading community, what we're seeing with our business people are still putting money to work. Now. Again, that's contrary to some of the data that we've seen the survey data, like Ai um, and so it's important to pay attention to the surveys, but sometimes you actually have to look at the flows and follow the money and for the time being, we're still seeing that bullish, the bullish activity happened even if folks when asked or not feeling as comfortable about their allocations. Okay, let's talk oil and gas stocks because as we speak, crude prices continue to move higher. Obviously there's a lot of factors, including geopolitics that people are weighing into the equation, but what are traders looking at, how are they taking on those sorts of stocks and and big names in the space. Yes. So we're actually seeing a divergence here in the energy space? So we think about, you know, your mega cap, energy companies, your Exxon's your Chevron's, your BP Conocophillips. Those are areas I think where most of most of the attention gets spent, but actually we're seeing most of the activity happens in more concentrated area in the energy space. And that's oil and gas, particularly what we consider to be exploration production. And so these are actually the companies that are going out finding new sources of oil. And you contrast that to other companies that actually provide services for the oil sector. And for the time being, particularly as we've seen an increase in prices, especially coming out from some of the lows, even a few years ago, we're seeing those stocks be rewarded. Um, so even though we are in a long kind of a long term, secular trend away from carbon intensive assets for the time being, these names were so beaten down and so below their book values that we're seeing, traders actually move into the space, but more recently, taken a bit of profits there. So that's going to be an area where keeping an eye on what is your outlook for the rest of the year with regards to overall investor sentiment and and volatility. I think it's been a bit of a rockier start here in 2022. Obviously we're in the middle of the earnings earnings Opelousas. So we'll see how the rest of the earnings season shakes out, but but what are you most closely following as we move forward in this calendar year? Well, we know valuations have come down across the market. So we're in an environment where multiples were extremely high, but earnings were growing at 25, really quarter over quarter, that's all stop this quarter. So 5% growth is a positive but much lower than what we've seen, you know, really, really, uh in the last couple of years. Um, so until we see greater clarity on what's going to happen with the inflation side and what the Federal Reserve reaction function is going to be too, that are they going to be as aggressive as some are thinking or is that just all chatter. And really the market has done their job for them particularly look at how fast to your two year yields have increased on the flattening of the yield curve. So until that kind of is sorted out, which may take months. Uh, and and reading through the tea leaves of what the Federal Reserve is saying, we're going to be an environment for a bit of a rocky road. So we really, you know, are advocating for, you know, investors to think about their long term positioning. But at the same time if they are more oriented toward trading, take advantage of different tools, Either hedge their exposures or take advantage of kind of some upside near near term upside is we're going to see really, I think continued divergence between sectors and industries across the U. S. Equity market, no shortage of very important factors for investors large and small to take into consideration. Dave masses, managing director and head of product at Direction Day. Thanks for getting up early there on the West Coast, still in the six a.m. Our appreciate your time today and for you at home to find out more about how direction et. S enable you to seek profit and manage risk in all market conditions, visit Direction dot com before investing carefully. Consider a fund's investment objectives, risks, charges and expenses contained in the prospectus at direction dot com. Read carefully.