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Meme stocks are not going away even as the economy continues to reopen: Direxion Managing Dir.

Dave Mazza, Managing Director and Head of Product at Direxion, joins Yahoo Finance to discuss the outlook on the market and the meme stock madness.

Video transcript

KRISTIN MYERS: But I want to continue this market conversation now. We're joined by Dave Mazza, managing director and head of product at Direxion. Dave, I just want to quickly ask you about some of these meme stocks before we pivot to the broader market conversation just from what Jared was just highlighting. How are you approaching some of these meme stocks? Because I don't think a day goes by without some of my friends, my family hitting me up, asking me about AMC or GameStop or some of these other stocks that we are seeing just have incredibly impressive-- I'll even call it-- runs into the upside. Then, of course, before crashing back to reality.

How are you approaching some of these meme stocks? Are you leaving money on the table if you ignore them?

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DAVE MAZZA: On one hand to your point, it can be exhausting thinking about the meme stocks because they're evolving all the time. On the other hand, again, if you have the ability to take some action in your portfolios, there may be some opportunity.

With that being said, they really are only a gathering of companies because they're collectively meme stocks. So there's not a fundamental relationship. Maybe some of them are having some bankruptcy issues or controversy.

So I do think if investors are going to play in that space, to really do their homework and understand the opportunity set and not just buy it because their friend gave them a call or there was a text chain talking about it. But I will say, this has gotten the attention of both institutional investors who are now thinking about going long some of these names alongside the retail crowd and not just being out there shorting them, like as much as the commentary there. So it's an interesting relationship.

I don't think this is going away, even as the economy continues to reopen. Clearly, it took a pause. And it's now back in full force.

ALEXIS CHRISTOFOUROS: What about these individual investors, retail investors, part of these Reddit forums who think they're sort of sticking it to the hedge fund investors when they bring these meme stocks skyrocketing? Is it actually hurting those hedge fund traders? Or are they now understanding the pattern here? Are they using it as a tool?

DAVE MAZZA: Well, there's two things to say to that. There is certainly some cases where some large, well-known hedge funds have suffered at the hands of the retail crowd. And to your point, it's kind of sticking it to the proverbial man there.

But what's interesting is that now, because this has become a ubiquitous part of the market, there is evidence that suggests that certain institutional investors are following the Reddit crowd, using that kind of social sentiment to inform the positions they're taking. Now, again, many of those are tactical folks.

We're certainly seeing that kind of bleed over to the ETF space, where certain names that have exposure to this, especially on the retail side, have had this episodic performance and episodic volatility and interest. So again, I think it's not just retail versus hedge fund here because there's a lot of hedge funds who are saying, hey, this could be a new source of information for me to use as part of my investment process, which again, maybe was crazy to talk about three years ago. But it's just an evolution of how information flow has changed across the markets. And the retail investor community is now playing a much greater role than it did for, effectively, decades.

KRISTIN MYERS: All right, so Dave, let's talk now about looking at your portfolios because it seems as if investors are really unsure, especially with some of the economic data that we have coming out. On the one hand, things are great. And then on the other hand, things are not so great. So where do you see some of the opportunity? Where should folks be paying most attention and really putting fresh money to work going forward?

DAVE MAZZA: Yeah. This is a market where, if you pick your economic data point or if you tune into this program from one day to the next, just by nature of how fast markets are moving, you might seem like the economy is going to continue to boom in perpetuity or that everything is going to effectively be sold off because the markets are going to be under pressure because the economy is not growing as fast as one would hope.

What's interesting here though, is that we are starting to see a rotation away from the rotation. What do I mean by that? Is that starting in November, we really saw growth stocks, particularly the tech sector, be sold out off in favor of more cyclical areas like energy and financials, as there was greater confidence that the economic reopening was going to benefit some of these more beaten down names.

What I find most interesting is, effectively, this one-month, three-week period heading into this all-important FOMC meeting, we have seen rates come down significantly. And at the same time, some of these growth and tech stocks begin to do well again.

So I do think investors need to be looking more discretely than just growth versus value or meme stocks or non-meme stocks and digging in a bit to some of the companies or even some of the individual industries and saying, is there an opportunity for long-term disruption? Did the COVID-19 pandemic accelerate some of this disruption? And then how can I take advantage of that over the longer term?

ALEXIS CHRISTOFOUROS: Dave, in the limited time we have, you mentioned the Fed. All eyes are going to be on what Jay Powell has to say about inflation. Do you believe that it is indeed transitory? And how are you looking at your portfolio if you believe that inflation is indeed going to spike even higher this year?

DAVE MAZZA: I have added some commodities exposure to the portfolio because there is certainly some idea that there's going to be some sticker inflation. But I don't think we can expect that you're going to see used car prices up 7%, 8% month over month going forward, for example.

The wage increases are something investors need to keep an eye on. If we see that broadening out, not just to get people going back to working in restaurants and other businesses of that nature, but kind of bleeding into other spaces, that will cause some longer-term inflation. It's really hard to raise wages then take them down.

So question marks remain. I am still in the camp that much of it's transitory. But there are going to be areas where longer-term pricing power-- or, I'm sorry, pricing increases is stickier than we're being told necessarily by Fed officials.

KRISTIN MYERS: All right, Dave Mazza from Direxion. Thanks so much for joining us today.