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Albion Financial Group CIO on market selloff: ‘This feels more like June 11, 2020 than the beginning of something new'

As the major indices encounter the biggest market selloff since June 26, many investors are scared that the markets regression will be a long-term turnaround. Albion Financial Group CIO Jason Ware joins The Final Round to break down what investors should think of the market selloff.

Video Transcript

SEANA SMITH: Welcome back to The Final Round. And taking a look at how the markets settled today, again, big losses across the board, a major sell off today. Technology leading those declines, its first drop in 11 trading sessions. NASDAQ and S&P both recording their worst day since June 11, for the Dow, it was its worst day since June 26.

Here to talk more about today's sell of, we have Jason Ware, he's chief investment officer at Albion Financial Group. And Jason, let's just start with what you're reading on the market weakness today. And is this the start-- could this be the start of a bigger pullback?

JASON WARE: Hi, it's great to be with you. And this is a reminder for investors that stocks don't go up every day all the time always. We are going to get some pullbacks, we are going to get some dips. And, you know, after a big strong rally that we've had since the bottom in March, you know, 60% for the S&P through yesterday and about 75% of the NASDAQ, you know, having some selling and a little bit of consolidation for a while.

This feels a little bit more like June 11 than it does the beginning of something new or a turn in the market that's more sustainable. You will recall, back in June, we had a strong pullback across the indexes, and that took about four to five weeks for us to recapture those old highs before sailing higher throughout the latter part of the summer. So, you know, just-- these things are to be expected.

But there's a lot of cash on the sidelines and a lot of investors that didn't pick up the rally since March. So we do think that, you know, probably some dip buyers will emerge when we get these kind of days.

MYLES UDLAND: Yeah, and Jason, I think, you know, we've come back to that June 11 frame a number of times over the last couple of hours here. But I guess I would ask, kind of, the simple question that I'm sure you're getting from some folks, which is, what do you attribute, you know, today's decline to?

JASON WARE: Yeah, I mean, that's always really hard to answer. And it's just anybody's guess. You know, the market opened a bit weak this morning, and then what causes it to snowball from there is hard to say. You know, there's a lot of machine trading, there's a lot of retail trading going on right now.

So, you know, I think the best way to think about any given day or, really, even short periods and short trends is that, you know, falling prices attract sellers, just like rising prices attract buyers. So we saw that really take hold in earnest today. I mean, even with hindsight, looking back two and three months ago, you know, what caused the sell off on June 11, we still don't know.

And I think that's just how-- the nature of how this works. So I really don't have a good answer there for you, unfortunately.

AKIKO FUJITA: Jason, let me try to follow up on that. Because, you know, when you think about the context of the sell off today, it's certainly-- there's been a significant run up in these tech stocks. When you look at a name like Apple or Tesla, how much of that was the retail investment hand at play? I know you said it's hard to, sort of, decipher where the moves are coming from.

But when you think about the sell off we're seeing today, I mean, we were expecting a bit of a pullback. But this is a pretty significant one on one day.

JASON WARE: Yeah, it is. You know, and a lot of folks have been saying, myself included, for a long time that having a pullback in the market or, you know, a healthy correction would be welcome. And then, of course, when you get that healthy correction, especially when you get, you know, that big pullback all in one day, can feel pretty unsettling and pretty uncomfortable.

And I think that emotion and that fear is what ends up triggering bigger sell offs. And, you know, retail participation in the market by a lot of estimates is around 25%, that's up 5% or 6% on a year over year basis. It was 18%, 19% around this time last year. So I do think that there is some emotion that is attached to that.

You see Tesla going down, so it's worked for you for two or three weeks, you're excited if you're on Robinhood, and then you see a turn like this the last couple of days. And it's those types of decisions in real time by investors that are letting emotion to get the better of them. I think that just kind of causes these spirals to happen.

And then, of course, algorithmic trading is a big part of the market. And there's a technical breakdown, which we saw a little bit here in the NASDAQ today. I think that can, you know, punctuate further selling.

- Hey, Jason, if we had been interviewing you yesterday, it would have been a different conversation. Like, why is the market up so much? I mean, you're speaking to that in a little bit. But I think we can still ask that. Because this is just a day, and, you know, this has just been craziness a little bit. I'm wondering why the market's up so much, and I want to ask you this other question of our time, which is, what about this decoupling from the real economy?

JASON WARE: Yeah. Yeah, really good questions. And I think it's the question we get most from clients is that decoupling factor. And I think the reason the market has had such a strong rally is the notion that A, investors believe that the recovery is real, B, we've had a lot of fiscal support to the tune of over 15% of GDP, which, you know, Austan Goolsbee was on a little bit ago, talking about how we've gained back some of what was lost, but we haven't got it all back, and that speaks to that decoupling that is part of your second question.

But nevertheless, we have seen jobs added. We'll probably get another report tomorrow on the jobs front that's positive. Of course, the Fed has been unapologetic in their support of the financial markets, which has helped a lot. And then, I think, lastly, we've had some really positive and encouraging developments on the scientific front.

I mean, whether it's vaccines, every card we flipped over there has been positive, therapeutics. And we really learned to manage and live with the virus. So what used to be fear in March and April about deep, dark unknowns, we've started to answer some of those questions here this summer. And while we haven't solved them, we have a better idea of the path forward, and I think that's certainly helped the stock market.

SEANA SMITH: Hey, Jason, real quick, are you still finding any value in those growth names that led the way?

JASON WARE: Yeah, long-term value. I mean, I think over the short term, there's no doubt about it that they've had big runs. And, you know, I think pausing to catch their breath is probably healthy over the medium and longer term. None of these stocks are trading at cheap valuations, you know, whether it's Microsoft at 33 times forward earnings or Apple at 36 times earnings.

You know, these stocks are no longer cheap. However, I think if you look at the growth and if you look at the, you know, durable wide economic secular growth stories that are, you know, attached to all of these leading technology companies, if you have a two, three, five-year view, they don't have to lead the market every month, every quarter, every year to be good investments. But we do think that those businesses continue to see rising per share fundamentals. And they're not in bubble territory, given like I said.

You know, 30 times earnings for those-- that kind of leadership is not terribly out of step with reality. So we continue to like them for the long term for our clients.

SEANA SMITH: All right, Jason Ware, chief investment officer, Albion Financial Group. Great to have you back, thanks for joining us.

JASON WARE: Thanks, guys.