Jason Ware, Albion Financial Group's Partner & CIO, joins Yahoo Finance's Jen Rogers and Myles Udland to discuss his market outlook amid investing uncertainty due to COVID-19.
MYLES UDLAND: All right, welcome back to "Yahoo Finance Live." Myles Udland here in New York.
We're joined now by Jason Ware. He's the CIO at Albion Management Group. So, Jason, let's start with a theme we've discussed with a number of guests in the last couple of days, which is this idea that we're seeing a handoff between the public-health data, the public-health emergency that we had late March, early April into the economic emergency that we're just unfolding-- just starting to see unfold. Obviously shocking numbers today on the economic side. Do you kind of get the sense that the market is going to key more off what we see from the economy in the weeks ahead and is taking the flattening of the curve as something that is in progress and likely to continue?
JASON WARE: Hi, Myles. Great question, and glad to be with you, and I think you sketched it out perfectly. You know, I think yesterday's rally and really the rally of the last three weeks has been based on optimism around the health emergency, what seems to be improving. Social distancing, stay-at-home orders, greater awareness is bending that curve, and it seems like the scientific community is really throwing all their resources at the health side of it. So there seems to potentially be light at the end of the tunnel.
So what we get today is we get bad bank earnings, which a lot of those numbers look like typos. You know, looking at the retail data on the macro level, the manufacturing data, the housing sentiment survey, all of these things are inserting economic reality into what's been a fairly optimism-driven rally over the last three weeks.
So I think as we look over the next few weeks, what's going to really matter for the market is can we continue to do what we need to do on the health side to suppress the spread of the virus? And then on the economic side, are these rescue packages from the fiscal authority and then, of course, the Federal Reserve stimulus measures, are they going to dampen the downside contraction in the economy?
And I think if the data is less worse than feared, then that might be OK for the market. And I think if it's worse than feared-- which, by the way, the fears are really bad because we're seeing some really amazing data, not in a good way. Then I think the market could struggle for a little while.
JEN ROGERS: Jason, can I get you to expand on that a little bit more, your thinking on how we're going to react to data? So today, just, you know, retail sales and home builders and manufacturing-- and we know it's going to be bad, right? We knew that we were going to be bad, and then we're down. I just don't-- how are you thinking this is going to roll out when we know--
JASON WARE: Yeah.
JEN ROGERS: --it's ugly? Like, how much worse does it have to be than expectations? But what are expectations anyhow in an environment like this? We've never gone through this before. I don't think people know how to set their expectations.
JASON WARE: Right, and that's a really important question. And I think the good news is that the Fed president James Bullard and a few other economists, well-respected economists, came out a couple of weeks ago and really put some ugly numbers out there-- you know, unemployment going to, you know, 30% and GDP contracting by, you know, 30% on an annualized basis. And we've seen some initial jobless claims that, again, just are stunning. You know, 16 million job losses over a short period of time, and that's probably underestimating the reality.
So I think those things have set up some really sour expectations for investors and for the market at large. And the way we think about it going forward is given that we don't really have any good consensus estimates-- I mean, look at retail sales today. It was down, like, twice as much as estimates were expected. Same thing with the manufacturing data. It was 2x as bad as what we saw in 2008 and 2009 at the low.
So I think, generally speaking, it's not so much the absolutes of good and bad that are going to matter for stocks. It's whether things are improving or less bad than expected. And again, getting your hands around what that expectation is is hard, and I think we'll probably learn about that in real time based on how financial markets react.
But I think over the coming days and coming weeks we'll start to adjust to what this new normal of a deep recession looks like over the short run, and the market's pretty smart about sniffing out how bad it might get and then setting the expectations on a relative basis to that. So it'll be interesting to see how it unfolds.
MYLES UDLAND: And, you know, Jason, you talk about expectations and consensus. And, you know, we've heard a lot here at Yahoo Finance about how basically every company has withdrawn guidance, and analysts are flying blind and making it up. But, you know, we were just talking to one analyst who put a note out on Disney, and they're looking for, you know, parks revenue down 47% in 2020, and they admit that's kind of a guess.
I guess at a company level, is there any way that you're trying to game out what the financials could look like, even for a really, really strong business over the next 18 months, or are you still, like, waiting on that front and just trying to get a macro picture before you start looking into single names? Is the process go top down, or are you actually going bottom up?
JASON WARE: Yeah, we're approaching it from both directions. And the truth is that we're flying just as blind on the top down as most macroeconomists and strategists, and we're trying to get our hands on high-frequency data as it comes in.
I think the New York Fed has done a great job of releasing what they call their WE Index, and it's their Weekly Economic Index, which is even quicker and more reactive to real-time macro information than, say, LEI, which, you know, prior to WE was fairly quick.
So we're trying to get a handle on their high-frequency data to see, you know, where this economy is going to settle out. So I think a lot of that depends on stimulus and how effective that is, and I hate even calling it stimulus. It's really an economic rescue. So that's the macro side.
And then on the micro side, bottom up, we're looking at our companies and evaluating them in real time based on what we think their earnings and their sales can look like within that macro context. And the good news is is that the companies that we own-- and we've talked about this many times in the past. We've stuck with high quality for a number of years, and the businesses we own have more visible earnings and revenue streams than a lot of these other more cyclical businesses.
You know, companies like Amazon that's at an all-time high, it's a little bit easier to model what their earnings look like over the next two quarters than it is to model something like a Carnival Cruise Lines, which is probably a dead-and-buried business for a while. So the good news is is that in our portfolio, we've had an easier time of trying to size up what we think earnings look like over the next couple of quarters than some of the other money managers that might not be overexposed to quality.
Looking at the S&P 500 at large, I think, you know, a 25% drop in earnings this year is certainly a reasonable expectation at the baseline level. So we'll see, again, just like everything else, what happens.
MYLES UDLAND: All right. Jason Ware, CIO at Albion Management Group, great to talk to you, and we'll talk to you again soon.
JASON WARE: Thank you, guys.
MYLES UDLAND: All right, coming up on the other side of this break, we're going to talk a little bit more about this market, watching things as we head towards the closing bell.