Brent Schutte, Chief Investment Strategist at Northwestern Mutual Wealth Management, tells Yahoo Finance as we head into 2021 we will see a broadening economy and fiscal stimulus.
SEANA SMITH: For more on this and what exactly this means going forward for the markets, we want to bring in Brent Schutte. He's the chief investment strategist at Northwestern Mutual Wealth Management. And Brent, you can see just a couple of headlines and totally flipped the direction that we're seeing in this market. But we do still have stocks near record highs. Yet we're seeing this rising COVID case count, new restrictions be implemented. How are you viewing some of these near-term risks?
BRENT SCHUTTE: So I tend to take a longer term scope than some people who worry about the next three or four months. And I think as you look into 2021, you are going to see a broadening economy. And so, there's been a lot of talk about the winners and the losers doing COVID. As we've gone through it, as the economy has reopened, more parts of the economy are participating to where now COVID is really impacting a small subset of the US economy.
And so, if you think about that commentary, as you move into 2021, there will be broader economic growth. It will be more inclusive. You will see continued fiscal stimulus. I do believe we will get a package. You'll see the Fed continue. You have pent-up demand, and you have the virus continuing to lessen it on those last 10%. And so, as you think about that in 2021, you have a market that will move higher, but with different leadership that reflects more broad economic growth.
Think the rotation that we've been talking about every time I come on the show. It's underway right now, and it will continue into 2021. Think value. Think small cap. Think emerging markets.
ADAM SHAPIRO: Brent, can you put that into context that we can help us-- help us all understand. When you say think of value-- a sector where I might find value in the past, I would have thought real estate. But that seems so risky right now, especially in major cities because when you get into this kind of vaccine volatility news, who wants to take a chance on a REIT?
BRENT SCHUTTE: Yeah, I mean, I think it's price versus take a chance on something. So what's the price that you're at right now? And some of these asset classes have been beat up and reflect some pretty dire consequences. I'd focus more in the near-term on small cap stocks.
Those are more leveraged to broad economic growth. Those have their earnings grow quite fast when the economy reopens. And they've already begun to do so. And next year, they're expecting 75% earnings growth, which I think will attract people away from the tech stocks, which were the only game in town prior to this from an earnings growth perspective. And so, that would be the area to focus on.
And then you can think of some the traditional value sectors like financials, industrials, things of that nature, where a broad economy is more conducive to them actually growing and making earnings.
SEANA SMITH: And how about the uptrend that we've been seeing in the 10-year yield getting closer to 1%, pulling back just a bit today? But are you confident that the equity market can handle higher yield at this point?
BRENT SCHUTTE: As long as it reflects increasing economic growth, which is still happening. I hear a lot-- and I heard the prior guest talking about the economy. You are not seeing an economic fall-off. Sure, it's going to slow down from 33%, but the Atlanta Fed GDP now is still at 11%. The two ISMs this week were in the mid to high 50s.
And I guess, one more thing to kind of drive home this broadening economic growth, there are 36 industries represented in each of the ISMs, so the manufacturing and the non-manufacturing. Of those 36 industries, 30 are reporting growth right now. In April, it was four. At the end of Q2, it was 27. It got to 31 at the end of September. And now, it's backed off one to now 30.
And that's because the services sector, which is where the impact still is, saw a decline from 16 down to 14 out of the 18. And those segments are real estate, educational services, leisure and travel, and things of that nature. And so that, I think, kind of paints a picture of while we wait for a virus-- or a vaccine, I should say-- the US economy has adapted around the COVID. And companies have learned how to serve their clients during this time period. There still are impacts in some parts the economy, but they've narrowed.
SEANA SMITH: All right, Brent Schutte, always great to have you on the program. Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.