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A big enough sell-off could lead to ‘a chance of stimulus coming in’: Expert

InTheMoneyStocks.com President & CFO Gareth Soloway joins Yahoo Finance’s Kristin Myers to break down the latest market action as COVID-19 concerns rise.

Video Transcript

KRISTIN MYERS: Let's get straight to the market moves and the sell-off that we are seeing today. We're joined now by Gareth Soloway. He's the president and CEO of inthemoneystocks.com. Gareth, what a day to join us on this gloomy Wednesday. You know, when the pandemic first hit, we did, of course, see those huge sell-offs, the difference being, however, roughly six months ago now, was stimulus. So what is the next month going to look like, considering that stimulus deals are essentially all but dead?

GARETH SOLOWAY: Yeah, that's a great point. I mean, it's a totally different scenario at this point. You have a scenario where the stimulus definitely isn't coming before the election. That's concerning markets. But now we've seen the polls begin to tighten a little bit.

And I think the worry is that if you get a split House and Senate or something like that where you're not getting a Democratic sweep, you could be in line for no stimulus until maybe February or later. And now you're talking about an economy that's clearly hurting, right? And it's going to hurt more and more. Without stimulus, this could be a bad scenario and the markets are starting to price that in.

KRISTIN MYERS: All right, so let's paint the scenario then. Let's just take it there, right? I mean, how do you think investors are going to react, or do you think perhaps they might at all start to consider this scenario I'm going to paint for you likely? We have the rising case counts. So what does this mean if the United States essentially copies our European counterparts?

We go back to lockdowns and curfews on a far more broader scale than what we're seeing in Newark, New Jersey and El Paso, Texas, for example. We still have no stimulus, as you mentioned, possibly not until the first quarter of the next year. What then? Do you think that we are in for a really rough ride essentially for the next three months?

GARETH SOLOWAY: It definitely could be. I think there's one small hope, and we saw this in December of 2018 when the Fed talked about raising interest rates, and the market threw the biggest hissy fit in the world. And really, what we saw is the politicians got so freaked out that they kind of crossed those lines and actually did do stimulus.

So I think at this stage, the markets aren't down enough to cause that. But if you can get a big enough sell-off, then I do think you have a chance of stimulus coming in. But I mean, who wants to sit around and wait for that at this point, right? I mean, who wants to guess whether or not that's going to come?

So I think investors have to be so careful at this point going into the elections, not knowing what the outcome is going to be, not knowing how high coronavirus cases are going to go, and ultimately, just waiting and seeing. And I think, again, a cautious approach is smart right now. I could see maybe after the elections, you get a little relief if it's not super contested.

But my worry is that there's almost no scenario I see where the markets wouldn't go lower. Even if you get a Democratic sweep, where you know you're getting stimulus and a lot of it coming down the pipe, you're going to have a scenario where the markets say, OK, well, what about long-term capital gains?

Do we need to sell all our tech plays that we've had running up for the last two years, three years, four years? And that could put a pressure point on the market as well. So it is a wild time to be in the markets, folks.

KRISTIN MYERS: So to that point, two questions for you here. You said you don't see a scenario where the market isn't led lower. How much lower? Right now, the Dow is at a level under 27,000. It had hit session lows a little bit earlier in the day. How bad could this bleeding get?

GARETH SOLOWAY: I mean, I think you have another 10% to 20% potentially in a worst case scenario. Again, a lot will be determined by how things shape up following the elections, and then how eager investors are to either enter or exit positions. But I think 10% to 20% is a good possibility.

And I hate being that person that comes on, on a big down day and talks all, you know, bearish. But you have to look at these avenues. As an investor, you have to analyze the risk and the reward and go forward.

KRISTIN MYERS: OK, so picking up on that point then, if you're an investor and you do have the appetite for risk, or, you know, maybe you're looking at the market. Perhaps you're someone who is a little bit younger and can afford and have the time for some of that risk. And you say, look, there is nothing but buying opportunities right now. So many of these companies that I like are now on sale. Where do you see some of those opportunities?

GARETH SOLOWAY: I think you definitely want to look for the safe haven, higher dividend right now plays. I mean a Kraft Heinz. I just saw a GSK, GlaxoSmithKline, hit a major support today. That looks very, very interesting. Stuff like that I'd go towards. I know everyone loves to be in the tech names, but there's just a lot of headwinds.

You know, I'm sure you're going to talk more about the regulatory issues coming forward, the monopoly issues coming forward. I mean, the politicians have these companies in their crosshairs, and it's going to make it tough for them. I think in the past, it's always kind of been, OK, well, maybe they do it, maybe they don't.

I think at this stage, they're going to do something in the next couple years. It doesn't matter who's in charge. So that's a big headwind for the tech stocks. So I think you want to shift away from those. Go to the beaten down plays, like the Kraft Heinz or the GlaxoSmithKline.

KRISTIN MYERS: I have to ask you about the elections. You have brought it up, and it seems as if today, everyone's completely forgotten that the elections are just under a week away. Wondering how much you think the markets are going to care about the elections, especially since most people are saying, listen, the markets are already baking in a Biden victory. How important do you think elections are going to be a week from now, especially if this trend that we are seeing that kicked off on Monday continues into next week?

GARETH SOLOWAY: I do think it's important because it's not just a Biden victory. It's the Senate as well. I mean, if you're going to get this $2 trillion plus deal done, you need that sweep, that full round sweep. And so I think that you have to look at it, and the markets are kind of saying, OK, well, if we do get a split with the Senate, and the Senate stays Republican and the House stays Democrat, you could be in store for a lot of fighting, maybe no stimulus.

The Republicans in the Senate have made it very clear that they do not want to do a big deal on stimulus. And that I think is actually part of the issue here that's weighing on the markets. It's just that uncertainty, and the markets hate uncertainty.

KRISTIN MYERS: All right, well, we will have to leave that there. Gareth Soloway, president and CEO of inthemoneystocks.com, thank you so much for joining us today.


KRISTIN MYERS: Down day though it is, hopefully we can bring you back to see how things have changed. Thanks so much.