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BNP Paribas' Mark Howard on his 2021 market outlook

Mark Howard, BNP Paribas Multi-Asset Specialist, joined Yahoo Finance Live to discuss today's market action and what he's expecting heading into 2021.

Video Transcript

SEANA SMITH: Well, we first want to start with this market move that we're seeing to the upside, and we're really seeing the gains accelerate here in the final hour of trading, with the DOW up just almost 400 points right now. For more on this, we want to bring in Mark Howard, he's BNP Paribas' multi-asset specialist. And Mark, positive vaccine news. Let's just start with the, I guess, overall move of the market today, fueling that rotation trade once again. We talked about cyclicals leading the market. That of course, is the case again today. How are we looking at the leadership change in the price action that we've seen over the last several weeks?

MARK HOWARD: Well first of all, thanks guys, for having me on the show today. You're absolutely right. There's been a rotation going on. There's been some trepidation because obviously the virus is spiking here in the US and in certain other parts of the world. But even more powerful is the growing signs of moving closer to a transition in Washington and a return of some key people, such as Janet Yellen and others who the market really understands and values and appreciates, and that helps.

ADAM SHAPIRO: Mark, just out of curiosity here, I'm looking at the sectors, and they are all trading--

MARK HOWARD: Global trading and United, and the news that they had out today. Last week Carnival raised capital. All of this shows a healing process, and helps people to look beyond the dip that we're likely to see because of COVID, and into the recovery into next year.

ADAM SHAPIRO: Hey Mark, I might be getting a glitch. It's a new Apple computer and it might have frozen. So I apologize if I was talking over you. I'm watching sectors right now, and I'm seeing everybody in the green except for health care. Why would health care be off, that sector off today, with what appears to be positive news health wise?

MARK HOWARD: Yeah, it has more to do with, I think, to rotational effects, and the fact that people are doing some month end rotation. Bear in mind, November has been a really good month for equities, but it's been a particularly strong month relative to bonds. So people are selling some of their winners, they're selling some sectors such as health care to move into bonds. And so I think that has more to do with rotational as opposed to a specific narrative.

SEANA SMITH: Mark, it's interesting when we take a look not only at the action that we've seen in the market, but Bank of America, for example, was out with its fund managers survey, and it really just points this almost universally bullish view from investors at this point. Does this give you pause at all, because it always seems whenever it almost seems too good to be true and everyone's jumping on the bandwagon, that's when we normally see a pretty big pullback in the markets.

MARK HOWARD: Seana, and I think you're absolutely right to be alert to too much euphoria. What allows it to be constructive, at least over the next couple of months, recognizing that there is going to be some very unfortunate headlines around COVID in this country, is the asymmetry of policy coming out of central banks around the world and around, to many degrees, fiscal policymakers.

And what I mean by that is they're going to be quick to provide support to markets if the economy wobbles or turns down, but they're going to be very slow to take away the punch bowl, to take away stimulus, whether it's monetary or fiscal, if the economy improves. And so that asymmetry of policy really provides confidence to investors to take risk and push valuations to new highs.

ADAM SHAPIRO: Is that one of the reasons-- we saw the Russell 2000 hit a new intraday high as we're headed towards the last bell, and all that money sitting on the side looking to capitalize, I mean, big cap companies, you miss that boat, is that why we're seeing the Russell go so high, or is it because fundamentally they were underperforming for so long that's where the value is located?

MARK HOWARD: I would say, Adam, it's probably a little bit of both. Bear in mind, most people, BNP included, are looking to meaningful improvement both in growth, particularly in the second half of next year, but also modestly higher inflation and more coherent economic policy. All of that helps some of these smaller and mid-cap companies that were left behind during the NASDAQ boom in the first nine months of this year.

SEANA SMITH: Mark, how about your take just in what we're seeing just in terms of dividends, because we're starting to see companies begin to pay them again. 42 companies, I believe, in the S&P, suspended their dividend earlier this year. Does this go with the view when we start to see companies return some of that capital, does it go with the view that the economy is improving, or do you think it's more a company specific story at this point?

MARK HOWARD: I think it's predominantly a statement about their view of the economy and their view towards access to capital. Remember, when a lot of those dividends were suspended, holding the banking sector to the side, because the banks were a special situation due to regulatory oversight, but for non-banks, there was a real question about access to capital, access to credit, and frankly, their underlying business. And what we're seeing now, even with certain state by state curtailments, businesses aren't being forced to curtail anywhere to the same degree, except for restaurants and a few sectors.

So I think companies feel more constructive about their business outlook. They don't think it's going to go to a dead stop. But moreover, they just feel like they can access capital, and we see it proven by airlines and cruise companies and others. So that gives people confidence that they can access capital, which means it's not imprudent to pay a dividend.

ADAM SHAPIRO: Very quickly, all the money sitting off to the side, we have analysts saying that this is-- and I'm not saying if you are or not saying, but that we're about to enter another bull market. Is there going to be a fear of missing out that puts us in a bubble territory?

MARK HOWARD: Adam, that's certainly a concern. You know, you look at the high yield market, you look at certain emerging markets, there is potential in addition to parts of the equity market, the potential that we overshoot. But as you rightly point out, we see a lot of money in money funds. We see a lot of money needing return, whether it's an endowment, a foundation, an insurance company, they need to generate return.

So I don't think that money is going to all go into one place. It's not all going to go into growth equities. It's going to go into emerging markets, it's going to go into credit, it's going to go into structured finance, and into sustainable finance. So I think there are plenty places for that money to go, and that probably means you won't have any one bubble. I think you'll see a lot of assets move up.

SEANA SMITH: All right, Mark Howard, BNP Paribas multi-asset specialist. Great to have you on the program. Thanks so much for taking the time to join us today.

MARK HOWARD: Thank you very much.