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Chief Market Strategist on the one constant for markets during election season

Keith Lerner, Truist / SunTrust Advisory Services Chief Market Strategist, joins The Final Round to discuss the day's action as major averages closed higher for the second straight day.

Video Transcript

SEANA SMITH: For more on today's action. Again, the Dow rising just over 100 points to its highest level in a month. That sector action, Jared, that you were just talking about, more breadth in the market, all 11 in the sectors in the green today. So for more on this, we want to bring in Keith Lerner. He's chief market strategist at SunTrust Advisory Services. And Keith, great to have you back on the show.

Just let me get your take just on what we're seeing more broadly speaking in the markets. We don't have a stimulus deal. There's still a lot of uncertainty out there over the next couple weeks in terms of what we will see come election day. Do we have what it takes, do you think, for the market to get back to new highs with all this uncertainty still in the market and without a stimulus deal?

KEITH LERNER: Yeah, I think so. The one thing, everyone's always looking for certainty. And certainty is not the friend of an investor who has cash who's under-invested in equities. In fact, we actually raised equities over the last week on this pullback, because there's so much anxiety built up about this election and there's a lot of hedging if you look at the VIX curve in November.

And the big picture to us, is we're in a early stage of a multi-year economic expansion we're probably one quarter into an economic expansion. Historically, expansions last over five years. And earnings trends are somewhat underappreciated. So we think the market message that was just mentioned as far as transports, homebuilders, small caps doing better, financials getting in, I think that's all a good sign. That doesn't mean we're not going to see some volatility as we head into the election. But it doesn't have to be all downside volatility. I think right now, a lot of people are waiting for an opportunity and seeing the market move higher at they wait.

RICK NEWMAN: Hey, Keith, Rick Newman here. Everybody has stimulus fatigue. We're all so sick of this. Is it on, is it off? But my question is, is this really unusual in the last month before a presidential election? What did we see in 2016 and 2012? What, I mean, what usually happens in the last weeks before an election?

KEITH LERNER: Well, the one constant we've seen since for every election, presidential election since 1992, is that the volatility increases in October. Historically, it then recedes in November as you get some certainty. There was only one year, one election, where we didn't see November recede, and that was 2000, which was the contested election, which some people are concerned about. So volatility is the norm. I would say to there's not much that is usual during this year with the pandemic and so forth.

The only other thing I'll bring up, and again, I think this might be different this year, is typically around this time, If the incumbent party wins, the market powers higher And if the incumbent party loses, you tend to feel a bit of a hiccup. But I do think the economic story, the pandemic story is a little bit different. And the last point where we started this segment is, there's so much focus on the stimulus. Is it on or whether it's off.

We think we're in a self-generating recovery, and the expansion will go on. If we get the stimulus sooner, great. If not, maybe things will be a little bit weaker longer term. But to what Seana talked about earlier, we will eventually get some stimulus in our view.

SEANA SMITH: Do you think we're making too much of the election? I mean, we're seeing note after note out every single day, just breaking down with the market's potential reaction is going to be in these various election scenarios. Do you think that we're putting a little bit too much on that? We need to more focus on the fact that what our Fed policy is at this point, what the valuations are, what the market fundamentals are telling us?

KEITH LERNER: Yeah, 100%. I will tell you, I've been doing a lot of client events and webinars the last few weeks, and the number one question is, what should I do if X person wins the election? And there's not enough focus on some of the positive economic trends, some of the earning trends. And what's going to have a bigger effect on the overall economy over the next six months? Is going to be the White House or is it going to be whether we have a treatment for the Coronavirus or we make some forward steps in the vaccine? We think the latter.

Again, elections matter, but other things matter more. I think people are losing sight of the bigger trend that we are likely in a multi-year bull market, and somewhat early in this expansion. That's being overlooked for the next month, because there's so much angst about this election.

AKIKO FUJITA: Keith, you mentioned that there's too much focus on the stimulus. I mean, is the thinking here that investors are more focused on the economic fundamentals? And if that's the case, how much upside is there really whenever that stimulus bill is passed?

KEITH LERNER: Well, I mean, I think we do, it will be nice to have it. I think it would definitely help the overall economy. But don't forget, when we had the initial stimulus early on, we had employment that was going down, not up. So we're seeing some offsets, not only from the reopening of the economy, but employment trends and wages.

So again, I think it would still be helpful as far as a bridge loan. And there's some people and some businesses that are still being really impacted. So that will be an overall plus. But I think the underlying trends are strong enough to get us through this, regardless if the stimulus doesn't come over the next few weeks.

SEANA SMITH: All right. Keith Lerner, Chief Market Strategist at SunTrust Advisory Services. Always great to have you on the show. We'll talk to you soon.