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Consumer confidence rebounds sharply in September

Consumer confidence has risen to the highest level in September since the beginning of the pandemic. Jason Ware, Albion Financial Group Partner and CIO joins Yahoo Finance’s Zack Guzman to discuss.

Video Transcript

ZACK GUZMAN: A lot of firms out there revising lower their GDP forecasts for the end of the year, but you wouldn't know it necessarily if you polled the average consumer out there. We got the update on the Conference Board's index for consumer confidence and showed the biggest spike in 17 years. The index jumped 15.5 points-- we got that number earlier today-- to 101.8. That was up from August 86.3 reading. Economists were expecting about 90 in the month of September. Again, well above expectations there.

So joining us now to discuss what that might mean for this recovery, whether or not it is tied back to the pandemic, is our next guest Jason Ware is Albion Financial Group Partner and Chief Investment Officer. And Jason, appreciate you coming on to chat here. I mean, what is that boost in confidence here, again, the biggest jump in 17 years, say to you when everyone's concerned about the rolling off of a lot of the CARES Act benefits? We saw unemployment benefits at the end of July. Overall, the consumer still seems to be holding up all right.

JASON WARE: Hey, Zack. Thanks for having me. And I think you've-- you've sketched it out perfectly. What we saw in August, and in July as well, was a fall-off in consumer confidence, and I think a lot of that was probably based on the notion that-- that additional federal benefit of unemployment insurance was about to roll off, and there was no signs of a new fiscal package coming out to-- to fill that gap.

So I think we saw that consumer confidence level dip. And to your point, seeing the September snapback and a big jump back as well is certainly encouraging. So the big picture is that I think we digested a bit of that slide from the unemployment dip in August, and we're seeing some of that come back in September as households adjust.

In addition, we had some-- you know, by executive order, some states were able to offer $300 a week of additional benefits, and i think that helped smooth things out. And then, of course, an improvement in the labor market, a continued improvement in the labor market and the economy, I think, has helped buttress consumer confidence, to some degree.

ZACK GUZMAN: Yeah, our earlier guest today, we were chatting with Fundstrat's Tom Lee about where investors are and how he noted that increasingly a lot of people are quite bullish when they think about the fears around the election or around the second spike in cases on the coronavirus front. I mean, when you talk to clients, what are you hearing about relative defensiveness heading into year-end, especially as we're still kind of dealing with this correction here led by the NASDAQ? I mean, what are you telling clients? And what are you hearing from them about fears of maybe potentially seeing a return to what we saw in the volatility back in March?

JASON WARE: Yeah, so, you know, time horizon is most important when talking to clients. You know, if you have a 10-day or a 10-week time horizon, unfortunately, I can't offer a lot of guidance there. But you know, if you're looking out three, five, 10-plus years, then, you know, these corrections are to be absorbed and they're to be lived with as opposed to traded.

The reality is is that the correction we've experienced here in September, you know, look, it's behavioral finance 101. Corrections only feel normal, welcome, and healthy until we actually get one. Then when we get one, everyone thinks it's the start of something new. So you just have to neutralize that desire and that bias to want to do something during a correction and just stick with a portfolio of good investments well diversified.

You want to own good companies and stick to your financial goals in that timeline. And that's really the advice that we continue to offer our clients in walking them through what has been a really volatile market. And I think, certainly, some of that volatility has been renewed in September, given the fact that we haven't had fresh fiscal spending, that we have seen an increase in cases going up, not only here in the United States, but in Europe, and then, of course, we have an election in five weeks that, I think, has people nervous. So just keep your eye on the prize longer term and work your way through it.

ZACK GUZMAN: Yeah, as we were discussing earlier in the show, too, I mean, when you look beyond the election, regardless of who wins, it seems like Goldman Sachs is predicting quite the bump midyear 2021, looking at a potential price target there in the S&P 500 of 4,000 or 3,800, depending on how the election goes or whether we get divided governments. So I mean, even that's just a year out. So if you're talking to investors who have a much longer time horizon here and trying to balance portfolios right now in where you see opportunity, what is the advice for maybe some of those names that have been beaten down through this or maybe sold off in that big sell-off back in March, I mean, where are you telling clients to maybe rebalance into right now?

JASON WARE: Well, if you look at things like small-caps and mid-caps, they've underperformed the large-cap indices, and indeed things like technology has certainly outperformed during the pandemic and then over the better part of the last couple of years. You know, small-cap and mid-cap have virtually done nothing in the last two years. So when people talk about, you know, extended markets and bubbly valuations, you know, there are a lot of areas of the market that are not expressing that view.

So I think if you're a client that has, you know, a multi-year time horizon, making sure that you have the proper allocation toward small-cap, international, mid-cap, and some value and some cyclical, too, in a tactical tilt to balance out the secular long-term growth companies in technology, health care, and consumer discretionary, which we've owned for many years for our clients, and we think still have durable fundamentals looking out over the next decades.

You just want to make sure that, you know, you're not too overexposed or crowded into one area. And again, you know, diversification is one of those important things that I think oftentimes we all know it's a very simple concept that we all get, but it's not easy to execute, so we just help our clients execute on that as flawlessly as we can.

ZACK GUZMAN: Especially when you think about rebalancing and how some of those big-cap-- specifically the big-cap tech names maybe have surged and how portfolios may get taken out of whack if those are growing much larger than your other holdings here. Also something that you could just not notice the longer it goes on. But Jason, just to wrap up here, too, obviously, there are a lot of fears, I pointed out, whether Republican or Democrat wins is not necessarily the key issue maybe facing a lot of investors.

But uncertainty is really what roils the market when we think about how close this could become, or worse yet, if President Trump, as he's indicated, might not accept the results and we get a drawn-out process here. What are maybe the historical things you point to when talking to clients around those fears and why that could be an issue that maybe-- 2020 has been a very strange year-- why it could be something that might catch people flatfooted?

JASON WARE: Yeah, it's a topic du jour right now, to be sure. And the way that we look at it is typically what happens is the market expresses some volatility going into the election. I think given the lead that candidate Biden has over Trump, I think any kind of tightening of that lead might lead to a little more uncertainty going into election because then we'll have a higher likelihood of maybe a contested election or an uncertain outcome in the days and weeks after the election.

But the good news for investors is-- this is important for your viewers-- is if you look back over the last 50 years of presidential elections, in about 90% of the observations just getting through the election is enough to spark a market rally in November and December. So not only do we have seasonal tail wind at our back with the typical November, December push in the market, but just getting past the election and having some sense of what's going to happen, I think, is certainly beneficial. Now, if we have a contested election and it goes on for weeks and months, that could certainly upend that typical-- that typical pattern. But I think the good news is that, you know, our expectation is by January 20, we will have a president-elect, and I think the market will-- will be fine as we get through that.

ZACK GUZMAN: All right, Jason Ware, Albion Financial Group Partner and CIO. Thanks for the chat. We'll see what happens. Just getting there and getting through it is the story of 2020. Appreciate you taking the time.

JASON WARE: Thank you.