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Crypto is a ‘speculative asset’: strategist

Craig Fehr, principal and investment strategist at Edward Jones, weighs in on the April jobs report, discusses his stock market outlook, and shares his thoughts on the state of crypto.

Video Transcript

MYLES UDLAND: To talk a bit more about the jobs report and, really, just the market setup here, let's bring in Craig Fehr. He is with Edward Jones, principal. Craig, let's just kind of go through your thoughts when you saw the numbers this morning. And I think the question that we've asked a few people and, you know, you now have an hour to kind of gather your thoughts, does this report change how you're thinking about the state of the recovery? And then we'll go from there into maybe, you know, how the market is reacting this morning.

CRAIG FEHR: As you mentioned, obviously, disappointment is the word that everyone's using to describe this. I think that's a good question. Does this change the trajectory or the outlook for the recovery? My short answer would be no, it probably delays a little bit the real momentum that we're seeing. I think it's a good reminder that this recovery is not fully operating on its own inertia at this moment. There are still tons of friction points that exist as segments of the economy are still pulling themselves out of pandemic-driven restrictions.

So I think at the end of the day, this probably just delays a little bit of the momentum that we're going to see in job growth. I don't think it signals a new direction for the labor market. But we're seeing markets react a little bit I think to the shock in the number. That's being pacified, to some degree, by the fact that I think some of the interpretation of this is that the Fed now gets to stay in the game a little bit longer with its foot on the accelerator.

BRIAN SOZZI: Craig, what are the best stocks to own after this report?

CRAIG FEHR: I think you're seeing the reaction in tech simply because if you compare that what the move in the 10-year rate, which dropped sharply in reaction to this, that, again, goes back to the Fed. Sometimes it's hard not to make everything in the market about the Fed. But on a day like today, you're seeing that pullback in the 10-year rate. You're seeing the pullback in the US dollar. And I think that's translating into over into some of those long-- as we would call longer duration assets or investments.

Technology fits squarely into that space. So we're seeing tech under a little bit of a rebound. We've seen this rotation from growth, which has outperformed for years now into value under the premise that rates are moving higher. The cyclical rebound is underway. I don't think this job report does anything to destroy that narrative, but I do think we're going to see this kind of short-term reaction where it's a bounce back between value and growth, defense and offense.

And I think on a day like today, you're seeing a bit more of that defense. And so it's benefiting stay-at-home names. It's benefiting longer duration, kind of growthier names like tech. And I suspect we will see that bounce back and forth as we continue to progress.

JULIE HYMAN: You know, Craig, I would venture to say not only does it not destroy that narrative, it actually doesn't change anything. In other words, it seems as though the reaction to this is sort of to disregard it almost, in a way. It is such an anomaly. And it seems as though-- I mean, the economists we've spoken with thus far have said, well, the jobs are coming back. This month was just something [INAUDIBLE]--


--[INAUDIBLE] growth. And there's the opening bell [INAUDIBLE] Chinese IPO ringing it this morning, Waterdrop. Craig, so what do you make of that line of thinking? Just sort of, like, ignore this number. And as you were, do whatever you were doing before, strategy wise.

CRAIG FEHR: Yeah, if you're looking at the broader outlook here and saying, does this number tell us that the recovery either isn't going to ultimately manifest or that it's going to proceed at a much lower gear than we were previously anticipating, I do think it's premature to make that call. And in fact, I don't think that's the conclusion from this at all, just as you noted. It doesn't square with some of the other data. So just go back to yesterday. We got the initial jobless claims report, which, for the first time since the pandemic began, dropped below 500,000.

Keep in mind, that is still a really, really high number. But the trend is improving dramatically. And I think that's exactly what today's payroll report fits into, which is a much lower number in terms of job growth, a higher number in terms of the unemployment rate. But the trend is still very clearly one of improvement over time. If we look back to that Q1 GDP report that we got a little over a week ago, it showed 6.4% growth in the first quarter. That number could have been higher.

And in fact, it was a little bit disappointing. It came in shy of expectations because what we found was all of the stimulus checks that went out in March didn't get spent in March. And so there's going to be some spillover into the second quarter and, frankly, beyond into this year. I think that's another way to interpret this jobs number, is those jobs are going to come back. We are still close to 6% below total employment from where we started the pandemic. So there's a lot of recovery still to come. I think that recovery ultimately takes shape. It's just probably going to get backloaded now, perhaps further into 2021, which, from a market perspective, gives us some dry powder, a carrot for the market to continue to have some optimism over.

MYLES UDLAND: Now, Craig, I know you're going to be getting a lot of questions on the jobs report from clients. So this is a nice warm-up on that. Something else I'm sure you're getting asked about is what's happening in crypto and some of the more, let's call them the fun areas of the market, that have really been the stars of the show for the last year or so.

How are you thinking about that part of the market today? We just talked about the Fed calling it out in its financial stability report. I mean, does that-- how do you think about that in terms of animal spirits, I guess, I should ask it that way. And are you guys thinking about dipping your toes into it? What are some-- what do you say when someone comes to you and says, why am I not in Doge?

CRAIG FEHR: [LAUGHS] Yeah, the question of the day. I like your definition of fun. If you like roller coasters and you think they're fun, then that's exactly the way you could think about crypto as an investment. I think the questions you raise, which, obviously, gets a lot of attention this week because of the role that Elon Musk has played in the mania around Doge and his eminent appearance on "Saturday Night Live." I think if we strip ourselves away from that kind of in the moment frenzy, what you find is, our view on crypto is-- and I'd stop the word there at crypto and not yet cryptocurrency because it's not, whether it's Doge or Bitcoin or any of the others, not yet meeting that threshold of currency.

So our view is it's a speculative asset. And the merit behind it would be there has been a lot of price appreciation. As you said, it's getting a lot of attention. It does have some value in terms of lower correlation to other core assets. Our view at this stage is, it's far too early in its life cycle to make that a core allocation in a serious long-term portfolio. So perhaps from a speculative perspective, investors might be attracted to it. We find this-- and I think you used exactly the right word-- animal spirits tend to get attracted to the shiniest objects. And it's clear that crypto is a very shiny object, given the price appreciation we've seen recently. Remember, those animal spirits were all centered on GameStop not all that long ago.

And so from our perspective, obviously, it's going to continue to get attention. We're doing a lot of work on it from the perspective of, does it have the ability to develop into a core currency, something that's a medium of exchange that would have more of a supply and demand curve that could give it some intrinsic value? I think it's way too early to make that call at this stage. And so, from our perspective, too early to put it in portfolios as a core allocation. Still has to be thought of very much as a speculative asset. And I think probably a focus or an area where those animal spirits and euphoria are being concentrated at the moment, that can be a fickle game because that focus and that attention can shift very quickly.

MYLES UDLAND: All right, Craig Fehr is an investment strategist and principal at Edward Jones. Craig, always good to get your thoughts. Thanks for jumping on. I know we'll talk soon.