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'The damage to the economy is very real': Baker Boyer CIO on COVID-19

John Cunnison, Chief Investment Officer of Baker Boyer Bank, joins Yahoo Finance's Kristin Myers to break down the latest market action, as stocks climb despite the spike in COVID-19 cases.

Video Transcript

KRISTIN MYERS: I want to dig into this more now with John Cunnison, chief investment officer of Baker Boyer Bank. So John, we saw some pullbacks in the market in September, again, in October, which I think left a lot of folks wondering if there would be a chance for some sort of comeback for the end of the year. And, of course, now, we've got a good bit of good news. Markets are in the green right now.

Of course, everyone very excited about that 90% efficacy rate from that Pfizer vaccine. And, yet, we're not going to see that vaccine widely available to folks until next year. So some time, yet, until we're really going to see that vaccine be able to take in effect. And markets right now had largely ignored the pandemic over the summer.

I'm wondering, as we're seeing, we just heard a doctor talking to us a couple of moments ago. We're seeing hospitals reaching capacity. We're seeing case counts reach record highs. Do you, as you're looking towards the end of the year into next year, do you think we're going to see the markets again be a little bit divorced from reality?

JOHN CUNNISON: These are great questions. I think when we look into the future, I think the thing that really is driving markets at this point is potential fiscal policy, so the size and the speed that fiscal policy comes. And ironically, you know, we had-- when we get some bad news and with-- this is-- we described these markets as like, upside down markets, right, where bad news is good news and good news is bad news.

So you have this environment where the worse the news, the larger that fiscal policy is likely to be in the next year. So with the Pfizer news, which wonderful news that it was for the markets, it may be somewhat counterintuitive. And it may actually reduce, you know, what could be potentially very large stock returns. I think some people underestimate the power of fiscal policy and the fact that it tends to end up on corporate balance sheets.

KRISTIN MYERS: So to that point, as you're looking ahead, how much of a headwind do you see the virus continuing to be, perhaps in the near term, but also more in the long term, especially once that vaccine really starts to get going? We do have folks that say that they do not want to take the vaccine that they do not trust it, which, of course, is a problem in and of itself. But wondering how much you see the virus being a headwind once of the market, which has kind of ignored it, but then too also to the economy? And I know some folks like to confuse the two, but they are not the same thing.

JOHN CUNNISON: Right, and this is the balancing act, right? So we're going to-- with the spread, you know, relatively uncontrolled at this point, I think you're going to see, areas of the economy begin to suffer. And what's interesting is, you know, the emergence of the vaccine, I think, has really reduced the negotiating power of folks in Congress who would like to see a larger fiscal package. And the fact that the Senate is likely to go into Republican hands also reduces their ability, I think, to negotiate a larger fiscal package.

So those things are a bit troubling that, you know, because the damage to the economy is very real. I know you had a segment with a doctor earlier just talking about how this pain is very concentrated in certain area-- certain segments of the economy. And it's the lowest income folks who tend to be hit the hardest.

That pain is very real. And it could be ongoing if don't get a fiscal package soon. And just because we've got a vaccine coming doesn't mean that that economic damage isn't occurring and occurring at an increasing pace with the spread of the virus.

KRISTIN MYERS: John, I want to get to some of your picks of what you think is going to be looking good, especially as we approach this world of a new normal. I know you've got Chevron, Citigroup, and others. Talk us through some of these picks that you've got.

JOHN CUNNISON: Sure, you know, I think the way that we're looking at this is that there will be this return to normal. And the vaccine, I think, has probably brought that forward a bit-- you know, 90% efficacy. I know there's some concern that not everyone will take it. But my sense is that we'll get enough herd immunity. And eventually people will gain some confidence around it.

So that return to normal, these are going to be stocks that were just simply beaten up by the pandemic, right. These are companies, like DH Horton, which has a lot of demographic trends going its way and with the relief-- any relief we get from the virus, any herd immunity we get, it's just great news for a company like that. And then the companies, like, you know, Chevron, like Citigroup who are going to benefit from a return to normal.

And then we've got kind of this new normal, right? So companies that are going to take advantage of disruptive technologies. Some of the biggest companies, the biggest the big US tech companies-- those may look a little rich. And those may be areas that people want to trim.

But, boy, if you look into the mid and smaller areas of the growth market-- areas like genomics, areas like 3D printing and robotics-- those all offer tremendous promise for the future. So I think a combination out of a return to normal and a new normal, that's really how we're positioning our portfolios.

KRISTIN MYERS: All right, John Cunnison, chief investment officer of Baker Boyer Bank.