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An early 2021 Covid-19 vaccine would be the kind of medicine that this market needs: strategist

Yahoo Finance’s Brian Sozzi and Alexis Christoforous discuss what’s happening in the stock market today with Quincy Crosby, Prudential Financial Chief Market Strategist.

Video Transcript

BRIAN SOZZI: All right, let's welcome in Prudential Financial chief market strategist Quincy Crosby. Quincy, convince the masses out there that what we're seeing in the markets today is not just a head fake rally and we could get clobbered into the close again.

QUINCY CROSBY: Well, yeah, I mean, absolutely. Once you have the kind of selloff that we had-- we're in a consolidation right now. And one of the things that happens is you begin to see folks taking opportunities in the market when the market is in the green. Those who have lost money trying to make up even just a little bit will take advantage of the market climbing higher, stocks climbing higher, and go in and try to sell into that environment.

It's not abnormal. It's actually usual. And you consider how quickly the NASDAQ names pull back. You saw what happened in terms of margin calls. They were dramatic. You wind up having to sell whatever you can sell.

So the unwinding probably is continuing. And ultimately, we will get to a washout. We'll get to oversold conditions. And there will be kind of an all clear.

In terms of the calendar-- because remember, this is a dicey period for the market-- we have about three more weeks of it in terms of the statistical difficulty in the market. And a consolidation is not fun. But the point is that as the market becomes increasingly oversold, you are going to see buyers coming in and taking their positions and taking them to the year end.

ALEXIS CHRISTOFOROUS: And Quincy, this year also different because it's a presidential election. So at this point, with less than two months to go before we head to the polls, has this market baked in a particular candidate winning November 3?

QUINCY CROSBY: Not really. I mean, you can argue that even before we started to factor in and discount the market, the market had been worried about the potential for a Democratic clean sweep, having Democrats take over everything. That's not something the market wants. The market would like to see Trump win again. It's been a good market under his tutelage.

But nonetheless, I think going into it, if you had a Biden win of the White House and Republicans maintain control of the Senate, the market, I think, would discount that and just move on. Remember with 2016, it looked as if Hillary Clinton was going to win, that the Republicans would be in charge of the Senate, and the market was happy with that. But I think the most important thing, though, are the scenarios that are surrounding the election that is scaring the market and will probably-- may put behind even more expensive going in. And those are the various scenarios of not having a clear winner, going to the Supreme Court, both sides saying the results are illegitimate.

You could go on and on. That's probably more of a concern for the market at this point. The polls are tightening. And we'll probably see it tighten more as we go into November 3.

BRIAN SOZZI: Quincy, it doesn't sound as if you think that we have seen a washout in the markets just yet. Is that washout coming? And what does washout levels look like on the Dow and S&P 500?

QUINCY CROSBY: Well, I mean, you've heard everyone talk about the 50-day moving average, that technical level. You don't want to see that broken. Yesterday we saw kind of a pullback on that. But there is something, though, that will come in and regardless of the consolidation and the move towards oversold, a washout, that will actually have buyers come in.

Remember, what gave us the market to come back after March 23? It was the Federal Reserve's moves, quick moves. But right now, we're in a scenario in which any positive interim read out on a vaccine can get this market to just say, OK, we don't have to worry about a washout. We're all in.

We saw what happened with AstraZeneca. The market took that in and said, OK, this is not abnormal during the Phase III trials to have a pause, to have a problem. But if we are to go over the next three weeks and we get, again, one of the three major competitors for a vaccine come in and give us very clear indications of a safe and effective vaccine coming in 2020, right, or early 2021, I don't think the market is going to need to see a washout. It will be the kind of medicine, by the way, that the market needs during this period.

ALEXIS CHRISTOFOROUS: At this point, Quincy, how important is another stimulus package to Wall Street? We understand how important it is to Main Street. But the fact that the market's able to rally a day after that skinny stimulus package went nowhere in Congress, does that tell us that that the stimulus maybe doesn't matter as much to investors right now?

QUINCY CROSBY: Well, ultimately, it may matter if we see consumer spending come down. You also have the labor market healing, but at a slower pace. We need to see job creation. Those are all important.

But you know that when a market wants to go up, it'll go up. Similarly, when a market wants to pull back, it will pull back. I think right now what we're seeing is the buying on the dip crowd. We know that hedge funds, according to some of the data, have been buying on the dip.

But what we do want to see is a broadening, not just money going back into those five to six tech names, but across the board. The industrials are getting a bid today. You could see the biotechs are getting a bid today. That's what you want to see.

And, by the way, when the market bounced back, everyone dubbed it a dead cat bounce. It was broad. And that's the kind of move that is indicative of a healthy move, and that investors may be looking at the other side now of the pandemic.

Notice, keep your eye on the airlines. Keep your eye on Southwest, just for example. When we start to see that bid building, it's telling you that investors are coming in, not just traders, but investors are coming in and beginning to build their positions for the other side of the pandemic.

Hotels also and leisure, very important as a bellwether for investor thinking. And I'm not talking about traders. I'm talking about investor thinking about where we are headed.

BRIAN SOZZI: Great insights, as always. Prudential Financial Chief market strategist Quincy Crosby, have a great weekend.

QUINCY CROSBY: Thank you so much.