Hugh Johnson, Hugh Johnson Advisors CIO joins Yahoo Finance Live to discuss the biggest risks in markets as we near 2021 and break down why the economy is slowly losing steam amid the pandemic.
JULIE HYMAN: And we also are just getting, what, new home sales, as well, that came in worse than expected. Brian Sozzi, I'm not seeing the numbers off the bat here, but I know you've got them. And just run through them real quick.
BRIAN SOZZI: Yeah, the headline number I think we're seeing is new home sales down 11%, again, 11% in the month of November. And that is-- Julie, that is not good. And we'll talk more about this with our guests. But you're seeing it-- you're starting to see a full-on collapse in a lot of economic data as the economy has continued to slow.
JULIE HYMAN: Yeah, as promised, let's bring in our next guest, then, on this. Hugh Johnson is Hugh Johnson Advisors CIO. Hugh, we're sort of confronted with these two themes this morning.
On the one hand, we've got this economic data that-- let's put jobless claims aside for a moment, but if you look at that November data coming in worse than expected. And you also have a president who's now saying, why aren't the stimulus checks bigger and sort of, if not threatening a veto, at least withholding his signature from the stimulus bill. What do you make of this?
HUGH JOHNSON: Well, I think it all fits together because-- and you know, it's rare that I give the president much credit, because it doesn't look like his full attention is on what's going on in the economy. But nevertheless, he's talking about spending more money or making bigger checks, shall we say. I'm not sure I agree with all the details. But nevertheless, he's talking about bigger checks.
And then when you look at the numbers, the economic numbers, particularly the consumption numbers, they're very consistent with what I think is basically going on. And what's going on is that as time moves on and a lot of the benefits that we saw from the CARES Act and other benefits are starting to dwindle, and the economy is clearly slowing. Take a look at the employment numbers. Yes, we're recovering from the March, April lows. But at the same time, the recovery is losing momentum, as you see that every month.
Look at the retail sales numbers. The same thing is happening. Each month, they're positive. We haven't seen-- the last month wasn't positive, and we're losing momentum. So in response to that what you're seeing is economists, myself included, are downward revising, revising downward their estimates for what GDP is going to look like for the first quarter.
We were up at around 3%, 3.2% for the first quarter. Now you see most forecasters are down around 2.3% to 2.5% and also bringing down some of their estimates or forecasts for earnings. So you know, right now it's clear that things are slowing. We do need the stimulus. And we perhaps need more stimulus than the $900 billion really called for.
So maybe the president is on the right side of this thing. And you see the Democrats, quite clearly, jumping all over it and saying, yes, let's get it done. Let's pass the additional stimulus, so the bigger paychecks that the president is currently espousing. So it all kind of fits together. This economy is clearly slowing, and it's headed towards a real slowdown, both current quarter, but mostly the first quarter.
BRIAN SOZZI: Yeah, Hugh, let's stay on those dark clouds here. We had new home sales out. That data just came out now, down 11% month-over-month. Consumer confidence data has continued to weaken.
Consumer spending data out this morning, not too good. And Yahoo Finance just ran a poll with the folks at Harris saying most consumers, most households, would save their stimulus check instead of go out there and spend it willy-nilly. Do you think the stock market is more overvalued than you thought a week ago?
HUGH JOHNSON: I'm starting to think that. I'm starting to think we're a little-- a week ago, I would have said we're about 8% overvalued, the upside potential a little bit less than that. And when I say upside potential, the potential between now and the fourth quarter 2021.
I might have to bring down my earnings estimates for 2021. I don't think I'm going to move them down much, because I think yes, I'm talking about the first quarter, I've got to bring my numbers down for the first quarter. But when I look at the possible, it's still not-- it's still not, unfortunately, for sure, the possible impact of the vaccine in the second, third, and fourth quarter.
And we're still looking at good quarters. We're still looking at 2021 being about a 4% growth rate for the economy, a fairly substantial, maybe 22% growth rate for earnings. Those are really good numbers. They include some lower numbers for the first quarter, but good numbers for the second, third, and the fourth quarter.
So I'm holding the line on my numbers. But believe me, I've got to be back at the drawing board almost every minute of every day as we see a new number come out. There's no question things are slowing, and slowing a little bit more than I expected.
JULIE HYMAN: So Hugh, you sent us some-- some stock picks. Do you go back to the drawing board for those? Or are those designed to sort of do well even if you have sort of different scenarios?
For example, Mastercard is one of those that you're looking at. And Mastercard is up about 11% in 2020. But obviously, that's fairly modest compared to the performance we've seen of some other stocks. So is that a sort of economy agnostic thesis there?
HUGH JOHNSON: Yeah, those I'm going to stay with. And the reason I'm staying with them is, you know, the electronic payments thing is not only got some momentum, it's going to have a lot of momentum, especially as we look at the second half of 2021 and 2022. So it's really consistent with this theme that look, the economy's going to recover. Stock prices are going to go higher.
And all of the things that will participate in a recovering economy are going to do well. And certainly, electronic payments is going to be a big part of that. That's why Mastercard is on there. It's really looking out a little bit beyond the first quarter. I wouldn't want anybody to get too caught up in the first quarter and the current economic numbers.
Because remember, we're going to start to see the vaccine and the impact on the vaccine. And I think that carries with it very positive implications for both the economy and earnings and all of these companies like Mastercard in the second, third, and fourth quarter of next year. So don't change your-- don't change your basic thematic approach, shall we say, to investing, at least at this juncture.
JULIE HYMAN: Copy that, Hugh. Good to see you. Hugh Johnson, Hugh Johnson Advisors CIO. Happy holidays. Happy New Year. We'll talk to you in 2021. Thank you.
HUGH JOHNSON: Good. Thank you.