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The election 'poses a lot of risk' to the market: Wealth Consulting Group CEO

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Stocks are rising today, extending the month's strong start. Wealth Consulting Group Founder and CEO Jimmy Lee joins the On the Move panel to discuss the latest market action.

Video Transcript

ADAM SHAPIRO: We want to invite into the program to make heads or tails of these markets, Jimmy Lee. And he is the Wealth Consulting Group founder and CEO. It's good to see you again, and thank you for joining us.

JIMMY LEE: Thanks, Adam.

ADAM SHAPIRO: So as we look at markets and where we're headed, you'd say it hasn't happened yet, but get ready to rotate towards value stocks. And you would point to financials. I know you can't time a market, but I think people watching are saying, OK, Jimmy, when?

JIMMY LEE: Well, financials already had a good week last week, outperforming the S&P 500, actually. So it may have begun. But I still think we're early. And I know that many people are asking the question, will there be a sell off in the big mega cap tech names that have led the market lately?

And I don't think that's going to happen, really, until the economy reopens. And for that to happen, we're going to have to get some vaccine or a treatment or rapid testing that will allow large gatherings again. But when that happens, I think that, not that we'll see a huge sell off in those big tech names, but there'll be more upside in some of these value, more cyclical sectors, which financials is included in there.

JULIA LA ROCHE: Jimmy, it's Julia La Roche, thank you so much for joining us again. Of course, as we're getting into this time of the year, we're heading into the election. How are you thinking about the 2020 election and how you want to be positioned?

JIMMY LEE: Well, I think the election poses a lot of risk. I think right now, the market investors are thinking that Trump has actually come back a little bit in the polls. And so the market's bullish, I think, up to the election right now. As far as positioning, if we get a change in the White House and, more importantly, or just as important, change in the Senate, I think that you have to be positioned for sectors that are green.

And, you know, I think there'll be pressure on traditional energy sectors like oil. And so, you know, being positioned ahead of that and maybe having a barbell strategy a little bit is the right thing to do, especially with growth in value.

AKIKO FUJITA: So what does that strategy look like, Jimmy? I feel like we've been talking about the growth versus value rotation for a while. It hasn't come, to your point, we still need to see some positive news on the vaccine front. But, I mean, what are some of the catalysts or triggers that investors should be looking for ahead of that?

JIMMY LEE: Well, I think we're starting to see some of it already, Akiko. The value sectors are starting to do a little bit better ahead of a vaccine and ahead of the economy reopening. And I think a lot of investors believe that after the election, a lot of this-- a lot of the news that we get that might be biased a little bit politically will end.

And so I think investors are bullish with that. So what does that mean? Investors that are retail investors typically invest through-- a lot of money goes in through ETFs that buys indexes. And I think that they think they're diversified because, for example, they're buying an ETF that invests in S&P 500.

Little do they know that a lot of that index is weighted to the big cap tech names, right? And also, sector funds are in the technology, communication services, and discretionary sectors that have done the best. Very narrow in terms of the big, you know, the FANG-type names that have led those indexes.

And so investors should be more diversified than that. So they need to look underneath the hood, make sure that they have diversification and not too concentrated. Because when that rotation does happen, sectors such as financials, travel-related sectors that are still down a lot, sectors that are dependent on large gatherings, you know, you still have a lot of upside in those sectors and way off their highs.

As of last week, I think, in the S&P 500, you know, over half the stocks are still in a correction or bear market territory. So it hasn't, you know, been very broad in terms of the comeback in the market. So investors need be diversified and make sure that they are, you know, invested in those value sectors ahead of the vaccine and ahead of the economy reopening.

ADAM SHAPIRO: Jimmy, I wanted to get back to something you said regarding the upcoming presidential election. And you've pointed out that should Joe Biden win and, and it's a big if, and the Democrats, should he win, get the Senate as well, you would expect an immediate correction in equities of about 10%, maybe as much as 20%. But that would be short term.

But what's the likelihood? Because when we look at his tax plan, he's talking about taxing income over $400,000 and capital gains after the income passes a million dollars. Would that really have a negative impact, even short term, on the market?

JIMMY LEE: I do think that that would be a catalyst that would cause investors to want to take some profit taking. And it's incredible where we're at today in the stock market, right, with the returns in the S&P 500. Think about all that's happened since the pandemic started, and people could've just fallen asleep, and we would be right back to where we were, you know, sometime early February or mid-February.

So can that happen, will the market correct? I think so. I think that investors will take that opportunity to reallocate, take some profits, and expecting potentially higher taxes. And in history-- if history is a guide, you know, higher taxes means less growth, less GDP growth. And so I think, you know, that would cause a correction.

But I think what we can look at is the Obama presidency in that era in terms of growth and slow growth coming-- going from there.

ADAM SHAPIRO: Jimmy Lee is Wealth Consulting Group's founder and CEO. Good to see you, stay healthy, and all the best to you and your team.

JIMMY LEE: Thank you all.