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EventShares CIO: Market outlook uncertain due to election

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Although many Americans are wary as to how the 2020 Presidential Election will impact the market due to uncertainty, some investors have put their faith in certain sectors. EventShares CIO Ben Phillips joins The Final Round panel to break down what sectors he’s watching leading up to the 2020 election.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round" here on Yahoo Finance. Stocks mixed here with just around a half an hour left in the trading day. The Dow off 81 points, S&P and NASDAQ holding on to gains. Of course, with the S&P at 3,383, the big question is whether or not we're going to see a little bit of a boost here in the final minutes of trading, get above that record closing high of 3,386.

So for more on this, I want to bring in Ben Phillips. He's the chief investment officer at EventShares. And Ben, it's great to have you back on the program. I know it's been a few weeks since we have spoken. But I'm just curious just how you are positioning yourself right now, given how far the market has come since its lows back in March, and where you think it's heading from here.

BEN PHILLIPS: Yeah, great question. And I think we've been thinking more about OK, first, where is this market going to go? Where can we really be positioned longer-term and feel comfortable with it, right? You look at how big this run up has been, really led by the tech stocks.

And you have to look elsewhere, right, for other values. We know that the growth premium on those are fairly severe. It looks like returns are going to be lower in the future for those FAANG stocks and the other high-flying tech names. So we're looking below the surface a little bit for those real value opportunities.

So we see the 5G telecom and infrastructure spending that's required. That's going to happen. That's big. We look at just regular old infrastructure spending, right, roads and bridges and highways. That actually has long-term legs, and that's not even with a federal package. So if a federal package comes in, that's really extending that thesis.

We like some defense stocks, too. And people say, well, if Biden wins, isn't he going to cut defense spending? Potentially, but Democrats tend to like nuclear submarines, shipbuilding, things like that. So there are areas in defense where you can find some good values right now. And there's been weakness there.

And then energy stocks are just screaming cheap to me. But you have to be really selective there, because there's balance sheet issues.

SEANA SMITH: Yeah, you do have to be very selective in that a lot of these energy plays. But Ben, I want to kind of dig into what you just said there when you kind of went over just the stimulus package, because I think the question here is if we don't get some sort of deal out of DC, how significant that would be for the market and how big of a pullback we could possibly see because of that. Where do you stand on this issue?

BEN PHILLIPS: Well, I think, unfortunately, the politicians in DC are being fairly shortsighted here, where they're really jockeying for November elections. But you're talking about structural impairment of the labor force now. You're talking about people being out of work for potentially up to 24 months in some cases. So I think there has to be that safety net there.

And so really challenging to see kind of politicking going around when there's a real need. If these benefits fall off, we haven't even really felt what the real recession's going to feel like if this is a full-blown recession. We're really going to see that when consumers pull back on spending because they're not earning income. So I think it's a real problem. It's a reason that it is so much in focus. And I think it has to be addressed before the election.

DAN ROBERTS: Ben, Dan Roberts here. Sticking with--

BEN PHILLIPS: Hey, Dan.

DAN ROBERTS: --that, I know you guys are looking at what the impact of the election will be. And I know you mentioned on your notes that you guys are seeing a majority of Americans not rating Trump well on the economy. Now, maybe a lot of that is the pandemic.

But I just wonder, is it still the case that the general take a lot of people have is that if it is a Biden win, that that would be bad for stocks? Or are you hearing a lot less of that now? What do you expect the impact to be depending on the two outcomes, especially now that we know the VP pick?

BEN PHILLIPS: Yeah, so I think with Biden, we'll see-- just one point to kind of your last question or point was it's really going to be is this going to be a wartime election, pandemic, wartime election, or is it going to be an economic election? If it's focus on the economy, I think that's trouble for Trump. If it is war time and branded as that, then I think that's actually positive for him.

But as far as the outcomes under Biden, we've looked at past outcomes. What happens is the market tends to start pricing it in in the August to November time frame. So if it looks like Biden's a slam dunk, Biden-Harris are a slam dunk, you're going to see the market start to price that in. Usually the market tends to overprice that in. Where you look at the only scenario where I'd see, I think, a real market decline would be a kind of a full Democrat sweep. But again, I think they'd be starting to price in an October time frame.

And then what you tend to see is the 12 months after a Democrat victory, it tends to be the strongest stock market we've seen historically after presidential elections. So there's a lot of mixed data out there. But we've looked at it pretty closely.

And there tends to be some pricing in before the election. And then after the event, it's a known factor, known risks. Market tends to rally. So keep that in mind.

INES FERRE: And Ben, what kind of sectors are you looking at to be reacting? Because during the primaries, we saw that health care stocks were really reacting during the primaries. Do you think that if a Biden win were to happen that that would also impact health care stocks?

BEN PHILLIPS: Yeah, great question. And we were looking at health care fairly skeptically in that it was selling off too much in our view. So we were looking at it and saying OK, with Warren and Sanders really running up, that was causing pressure on health care and managed care stocks. We thought that wasn't warranted, really the reason being the market was saying, hey, they're going to come out with Medicare for all. It's going to kind of decimate the entire economic model for the health care system.

Well, we always thought that was a really low probability. So when you see some volatility around health care going into the election, we tend to like it here. And so use that volatility on the downside to maybe pick some up and build some health care positions. That's what we would be doing.

SEANA SMITH: All right, Ben Phillips of EventShares, chief investment officer there, always great to have you on the program. Thanks so much for joining us today.

BEN PHILLIPS: Thank you.