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Fed’s zero interest rates will ‘cover over problems’ for markets: CIO on 2021 outlook

Tim Courtney, Exencial Wealth Advisors CIO joins Yahoo Finance Live to break down why markets are poised to bounce back in 2021.

Video Transcript

JULIE HYMAN: Let's start, though, with markets today and what we are seeing and what we could see going into 2021. We are joined by Tim Courtney right now. He is Exencial Wealth Advisors CIO. Tim, thanks for being here.

So as we close out the year, we're seeing some of the same themes that characterized the whole year, right, in terms of Congress wrangling once again over stimulus checks, right? The $2,000 check is now at issue, seemingly. We're concerned about rollout of vaccines. Well, it seems to be beginning to happen but perhaps a bit more slowly. So what do you think is going to change as we head into January '21, if anything, in terms of market perception of these various issues?

TIM COURTNEY: Yeah. Well, I think, for the most part, in the last couple quarters the market probably got most of what it wanted to see. It got the vaccines with the high efficacy rate. It's got, you know, very, very low interest rates and, so far, low inflation. Moving into 2021, it's got-- it looks like it's got a divided Congress, although that's still up in the air. We'll see how that turns out. And it's got these checks, and the amount is to be debated and to be determined, but something will go out.

So I think up to this point the market has gotten most of what it's asked for, most of what it wanted to see. But moving into next year, it's going to be how these things play out. Will the vaccines be distributed, you know, efficiently, effectively? Will consumer confidence rise to the point where we can get some of this deferred consumption to occur in 2021, which is what the market wants to see? And will consumers be healthy enough? Will these stimulus checks, these payouts to households, many of which are behind in their rent and mortgage payments, will that keep them above water long enough to have some kind of return to normalcy?

So the market seems to be priced for these things to work out relatively well. We'll see in practice how it turns out. Hopefully it will.

MYLES UDLAND: Well, and Tim, I guess going off that, you know, we hear this idea a lot that the market is going to need to see all these things come through. But I think what's been amazing about the market this year is that even when things don't work out, it's pretty much seemed like everything's fine anyway as far as investors are concerned. Do you think there's an expiration maybe on that kind of impulse that we've seen from investors? Again, really kind of unbroken for the last couple of quarters after some slip ups in the spring.

TIM COURTNEY: Yeah. Yeah. I think that the zero-interest-rate phenomenon that we find ourselves in is covering over a lot of problems for the market. And you do have the issue that there is no alternative. And when you have really no effective alternative to stocks, you, I think, are going to see that markets will kind of shrug off bad news and use the good news to justify the current valuations.

I think some level of that is justified when there is truly no alternative, no other place to go get a real return in liquid markets. So I think that's definitely helped. But, you know, at some point, there is an expiration date on that. No one knows when. It could be some event that triggers some bad news that the market really, you know, hadn't considered, or maybe it was worse-- much worse than what the market was considering a worst-case scenario.

So who knows what that trigger might be to reverse it. But for now, everything is working great for stocks. You have low interest rates, low inflation. That's the Goldilocks zone. And so stocks will probably keep on doing well until something starts to change, and maybe that's interest rates moving higher.

BRIAN SOZZI: Tim, I had one potential trigger for you, the upcoming Georgia runoff, and early voting suggests that it might be more favorable to Democrats winning that Georgia seat. Do you think if that does happen we see a market correction?

TIM COURTNEY: That could-- that could be the trigger that does it. I think markets probably like a divided government. There's no big rules to tax-law changes. There's no large policy changes that come about. The market likes that.

If the Democrats win both of those, those become greater possibilities. And so, yeah, that could cause some market-- some market volatility certainly if that happens.

JULIE HYMAN: So, Tim, going into 2021, you're looking at sort of areas of the market, the sectors in the market that perhaps have been beaten down the most or those that people haven't been paying as much attention to. Basic materials and energy are a couple of those as well as industrials. What do you think their trajectory looks like next year? What do you think has to happen for them to rebound, perhaps, in 2021?

TIM COURTNEY: Yeah. Well, I think that consumer spending needs to pick up, and probably more normalized interactions with the economy such as such as travel and eating out and the normal things that people do probably would help those areas. But another-- two other forces I think will help these areas. One is the dollar, which has weakened over the last couple quarters. Looks like it may continue to weaken. You know, we've had about five or six years where the dollar really has strengthened. That's kept a lid on some of these commodity prices. But moving forward, it's likely that the dollar will come back to Earth and start to follow its longer-term trend lower, and that can help some of these commodity prices and help some of these producers.

Another thing is that there's likely going to be consolidation that will occur from the producers, especially in the energy sector. And you should see some kind of, over the next-- you know, some has already occurred, but over the next year you'll see some consolidation, and that should help prices move slightly higher and help these companies to be profitable again.

In terms of the market, though, you know, these two sectors are fairly small. I think maybe on the S&P they make up maybe a total of 4%, energy and basic materials do. So it may not be a big mover for the index, but for those companies, returning profitability and having those commodity prices rise should definitely help.

MYLES UDLAND: Tim, we'd be remiss if we didn't ask you not only what you think about Bitcoin but how much your clients are asking you about it. I would imagine that at this point hardly a meeting goes by where it doesn't maybe at least come up in passing.

TIM COURTNEY: Yeah, it is coming up more. And certainly with the news of it, it's definitely coming up more.

You know, Bitcoin I think I would put kind of in that same category of assets as commodities, as gold, as a dollar alternative. It's still in the early stages in terms of adoption and use. But, you know, as the dollar may weaken as we're looking at the spending going on at the national level and our deficits, there likely will be some pressure on the dollar, and that thought in the back of people's minds-- you know, how safe is the dollar-- will probably continue to help some of those assets like commodities, gold, and Bitcoin.

JULIE HYMAN: All right, thanks so much, Tim. Tim Courtney is Exencial Wealth Advisors CIO. Thanks for joining us, and have a good new year.

TIM COURTNEY: Thank you. You too.