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Fiscal stimulus 'is certainly very important for the continuation of the recovery': Charles Schwab's Omar Aguilar

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Omar Aguilar of Charles Schwab Investment Management joined Yahoo Finance Live to discuss his market outlook and his thoughts on the potential of a second stimulus deal.

Video Transcript

ADAM SHAPIRO: We want to invite into the stream Omar Aguilar. He is Charles Schwab's SVP investment management and CIO of passive equities and multi-asset strategies. Good to have you here.

I wanted to ask you something that we touched upon at the beginning. And it has to do with the issue between the secretary of the Treasury and the Federal Reserve and all of those issues which are really boiled down to the economy, stimulus, and what's happening with the recovery. You say it's slowing down with the winter upon us. Does that pose trouble for investors? Or will we get through it?

OMAR AGUILAR: Well, it certainly becomes a volatile environment. And certainly, the rebound in the economy, which was what we have had so far, from the second quarter into the third quarter, we really just have started the recovery. So just to be very clear, we rebounded in the economy for a very bad period that we had after March. And then as we started to reopen the economy, we just rebounded.

So the numbers that we have seen, and this is the critical point in our economic phase, because we just started the recovery. And yes, stimulus is very important. So the Federal Reserve has done everything in their power to continue to provide that liquidity.

We have heard Fed officials over the course of the last few months basically pushing for the need for fiscal stimulus, just understanding the limitations that they may perceive of what the banks may have or the central banks may have. So I think these connections and these discussions between what happens with Treasury, what happens with the central banks become really critical to just put a probability on what the fiscal stimulus might look like and the timing of it. And it is, certainly, very important for continuation of the recovery, because we have seen signs of fatigue in some of the areas that have rebounded the fastest.

SEANA SMITH: So how should investors, then, be approaching this? Is it time to take more of a risk-off type of approach?

OMAR AGUILAR: Well, that's a great question, because we are at this point where things can go either way. And I think a lot of what we have always discussed is that the recovery of the economy after a recession starts when you fix the source of the recession. And in this case, it's the coronavirus.

Now, in this situation, the recovery of the economy really started the day that we heard the news of the vaccine. So as we continue to progress towards the vaccine being available, the vaccine being distributed, that recovery will probably take place a little harder. And therefore, what investors should be thinking about is this is the perfect time to rotate towards cyclicals, towards small cap of sorts credit that will usually do well in all recovery.

Now, that being said, we have the winter. We just talk about restaurants. We just talked about the fact that it's going to take a while. The number of cases continues to go up.

And there is some parts of the economy that will stay the same way that we are today. So there are certain sectors of technology that will be part of our lives for the longer time. So it is not necessarily unwinding what has worked so far. But it's really bar belling to start getting the rotations right, but at the same time realizing that the timing on the rotation may still take maybe towards the winter months.

ADAM SHAPIRO: But consumer spending and retail sales, as you point out, depend on the path of the pandemic and the holiday shopping season. Assuming the holiday shopping season disappoints, what happens next?

OMAR AGUILAR: Well, that is you know the key part of what I think volatility will go for the next few weeks. And it's certainly next week going into the Thanksgiving break. A big part of this has to do with the fact that we still have 10 million people unemployed relative to what we had at the beginning of the year. So the labor market sentiment is actually going to put a lot of pressure in the amount of spending.

That being said, the savings rates of the average consumer went up during 2020. And what that also tells you is with the optimism coming from the vaccine, the ability for consumers to potentially spend is much higher. So it is really an interesting point in time, where there's a little bit of optimism built because of the vaccine and the fact that the savings rates are high. That puts a very promising outlook for retail, but at the same time, realizing that there is a softness in the labor market that clearly puts a lid of what the potential might be.