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'This is going to be an uneven recovery': ProShares' Simeon Hyman

Simeon Hyman, ProShares Global Investment Strategist, joined Yahoo Finance Live to discuss today's market action and his outlook for recovery.

Video Transcript

ADAM SHAPIRO: Simeon Hyman, CFA Global Investment Strategist, ProShare advisor, it's good to have you here. And Simeon, one of the things we've talked about with a lot of analysts is that there was this rotation, whether it be from growth to value, from tech to smaller cap. And as I say that, I'm noticing it's not strong, but the Russell 2000 is still positive today. Does it reflect some of the rotation we started to witness last week?

SIMEON HYMAN: No, I think that's right. And if you look at small caps, you can actually see a microcosm of what's going on in the broader market. So it's a little bit of a risk on sentiment. But more specifically, if you look at the performance of the Russell 2000, say, from the bottom at the end of March, the initial outperformers were the junkiest pieces of small cap.

Low ROEs, bad credit ratings, things like that. But roughly since the end of the summer, the outperformance in the Russell 2000 has been driven by the highest quality pieces. And that, to us, makes a lot of sense because, as we can see, this is going to be an uneven recovery.

Even with the strong vaccine news, we have the surge, we have a stimulus that might not happen, we had a little bit of weakness in retail sales. And yet, we've had five months in a row of strong ISM Manufacturing and Servicing. We're going to continue to have pluses and minuses, which points to, yes, risk on, but quality matters again.

SEANA SMITH: Talking about how quality matters, I mean, it's-- I guess it's not surprising what we're seeing, kind of this rotation from growth into value for a couple days, and then the rotation back had a value into growth. But what signs are you looking for, just as to whether or not the trade is going to be sustained? So whether or not that rotation that we saw, really, yesterday and a little bit today, I guess you can say, is going to be kind of the start of something bigger.

SIMEON HYMAN: Well, as I said, I think the rotation that's likely to stick is more of a rotation to quality than necessarily value. Given that the signs we see are uneven, it just might not be enough to sustain that straight cyclical recovery that value really needs. So if we have enough recovery, and the signs are pretty good that we're going to have enough recovery, this was five months in a row of over 50 on ISM Manufacturing and Services.

And this morning's retail number, which kind of drove the downside to the market today, that was not bad. I heard-- hear the guest right before me speak about this. It was not bad on a year-over-year basis, a little disappointment, but still not bad on a year-over-year basis. So I think there is enough juice in the economy to support a rotation to quality, but perhaps not enough to rotate all the way to value over the next several quarters.

ADAM SHAPIRO: Is there another way to look at this for those of us who are not economists and don't trade stock or go in and out of different kind of asset classes on a daily basis? The very fact that there are billions of dollars in savings right now that need to go somewhere, that the consumer may actually jump in for the holiday spending season or even afterward because there is money to spend, and that would drive some stocks higher, regardless of a government stimulus.

SIMEON HYMAN: Look, the savings rate has been high, absolutely. There is a lot of cash on the sidelines. And as importantly as anything, it's just tough to look to the bond market right now. The other thing that we've seen over the last couple of months and is likely to continue is a notable increase in interest rates.

And so when you're faced with the alternative of stocks versus bonds, the only thing that looks perhaps more expensive than certain pieces of the equity market is the bond market. So I think that's right. I think money on the sidelines will support some of the equity trade, even if, of course, parts of it look a little pricey.

SEANA SMITH: And going forward, just talking about some of that, I guess, enthusiasm that-- enthusiasm that we've seen in the market over the last several weeks, and particularly when it comes to the developments that we've gone on a vaccine. Just any thoughts just on what we could see once we do get that FDA approval with these vaccines? Do you expect to see some selling on the news?

SIMEON HYMAN: I-- look, I'm not a trader by nature, so, you know, the sort of, buy the rumor, sell the fact is much more of a day-to-day, you know, kind of guessing of the market. But a vaccine that comes to market and starts to really make a difference will undoubtedly support an acceleration of economic recovery. And that is generally a good thing for stocks.

It's just going to take a little while and be a little bit in fits and starts. You know, the best guesses are six to nine months before there's sufficient vaccine to really put the economy back into its normal state of affairs. And in the very near term, we're likely to still see a tick up in restrictions, which we're already seeing over the last couple of weeks that's going to make this a little bit uneven.

But when that-- when those vaccines, as we all hope, start to really make a difference, there's almost no question that that's going to accelerate the economy. There is a lot of excess capacity. I think I'm one of the last folks who comes on shows like this and talks about capacity utilization, but it's really, really low

I mean, we're talking, like, you know, low to mid 70s. So there's a lot of room there for growth, a lot of room there for growth, obviously without inflation.