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Here's what a stimulus deal means for markets

Rebecca Felton, RiverFront Investment Group Senior Portfolio Manager joins Yahoo Finance Live to discuss how a December stimulus deal could impact markets.

Video Transcript

MYLES UDLAND: Stay on the markets here and talk a bit about the setup as we get towards the end of the year and any concerns that folks have out there, given what we're seeing in the market today. For more on that, we're joined now by Rebecca Felton. She is with RiverFront Investment Group, senior portfolio manager over there.

And Rebecca, I'd love to begin with what you call out right at the beginning of your note, saying, as a former chief risk officer, you're a little concerned right now. So maybe speak to that side of your brain and how you're thinking about the markets today as we see stocks at a record high.

REBECCA FELTON: Well, good morning, and thank you for having me. I have to start out by prefacing everything that we are currently, from a portfolio management standpoint, positioned in a risk on mode. However, I think the soft patch that we've hit here is pos-- is reason for concern.

Certainly, the leaders in Washington need to get on the ball in terms of getting the stimulus passed before they recess because of how many folks are getting ready to lose their unemployment benefits, the fact that the eviction moratorium is going to end on December 31, and the fact that small businesses have communicated that they're suffering vis-a-vis that NFIB press release earlier this week that said a quarter of them could go out of business in the next few months if the economy doesn't improve soon. So there are reasons to be cautious here.

JULIE HYMAN: And Rebecca, in your note to us, you mentioned that you do think that stimulus is priced in here. And pardon me if you can hear the snowplows going by on my street. So if the stimulus is priced in here, then what happens-- A, do you think indeed the stimulus is going to get passed? And once it does, then what? Do we have a pause in this rally? Do we even have a pull back once it gets done?

REBECCA FELTON: Oh, well, I think it's a great question. But I think what we'll see is probably a pared-down stimulus. You know, what they've done, or at least what is being reported is being done right now, is the fact that they're willing to set aside those sticking points, i.e. state aid and liability protection, to get something done prior to some of these benefits that we discussed earlier expiring.

It's very likely that you would see another stimulus bill after the first of the year and, of course, after a new administration comes in. But obviously, with 50 million plus, I think it is, Americans estimated to potentially be vaccinated for COVID by the end of January, there's every reason to believe that some of these restrictions that we have seen in place as cases have rised, all of that should mitigate.

And we know that there are underlying growth trends still emerging in this economy. You know, I know housing, the NAHB numbers yesterday were a little soft, but then start-ups and permits were still strong today. Even though retail sales came in a little softer than expected, they're still up but close to pre-pandemic levels.

And the consumer is probably just taking a pause here because you also have to wonder how much of it was pulled forward in October when Black Friday was actually, I think, started. So we are seeing growth return to the S&P 500 companies. Earnings have continued to trend higher. So we've somewhat grown into that multiple that everyone was so worried about.

So there's a lot of economic strength underlying this soft patch here that we do believe we'll get through.

BRIAN SOZZI: Rebecca, let me take a hard right turn here. Bitcoin. Bitcoin mania has erupted again on Wall Street, a little bit different than 2017. But what percentage of one's portfolio should be in Bitcoin right now?

REBECCA FELTON: Well, I will tell you, for us, it's 0. It's not-- it's not a space that we've played in. We tend to be more a conservative, globally diversified asset manager. So we haven't gone there yet.

MYLES UDLAND: And so then, Rebecca, just to finish up coming back to the markets, then, something jumped out to me in an area that you're underweight, which is energy. And I think everyone kind of hates energy, but we've seen such a strong bid there in the last, you know, couple of months or so. And when you see those kinds of moves, does that speak to any imbalance, maybe, in the market?

Are you looking at that and saying, man, people are really reaching for an opportunity here? Because structurally, nothing sets up for energy longer term. But, you know, I think it was up 40%, the XLE, back in November. We've certainly seen some enthusiasm for kind of anything that went down, we'll take a shot on it.

REBECCA FELTON: Absolutely. And, you know, you've seen this head fake into what would be perceived as value sectors numerous times this year. But even with the surge that you've seen in the energy sector post the vaccine news in early November, the sector's still down, I think, 30% plus or something like that year-to-date. So there's room to get in.

I think for those of us who are still neutral to slightly underweight as the economy continues to improve, we don't feel a sense of urgency . There but the momentum has certainly been impressive.

MYLES UDLAND: All right, Rebecca Felton, senior portfolio manager over at RiverFront Investment Group. Rebecca, always great to get your thoughts. Have a great holiday and have a Happy New Year.

REBECCA FELTON: Thank you, you as well. Thank you so much.