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History is that markets do better when powers split in Washington: Strategist

Simeon Hyman, Pro-Shares Head of Investment Strategy joins the Yahoo Finance Live panel to discuss the way the market is moving as the presidential election approaches.

Video Transcript

ZACK GUZMAN: I also want to dig a little bit more into this in terms of how we should be balancing around the election [INAUDIBLE] uncertainties out there right now. I want to bring in our next guest for more on that. Simeon Hyman is Pro-Shares head of investment strategy, and he joins us now.

And Simeon, when we look at this, I guess, you know, there's a question right now about that Senate race. One of our earlier guests was noting that that still remains one of the large question marks in regards to stimulus on the other side of the election.

When you look at that historically, what's your advice there in how investors should be thinking about power in the House and Senate and how it might be different with a blue wave or a red wave or just the status quo right now?

SIMEON HYMAN: Sure. And thanks for having me. The history is that markets do a little bit better when power is split up in Washington. So if the House and the Senate are split, if the chief executive is separate from the House or the Senate-- because business is kind of like the rules to sort of stay the same for a little while. If you told me what the rules were last year, I sort of figured out what to do. And if I can do that for a few years, productivity is a little bit enhanced. So that would be a perfectly reasonable outcome.

Now if we had a blue wave in the near term, the odds are we're going to have more stimulus than we might have had otherwise. And tax increases, they're not going to happen as fast as the stimulus. So in the near term, that's probably not terrible either. And if we're surprised on the other side, the stimulus might be a little bit smaller, but some of the tax increases would be off the table. So that's a little less of a sugar high, but not bad in the long run.

So I don't think there is tremendous risk on either side with regards to the election outcome, though certainly uncertainty around the outcome over a few weeks could certainly be an issue if we don't know who won.

AKIKO FUJITA: Simeon, isn't there also a risk of just more gridlock, though? I mean, as we've seen over the last few months, you've got the Republicans in the Senate. You've got the White House. And then you've got the Democrats in the House. And nothing was ultimately done before the election on the stimulus. How significant of a risk is that that the status quo continues?

SIMEON HYMAN: Well, look, we just had a blowout ISM manufacturing number this morning. I mean almost 60. That's a big, big read. And that's five straight months of expanding manufacturing. But also, if you thought it was only manufacturing because the service sector has been so muted, four straight months of expansionary over 50 on services, too, we had a strong retail sales number in September.

So, you know, some of the worst predictions of the stimulus running out haven't happened so far. I think a bigger risk, of course, is what happens with the resurgence of the virus. The good news is this time around, if there is good news, that, you know, mortality rates are a little bit-- are materially lower.

Therapeutics, or at least what we can do for people if they have to come to the ICU, is a lot better. And the odds of an overall lockdown are a little bit lower. But I don't think gridlock is as much of a concern as perhaps people are thinking.

ZACK GUZMAN: All right, if gridlock is not the concern investors should be focusing on here, I wanted to ask you a little bit more about portfolio balancing here, since we have seen tech come under a little bit more pressure here around all this. They've enjoyed a nice run up here.

So when you think about balancing and kind of trading off on that risk-reward here, where are you looking to put, if you had advice out there for new people looking to put new money to work here, where would you say are the best opportunities on the table?

SIMEON HYMAN: Yeah, it's interesting that this morning with this rebound from last week's selloff, that tech is not really participating. So it would be not a shocker to see tech, this beginning of a more protracted period of underperformance. You know, the valuations are up there on both an absolute and relative basis, you know, like we saw 20 years ago.

Now this time around, it's not sock puppets and eyeballs, so there's real profitability there. But still, rotating away from that most expensive case can make a lot of sense. Our concern is just going to value might not be the right play because, you know, given that we are likely to have some sawtooth aspects to this recovery with perhaps a little gridlock that gets people nervous or a little bit of virus resurgence, that even though the news is good, it's not going to be in a straight line. And that's really a problem for the deep value stuff.

So we suggest rotating from tech over to quality stocks. So one way to get that is consistent dividend growers like the S&P 500 dividend aristocrats. You know, since the volatility started in the beginning of September, they're significantly outperforming the S&P 500.

But you have much better balance sheets, much more consistency of earnings and cash flows, and of course, consistent dividends. Only one company in that group has cut its dividend this year, as opposed to 15% of the dividend payers in the S&P 500. So rotate away, but not all the way to that deep value side.

ZACK GUZMAN: All right, very interesting thoughts there. Obviously, dividends getting another look here in 2020 and for good reason. Simeon Hyman, Pro-Shares head of investment strategy, appreciate you joining us--

SIMEON HYMAN: Thank you.

ZACK GUZMAN: --with more on that.