Michael Sheldon, CIO & Exec. Director of RDM Financial Group at HighTower joins the On the Move panel to discuss the impact of COVID-19 on the stock market.
JULIE HYMAN: Let's discuss the underlying fundamentals. Michael Sheldon is joining us now. He is RDM Financial Group at HighTower CIO and executive director. He's joining us from Westport, Connecticut. And Michael, it's good to see you. I know that you are watching some of the-- I don't know, less-- perhaps less common indicators here. You're looking at copper. You're looking consumer discretionary stocks. What are those indicate kinds of indicators telling you about where stocks are going to go from here?
MICHAEL SHELDON: Well, at a 30,000-foot level, we look at a lot of the economic indicators that most people are looking at, things like GDP, monetary policy, corporate profits, employment. But we also look at some of the other indicators to see where the market's moving and what the-- really what the message of the market is. And over the past few months, we've seen some interesting, sort of positive signals. Copper prices have been improving in the past few months. And you typically wouldn't see that if the economy was deteriorating or getting worse.
We've also seen consumer discretionary stocks doing better than consumer staples stocks. This is a little bit more of a risk-on environment. If it was the opposite, you'd probably see that before the economy was worsening. So we're also seeing some better signs in areas of the market like industrials and basic material stocks. So overall, we are starting to see some positive signals from different parts of the market, which I think is somewhat constructive.
MELODY HAHM: Speaking of constructive, when you think about kind of the meta approach, looking at these mega tech names that seemed almost invincible, right? On the way up, they led the markets higher. What are you extrapolating here? Do you think that this is as far as they'll go, or do you anticipate that there will be more room to run?
MICHAEL SHELDON: Well, we've certainly seen a pretty large drawdown in some of these large technology stocks. And we own a bunch of them in our portfolio but within a diversified portfolio. I think the message for investors-- and our thinking is that the market, or at least a number of individual stocks, sort of got a little bit of ahead of themselves. The market itself, in terms of valuations, was on the full side, and we continue to have some uncertainty in Washington. So this was really more of a correction more likely rather than the start of a major downturn.
The other thing to think about is that looking ahead, if you-- actually, excuse me, if you look back to June, in June, we had a 7.1% pullback in the S&P 500. That lasted just a few days. But overall, it took a few weeks before the market got its legs back. This time around, we had about a 6.9% pullback in the S&P 500, again, over a very short period of time. So it wouldn't surprise us to see the market sort of range bound for a little bit as we digest a number of uncertainties out there.
JULIE HYMAN: Michael, at the same time, you say in our-- your note to us, our top sector is technology. So you still like tech. I guess it's gotten a little less pricey over the past several days. But still, the valuations are high there. Why do you think it's worth it?
MICHAEL SHELDON: Well, within client portfolilos-- so we're financial advisors, and we're building client portfolios. Looking ahead over the next five to 10 years investors, need to have some growth within the portfolios in order to meet their long-term investment objectives. And growth comes from technology-- some of the stocks in the consumer communications area, some in health care, some consumer discretionary. But in particular in technology, they're exciting areas like 5G, artificial intelligence, autonomous driving, robotics. So you want to have some exposure in that-- in your portfolios, in order to generate the kind of returns that you need to meet your investment objectives over the long term.
JULIE HYMAN: I also wanted to ask about housing because this morning, we got mortgage applications for the last week. They were up 3% week over week. They were up an eye-popping 40% year over year. I know you're looking at housing. Are you looking at it just as an economic indicator, or are you actually looking to build some bets around the housing market right now and what would those be?
MICHAEL SHELDON: Well, I have to say, you're right. The housing sector has definitely been a bright spot within the economy over the past several months. I think it's partly due to the fact that interest rates are so low right now. I think you have millennials who maybe have been thinking about buying, and now the renting versus owning equation looks a little more attractive right now.
So I think that in terms of the housing sector, we do have some exposures in some of our portfolios through ETFs as well as individual stocks. Housing represents I think about 11.5% of the overall economy. So it's not insignificant, and it does have sort of multiplier effects through other parts of the economy. So this is definitely one encouraging part that we're looking at.
MELODY HAHM: Michael, a quick follow here, it's encouraging depending on the POV, right? So of course, when you look at the overall economy, that's a great sign for buyers, for first-time buyers. They're being priced out. Median home prices for the month of July have been the highest ever on record, when you look nationally. So how do you anticipate this having kind of a long-term tailwind perhaps, as perhaps the lower end, the cheaper homes on the market, there's very little inventory, right? There's no new supply. How do you anticipate this, going forward, affecting your overall strategy here?
MICHAEL SHELDON: Well, you're right. There are two sides of that equation. You do have home prices because of the-- because there's a limited supply, home prices have been going up faster than the rate of inflation. On the other side of that, interest rates are so low right now that you can purchase more-- you have more purchasing power for a given interest rate, given where mortgage rates are right now.
So it will be important for the overall employment market to continue to strengthen and for the economy to continue to get better. Remember, looking back over the past several months, we lost about 22 million jobs, and we've recaptured about 12 million of those. So we've only recaptured about 47% of all the jobs lost. So we're really looking at the recovery, the rate of recovery and whether it remains on track. And if companies continue to bring workers back and add new workers, that should help-- allow individuals to feel more comfortable about buying homes. But it's all tied together.
JULIE HYMAN: Michael Sheldon, RDM Financial Group at HighTower CIO and executive director, thanks so much, Michael.