Paul Schatz, Heritage Capital President, joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss the increase in jobless claims amid the coronavirus outbreak.
ALEXIS CHRISTOFOROUS: I want to turn now to Paul Schatz, President of Heritage Capital, for his take on this number. Good morning, Paul. Thanks for being with us. This was much worse than we expected, about double what we were looking for, yet the market seems to be in a disconnect here. You would imagine that futures would be plummeting given this number. Why aren't they?
PAUL SCHATZ: Hey, good morning. Hope you're staying safe and healthy.
So first, futures were up significantly more. I saw the peak up about 400 overnight. So that's one. When the number came out, the futures did fall significantly. But let's not forget, there's no jobs number coming out that's going to totally shock anybody. Last week, the 3-million-plus number, we knew it would be higher because people just couldn't file quick enough and states couldn't process quick enough.
It seems like the 6 million number is more realistic as states are being able to process claims. So I don't think there's a disconnect. I think we've already seen a 32% peak-to-trough decline, which is pricing in a lot of this horrible data that's going to continue to come out day in and day out, week in and week out into May. So a 32% decline in the stock market is maybe not completely historic, but it's a large decline in a short period of time, and it certainly-- it's factoring in an awful lot of bad news.
BRIAN SOZZI: You know, Paul, we look at this data as often-- very often as just data, numbers, things on press releases. But the reality is right now we have had 10 million people in this country filed for unemployment benefits. Those are human lives being completely upended. And you look at the market. The stock market has rallied the past two weeks. You know, my question is here, do you think investors are out to lunch and they don't understand what's really happening in the country?
PAUL SCHATZ: So first, I like how you separate out the human toll from the market toll because it's they're obviously very-- if you don't have your health, you have nothing, at the end of the day.
However, we're talking markets now, so I don't think you're out to lunch. Markets aren't going to go down literally in a straight line to wherever they're going. Look at-- look at '87, '90, '98, after 9/11. Look at the financial crisis. Markets don't just go straight down. The crash of '87, which this looks most like, still had that intervening rally in early October.
So markets are discounting economic activity six to nine months down the road here. It's a little more compressed. But when you got to that point on March 23 from-- you know, March 10 to March 23, you saw the most historic selling in a short period of time in history, no matter what metric you want to use.
So clearly-- I tweeted this 8, 9, 10 days ago that you got to a point where that rubber band wasn't going to-- if it wasn't going to bounce, it was going to break. [? Just ?] Fed and Treasury, too much money in the system to have a break, so you got that bounce.
You're now in a period-- the market is groping for some kind of very complex low to frustrate bulls and bears alike, but I don't think investors are out to lunch. You're just seeing an absence of sellers more than an overwhelming number of buyers.
ALEXIS CHRISTOFOROUS: So how much worse is this going to get in terms of the pure data do you think, Paul? And has the market simply discounted that, saying, you know what? We know Q2 is going to be a disaster. We know these numbers are going to be horrific, and we're going to pay too much attention to them.
PAUL SCHATZ: I don't think the market's going to pay attention to the stuff literally today in the here and now. I think the data is going to get-- I keep using words like unfathomable and unthinkable, and that's where I think the data are going, going to points where you just can't wrap your arms around it.
Given that, unless you think-- which I said to clients time and time again, if you think this is the end of capitalism and the free markets and democracy as we know it-- we got through two world wars. We got through civil unrest in the '60s and '70s. We got through terrorists flying airplanes into the largest buildings in the biggest city. We will get through a virus.
I don't think it's going to be a V-shaped recovery. I think it's going to be a lot choppier, a lot more complex. However, you have to look. Are we going to go down-- is the market going to go down 50% a la the crisis in the financial crisis and the dot com? I don't think it's going down 50%.
I do think this. I think you're going to have another selling wave at some point, the first half, 3/4 of April, and then you'll get a much better rally from there.
ALEXIS CHRISTOFOROUS: All right, Paul, we're going to talk more about this around the opening bell in just a little bit. Thanks for popping on with us right now.