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'This kind of activity should be expected' : Strategist on this week's market moves

Scott Wren, Wells Fargo Investment Institute Senior Global Equity Strategist, joined The Final Round to discuss this week's market moves and what this week's Fed meeting signals for the rest of the year.

Video Transcript

SEANA SMITH: We're going to bring in Scott Wren. He's Wells Fargo Investment Institute Senior Global Equity Strategist. And Scott, what do you make of what Jared was just talking about, some of this rotation that we're seeing? We saw a big pullback in tech over the last couple weeks. The cyclical value names getting some interest here from investors. How are you reading the activity over the past couple of weeks?

SCOTT WREN: Well, Seana, I think that if you look from the March 23 lows until the recent highs, which was on September the 2nd, the NASDAQ was up about 76%, and the S&P 500 was up about 62%, and we had very, very few stumbles along the way. When you consider that the S&P over the last 80 years has averaged a 10% pullback, say, every 10 and 1/2 or 11 months, I mean, this kind of activity should be expected. We're still up a lot.

Clearly, as Jared had mentioned, there are certain stocks that have really run hard here. So I think that some of the rotation that we're seeing, let's say in-- and this is not just over the last few weeks, a little bit longer than that, where the equal weighted S&P 500 performed better against the S&P 500, you know, the rising tide tends to lift all boats early in a cycle.

The Russell 2000 has been doing better. So some of the sectors that we're keeping an eye on-- I mean, we've been in tech, in discretionary, in communication services, and all of that. But industrials tend to be an outperformer a little bit earlier in the cycle. Materials and energy really are more late cycle performers.

You need a pretty good growing global economy. You need some inflation. We don't have any of that, and we don't think it's going to happen anytime soon. But industrials are one that we're definitely keeping our eye on.

And I think you're going to continue to see more of this rotation, and it's going to be two steps forward, a step back, that type of thing, because we've run so far. We've got the election. We have the virus. We have stimulus. We have all those kinds of things to think about. So I think traders taking a little bit of money off the table makes a little bit of sense, to me, anyway.

SEANA SMITH: Yeah, so Scott, it seems like you think we're going to see a little bit more of this back and forth, just in terms of the leadership and the rotation from growth and tech into more cyclical areas, and then vice versa. But what do you think-- I know you laid out just in terms of what we would need to see in order for more of a prolonged period of this value rotation. But just in terms of a timeline, you've mentioned all these uncertainties that we have right now and its potential impact on the market, is this-- is this a permanent rotation that you don't see happening maybe until sometime in 2021?

SCOTT WREN: I think it's going to be pretty jittery. But what we expect, really in the third quarter, clearly, we're going to get a good GDP number. I mean, we've been looking for something at 20%, but that may be way too conservative. We think we're going to see a good number in the fourth quarter. And then really, our number for 2021 is 3.8% GDP growth.

So what I think is going to happen is by the end of this year it's going to be pretty clear that the economy is moving in a modest-- at modest speed in a good direction. It's going to be hard to turn that ship. And that's when I think you'll see-- the market will probably anticipate it a bit, but I think once we're-- once we get this vaccine confirmed, or multiple vaccines confirmed, once we know who the president's going to be, you know, we'll get a little bit better indication on the employment situation, which has certainly been improving quite a bit, I think that's when you're likely to see more of this evolution take place that's probably going to carry us forward for a 12 to 24-period period.

INES FERRE: Scott, Ines here. Are you expecting to see another stimulus before the elections? And if so, what kind would you want to see? And are you concerned at all that if companies get more help that this may lead to some lower productivity with some companies and areas?

SCOTT WREN: Well, I tell you, I think-- you know, we have-- we have hotly debated this on the investment strategy committee. You know, I'm-- I believe we're going to see something before the election, and I think it's probably going to be, you know, it's going to be related towards employment, employment benefit assistance, that type of thing. I think after the election, that's when we're going to see the infrastructure thing and stimulus like that.

So I think we're going to see some sort of negotiation here will be between the numbers that the Republicans are talking about and what the Democrats are talking about. Speaker Pelosi just threw out a pretty high number yesterday. I don't-- we're not going to be there, but I think we're going to see some stimulus.

And I think, really, in terms of productivity, you know, I think you have to look ahead to see some measured productivity growth, which we think is going to happen, but we need to get beyond this-- this uncertainty that we have right here. We need to see some better business spending, and that's really where we're going to see some better productivity, not in the next six months, but probably the next 12 to 24 months.

SEANA SMITH: Scott Wren of Wells Fargo, always great to have you. Have a great weekend.

SCOTT WREN: Thanks. You guys, too.