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Labor market is 'remarkably resilient' despite the economic challenges: Expert

Kara Murphy Goldman Sachs Personal Financial Management CIO joins Yahoo Finance's Kristin Myers to break down the latest market action as coronavirus cases continue to spike.

Video Transcript

KRISTIN MYERS: I want to talk more about today's market action. We're joined now by Kara Murphy, chief investment officer at Goldman Sachs Personal Financial Management.

Kara, I want to start first, however, on the jobless claims. As a reminder for everyone for the week, ending November 14th, the numbers came in at 742,000. That is compared to the 700,000 that were expected. So still lower than that 1 million mark, but this is the first time in about five weeks that those jobless claims have actually risen.

So I want to start there, Kara. I mean, these figures were disappointing, higher than they were expected. I'm interested to know if you are concerned or worried, not if anyone thinks I'm worried or concerned, but if you are about this trend here that we're seeing, this reversal in those jobless claims, that now they're going up.

KARA MURPHY: I think it's important to remember that these numbers tend to jump around from week to week. They're a great, kind of contemporaneous view of what's happening in the economy. But there could be a lot of noise in them as well.

And so this negative number or, you know, higher than expected initial jobless claims is coming, as you said, on the back of several months of actually much better than expected jobless claims. So I don't think this is a break in the trend. We will have to watch it very closely.

There are some other economic indicators that are suggesting a plateauing of economic growth. And so it's not something to be completely dismissed out of hand. But I think, in general, what we've seen is a remarkably resilient labor market, despite these economic challenges.

KRISTIN MYERS: Do you still maintain that, I guess I'll call it, optimism, in the face of the fact, and I know you heard a little bit earlier when we were chatting, 170,000 cases of coronavirus just yesterday. That is a new record. We're seeing them surge and spike all over the country. And of course, now we have the holidays coming up when people are expected to get together. And so folks are largely expecting that those numbers are going to increase.

Do you have any worries going forward? I know what you were just saying about the jobless claims and the economic data. But looking out ahead, how worried are you about this headwind of the virus to not just the market but also the economy, at least in the near term?

KARA MURPHY: Well, it's hard not to be worried, right? And I say that both as a CIO and also as a mom of three kids. And you know, I have a family.

But I also think we need to take this in context. We knew that this period of time we were likely to see a second wave of the virus. That's exactly what's happening.

We also know that we're likely to have a vaccine sometime this year. Our current estimates are that, by the mid part of next year, much of the US will have access to a vaccine. So what that means is, even though this period might be rocky going forward, we do believe it will be relatively short lived.

And as you know, the market is a discounting mechanism. They're going to look out past, you know, six, 12 months to where the economy is going to be then. So I don't want to dismiss the very real human cost that we're facing right now. But I think in a broad macroeconomic perspective, we're going to be able to look through a lot of that volatility.

KRISTIN MYERS: How are you advising your clients to be approaching their own portfolios both just in the near term, of course, with the coronavirus hanging over everyone's head, but also in the longer term because everyone's expecting that we are going to be having this vaccine next year and it will start to roll out? And largely, everyone's expecting and hoping that the pandemic is going to be over.

KARA MURPHY: Yeah, you're right. It's a lot of push and pull. And so what we're advising clients, in a nutshell, is stay the course. So again, if we back up a little bit from the very near-term concerns that we have, we think that the economic expansion that we've had over the last couple of months is actually just the beginning of what will end up being a multiyear economic expansion.

And when we have a growing economy, looking back at history, 80% of the time the S&P has positive returns for that year. And then if you put a number of those years together, the cumulative expansion in the S&P 500 can be quite significant. So even though we've had a really strong rebound from the bottom earlier this year, we still think that there's plenty more for the market to go in the latter years of this economic expansion.

KRISTIN MYERS: So I want to look specifically at the tech sector. The NASDAQ right now the only major index in the green. And we have been seeing investors rotating out of that sector a little bit.

However, tech did lead the market for, actually, this entire pandemic. How are you approaching specifically just the tech sector? As you see it, at least in the near term, should folks continue to keep their same level of exposure? I know you're saying stay the course. But are you advising anyone perhaps to trim a little bit of their exposure, especially to some of those big tech names?

KARA MURPHY: It's interesting because we've looked at, you know, if you can sort of expand that, you know, strict tech focus a little bit more broadly into the growth sectors overall, what we've found is that as there is more optimism around a vaccine and the end of this pandemic, we actually see growth stocks, tech stocks in particular, underperforming and then value stocks starting to outperform. We've only seen little glimpses of that so far. But as we get closer to the end of this pandemic, that could be an opportunity for a bit of a rotation out of growth into more value-oriented areas.

So the types of areas that we see a lot of opportunity are those where expectations have been quite low. Valuations are low. And we think there's an opportunity for those companies to outperform those low expectations.

KRISTIN MYERS: Last one for you here. We're talking about stimulus, it feels like, repeatedly over and over again. And now that we have the vaccine and now we have these cases surging, it almost feels as if we've forgotten that there are stimulus talks that are supposed to be happening again, at least in the coming weeks. How important do you see stimulus to the markets? And do you still think that this economy really needs the economic aid?

KARA MURPHY: I do think it's still really important that we get a fiscal stimulus. I think given the results of the election, we do expect there to be a stimulus but smaller than what we might have had if it had been a completely Democratically controlled White House and Congress. But I think there's a clear acceptance on both sides of the aisle that we're in for some rough roads over the next few months until we get to the other side of this, and that we're going to have to have some sort of government funding to sort of make up for that economic pothole that we're going to have to get over.

So we do think that, eventually, we'll be able to have an agreement. What the ultimate number will be is unclear. But I think it will be important for the market.

KRISTIN MYERS: All right, Kara Murphy, chief investment officer at Goldman Sachs Personal Financial Management, thank you so much for joining us today.

KARA MURPHY: Thank you.