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Major indices open in the green despite jobless claims topping 22M

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Seema Shah, Chief Strategist at Principal Global Investors, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss the latest market action.

Video Transcript

ALEXIS CHRISTOFOROUS: A new trading day about to get underway on Wall Street with the opening bell at the New York Stock Exchange.

[BELL]

And trading has begun, folks. And we want to welcome to the show Seema Shah. She is chief strategist at Principal Global Investors. We've got the Dow up, all right, a decent 40 points right now. Good morning, Seema. Good to see you.

I want to talk to you about this possible disconnect we're seeing in the market. I mean, stocks are higher, not by much, but they are higher despite news that new home construction collapsed in March, down more than 22%. And now we have more than 22 million Americans having filed for unemployment benefits in just the past month, staggering-- stunning numbers during this pandemic. Why isn't the market selling off into that news?

SEEMA SHAH: Well, I think a lot of the reason is this-- the very bad economic data that we're seeing now is very much priced into the market. So during the time in the last month, we'll be seeing those very significant falls. This is a time when you were seeing those economic forecasts being very much downwardly revised.

Our concerns now is more deeply about the second half of the year. We think from that point, the market is still a bit too optimistic. And we could see further rises in unemployment in the second half of the year, as well as a very kind of sustained and persistent economic downturn.

BRIAN SOZZI: Seema, what do you think would take the market down? Granted, earnings season is just starting. The banks weren't that good, but I can't imagine the next two weeks we get any form of good news from, let's say, the industrial space.

SEEMA SHAH: Right, so I think that it's not necessarily going to be a focus on the economic data. Because as I said, I think a lot of it is priced in. But what we could see is those earnings numbers, as we see maybe some of the banks continuing to put in quite significant provisions for bad losses, that will bring it home. That this is, you know-- this may not be quite the economic recovery that markets are expecting.

But also, the other thing is, and I think that when we start to hear about governments lifting these lockdowns, as I think households realize that it's going to be a very, very gradual lifting. We're also expecting to see household caution continuing to persist, you know, maybe concerns about catching the virus or even concerns about their finances. And that will probably stop consumer spending from recovering in the way that markets may at the moment be anticipating.

ALEXIS CHRISTOFOROUS: You know, to go along with spending, your theme on spending there, Seema, we're getting some breaking news from Hilton Hotels this morning. Hilton saying 12% of its hotels in the Americas and 60% of its hotels in Europe, the Middle East, and Africa, and 15% of their properties in the Asia-Pacific have temporarily suspended operations.

Hilton now saying it expects it has enough cash to keep going for 18 to 24 months. And as I look at shares of Hilton, they just turned positive, up now nearly 1%. So what's going on here? Are investors, have they basically priced in worst case scenario at this point?

SEEMA SHAH: I think they've priced in the worst case scenario for the first half of the year. I think that we know that, and that's one of the reasons why we expect markets to maybe be somewhat stable for the next few weeks with potentially some renewed market falls. I think the concerns are really about further out.

And I mean, it's very good news from this perspective. The Hiltons got enough money to keep it going for that longer time period. But there will be other companies that are going to continue to struggle with bankruptcy pressures. There's going to be households that are going to be struggling with finances. And that's where we expect to see some of the pain coming in.

But I want to hasten to add that, look, you know, compared to where we were three or four weeks ago, the situation is considerably better. And I think the policy help that we've had from the Fed, from central banks around the world as well as governments, has really taken out some of that downside risk to the scenario that was in play about a few weeks ago.

BRIAN SOZZI: Seema, is now the time to be looking or playing or investing in potential takeover targets? We had our parent company Verizon come in here today, make a strong play for Blue Jeans, a video conferencing company. We just had Slack's co-founder on, Stewart Butterfield. They have loaded up on cash to potentially look at acquisitions. Is that the type of play where you should go all in now?

SEEMA SHAH: Well, I think the thing that we do know is that there are always going to be opportunities. So however bad the situation is, even if you think that's the global financial crisis, there are some amazing opportunities at the bottom of the market. Now where we're focusing all of our concentration on is the high quality stuff.

So as long as you believe it's high quality that the balance sheet is strong enough, that you'll continue to have an income stream coming through, and that maybe it's pivoting in a way that will benefit from the new work environment, the new living environment that we're likely to be in for the foreseeable future, then I think it's a good bet.

But it's really, this is the time for active management, when you want to be looking at company by company, knowing all of the factors that are building into that balance sheet before we make our decisions.

ALEXIS CHRISTOFOROUS: All right, Jared, let's head over to you and see what you've got your eye on here four minutes into the trading day.

JARED BLIKRE: All right. We're looking at a little bit of a rally here. I'm going to dial up the YFi Interactive. We'll see what's going on exactly. I would note that the 10-year T-note yield is a little bit depressed right now. We had a big drop yesterday about 11 basis points.

Usually when we see that happening, we see other markets, especially growth and momentum, take hold. And it's actually nice to see some of the leaders here doing that. And we're taking a look at crude oil right now. That's up about 2%. And that's coming off of that dip into the teens that we saw yesterday, still a lot of bearish pressures there.

But let's take a look at the Dow heat map. We can see Microsoft and Apple both up, Microsoft up a little bit more than 1 and 1/2%, JP Morgan under a little bit of pressure here, 2% down. And if we take a look at the NASDAQ, we can see some of the bigger leaders here. And we're going to sort by performance and see the chip stocks really outperforming.

And this is on the heels of that Taiwan Semiconductor earnings announcements that we just got. They're not in the NASDAQ 100, but we can see in the upper left, we have KLA-Tencor, Lam Research, Activision Blizzard, LRCX. All these names have been leaders in the past, and they are starting to reassert, so that's a nice thing to see here.

As I said yesterday, NASDAQ had just closed over its 200-day and 50-day moving averages. It kind of dipped below yesterday. So we're kind of at an inflection point right now. And we're going to want to see if that can continue to the upside. We do have a lot of overhead resistance just above, Alexis.

BRIAN SOZZI: Jared, are you seeing anything in these work-from-home stocks? We just had obviously Verizon go out there and buy BlueJeans, which is a Zoom rival. Slack's Stewart Butterfield just told us, at least to me, business seems to be going pretty well.

JARED BLIKRE: Yeah, there was an initial surge into some stocks like Netflix, and of course, Amazon. And you might think, well, money had to go somewhere if you wanted to buy. Is this going to last? But you have a Netflix approaching its record highs. You have Amazon at record highs or near record highs, still up 28%.

And then I just go back to the prior leadership of the semiconductors. Really nice to see them outperforming, as opposed to simply some of the airline travel hospitality stocks, which were just kind of so sold that they got that junk off the bottom lift from the rally bottom.

ALEXIS CHRISTOFOROUS: Seema, what do you see when you look at the VIX? Are you expecting volatility, I mean, to rear its ugly head once again in a big way in the coming weeks, or have we peaked in terms of volatility?

SEEMA SHAH: I think we've peaked in terms of volatility, and that's really thanks to the very strong and rapid policymaker action. And a lot of what the Fed has been doing hasn't really about economic stimulus. It's about liquidity provision and kind of taking out a lot of that volatility that was disrupting markets so much. And that's also another reason we don't expect to see the very, very big moves that we have become accustomed to in the last few weeks.

ALEXIS CHRISTOFOROUS: What about-- I was reading your note, and you point out emerging markets. And you say that investors should, quote, "retain some caution." Does that mean that there is room for emerging markets in one's portfolio right now?

SEEMA SHAH: [INAUDIBLE] I think that the outlook for emerging markets, it's going to be very tested. You know, aside from places like China and Hong Kong and South Korea, which have already had their wave of infections, a number of these emerging markets are only starting to see the rise for coronavirus now.

And for many of them, they've got very weak health care infrastructure. They've got very large unofficial economy. So any government help simply doesn't reach the population. And even social distancing lockdown measures can potentially almost hurt more people than the coronavirus itself.

The other thing that we're seeing is that investors are starting to refocus on a number of the imbalances that a lot of these countries have, whether that's current account deficits, fiscal deficits, or even just overreliance on oil exporting.

So as a result of that, we're seeing that a lot of the EM countries are either very cautious about spending, which means that their households are going to suffer, or if they're not cautious and they're throwing caution to the wind and they're spending as they need to, their currencies are being decimated.

So I think, you know, we have to, again, a case by case basis, we tend to prefer the northern Asian economies over some of the southern Asian. And Latin America does look like it's going to be under a lot of pressure.

ALEXIS CHRISTOFOROUS: All right, Seema Shah, chief strategist at Principal Global investors. Always a pleasure to have you on the show.

SEEMA SHAH: Thank you.