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The market cares deeply about fiscal stimulus: CIO

Tim Chubb, Girard CIO joins the On the Move panel to discuss the latest on a new Stimulus package and where President Trump stands with the talks.

Video Transcript

ADAM SHAPIRO: Let's talk about what all of this means for investors. We invite into the stream Tim Chubb, Girard CIO, joining us from King of Prussia, Pennsylvania. And I know you are listening very eagerly to what we were talking back-- I want to bore this down a bit, nice-- in a boring way.

I'm looking for a return. I'm looking at the markets right now-- Dow up more than 400 points. I hear Powell yesterday talk about, doesn't want to go to negative interest rates. Yes, we have real negative interest rates in some respects. So my only option are equities, and there's going to be a stimulus. So wouldn't that mean now is the time to buy in?

TIM CHUBB: Yeah, I certainly think when we look at the broad stock market, valuation levels, especially the S&P 500 and some these mega-cap memes, I think, from a valuation perspective, we're probably at fair value or slightly beyond since we've priced in so much good news. But like we saw yesterday, the market cares deeply about fiscal stimulus.

And I think when you look at this environment we'll likely see for the capital markets the next several years, it's going to be exactly like we saw in the last 10 years coming out of the global financial crisis-- low rates, low growth. Fed Chair Powell came out recently with the average inflation targeting and basically guaranteed that we're not going to see rates moving higher. And so we see a significant increase in inflation until 2023, 2024.

And so I think while it's not exciting or perhaps prudent to jump in with both feet if you haven't been involved in this market coming off the lows in April. But I think for risk assets longer term and even over the next couple of years, I think we have this massive sort of policy support, both fiscal and monetary policy.

The fiscal side of things will get done. It's just a matter of when and how much. The market demands it. The monetary policy side of things is certainly certain, I think, at this point. You mentioned negative real rates, which certainly dries up that sort of pool of investable assets for investors. And then you have investor sentiment that's not overstretched.

When we speak with our clients, both institutional and retail alike, the question is not can you buy more risk assets? It's what is the market doing at these levels in midst of a global pandemic? And then last, but not least, the vaccine itself. And every day we get a little bit closer to that and finding some sort of normalcy. So I think much the playbook over the last 10 years is something that we could be using for the next several.

JULIE HYMAN: Tim, it is kind of remarkable to hear you say that, I have to say, to put it in these terms, because so much around us has seemingly changed between the pandemic and now this fight over stimulus. So it's fascinating. I mean, what, to you, has changed in terms of either your process and methodology when it comes to approaching this market or what, specifically, sectors and such you're looking at? Because you're right. I mean, we still have low rates. We still have kind of a backdrop that's similar in many ways, even at the time that the world seems to be changing.

TIM CHUBB: Yeah, I think the two biggest things that are sort of big picture and longer-term thinking and probably maybe conversations best with an adult beverage of choice is really when do we see inflation again? When will we have a reflationary event, where the yield curve significantly steepens, inflation comes back and pushes commodity prices higher, value outperforms growth on a more permanent basis?

And I just don't see an environment where that really comes to fruition without massive levels of population or productivity growth. Population growth will certainly be picking up in the coming years as millennials enter their peak household formation years. Productivity growth will hopefully be picking up as we start to see more and more autonomous vehicles enter the world and 5G technologies start to integrate in more and more industries.

But ultimately, I think those are the two big things driving growth for our country, and it's ultimately going to be quite some time before we start to see that really start to accelerate. And so I think that's part of what we're concerned about is maybe a stagflation type of environment, where growth is very low and inflation starts to pick up. We certainly have seen housing prices year-over-year, sort of eye-popping numbers, something like 11.4% in the last reading. It's almost like an economy much like it was the last 10 years of sort of the haves and have-nots as far as the consumers are concerned.

And I'd say the second thing that's really given us a bit of, I guess, a pause for concern is how much of these secular growth trends really caught up with--

ADAM SHAPIRO: Well--

TIM CHUBB: What inning are we in with cloud?

ADAM SHAPIRO: So when you talk about what inning are we in, when we talk about a potential reflationary cycle-- something old and boring-- and I keep saying boring, not because of you. It's any time I start with Fed Chair Jay Powell says-- you know what we're talking about. But--

TIM CHUBB: Right.

ADAM SHAPIRO: --as far as our money-- utilities, that's not something that gets everybody charged like Tesla. And yet, utilities could stand to benefit from what, a Green New Deal, how?

TIM CHUBB: Yeah, I think it's utilities, it's technology. There's various industries that I think, if you're expecting a blue wave come in November, that would be massive beneficiaries of some of the infrastructure packages that we might see and prioritize in clean energy. I think what you're seeing with the market now-- and I know political pundits and the president's come out and said that if Vice President Biden were to be elected and see this blue wave that it'd be bad for your 401(k) and the markets.

But I think we all need to look and see where the stimulus money is going to go and how it's going to work its way through the economy. And I think we have a lot of catching up to do compared to some other countries around the world when it comes to remaining relevant with green energy, with automation, with other investments in technology.

And so we're excited about investing, in the broad sense, across many sectors that will be beneficiaries of some that stimulus, whether it's on the consumer discretionary side and getting consumers back out to buy makeup and go out to eat and all of those sorts of things to the long-term trends of when will we see driverless technology integrate, and who will be the beneficiaries of that, and the technology side of things.

ADAM SHAPIRO: Girard CIO Tim Chubb, thank you for being here "On the Move."