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The market is really banking on a stimulus deal by year end: Wealth Advisor

Luis Strohmeier, Octavia Wealth Advisors Partner and Wealth Advisor joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

ZACK GUZMAN: Well, there is progress in terms of the expectations that a stimulus deal might be coming through here. Investors focusing in on that here as we got the update on the unemployment front. So I want to bring in our next guest here for more on the market reaction in terms of how investors should be playing the news here.

Luis Strohmeier is Octavio Wealth Advisors-- he's with Octavio Wealth Advisors, and he joins us right now.

Luis, when we focus in on it-- I mean, you heard Emily walking through that-- the numbers there. This is, of course, why we want to see a stimulus deal come through here because a lot of those support systems set to fall off at the end of December. What do you make of where we're at right now and how investors should be playing the latest?

LUIS STROHMEIER: Yeah, certainly the news are encouraging for a stimulus package to get through. We'll see if we can get this through in the next few days. I think the market really is banking on the fact that we're going to have a stimulus package before year end.

Certainly for next year, understanding the numbers on unemployment, I think it's certainly-- it hits it right on the head with the COVID cases rising and so forth. Unemployment numbers are going to go--

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As far as 2021, I think we'll see what's going to happen with this vaccine-- these vaccines, and I think certainly there's a little bit of light at the end of the tunnel. So 2021 is going to continue to be a year of recovery, not only in the US but overseas as well. So I do see some positives. And I know we're hitting records on the NASDAQ and the S&P, but I do think that 2021 will bring another 7% to 9% upside on the-- excuse me, on the S&P.

AKIKO FUJITA: Luis, we heard President-elect Joe Biden yesterday saying that this $900 billion package that's being currently negotiated on the Hill would be a down payment. Certainly expecting something bigger come January or February. How much of that expectation do you think has already been baked into the market?

LUIS STROHMEIER: You know, maybe a little bit. I'm not so sure if this-- I could consider a $900 billion stimulus package as a down payment, so we'll see. I think that we're going to have to be aggressive so we can get a handle on what's going on. Certainly with the winter months coming, it would be for sure an incubation period-- additional incubation period for the virus. So this could be extended another two to three months with the level of infections surging.

So I don't know exactly if this is-- if the market really takes or bakes this into today's valuation, but for sure I do believe that the $900 billion stimulus that we're talking about right now is very much baked in.

ZACK GUZMAN: Yeah, that seems to be the case. I mean, we've been getting the updates it's increasingly likely that we would get something through. We've heard from Congress there on that front that they weren't going to break without getting a deal through.

But when you look at the specific opportunities here-- I was reading through your notes. Looks like you like the regional and national banks here as some beaten-down opportunities as well as Royal Dutch Shell in the energy space. Talk to you about why you think those are the best opportunities investors might want to focus on now.

LUIS STROHMEIER: You know, if we look at energy in 2020, it's been just dismal. It's been horrific for them, the ups and downs. So the other smaller energy companies are fighting just to stay alive.

I think the bigger ones are going to get stronger. And then as far as Shell or BP or other large-- Exxon, Chevron, they've been investing over the years-- over the last 10, 15 years into alternative energy, and they're very-- their portfolios are very, very strong in the alternative space. And I think just with this new administration being so proactive in pro alternative fuels, I think it's only going to benefit their balance sheet.

And if you look at what's happened since the election-- let's take Royal Dutch Shell. I mean, the stock price is up over 26%, 27% since the election. So that should tell you something. And so there is some value there.

As far as the regional banks, I think it's a good play in a low-interest-rate environment, and it's going to stay like this for quite a long time, and I believe that regional banks are going to have a tough time just fighting through just because a lot of them don't have trading arms, which is really the biggest profit center for national banks in 2020.

So assuming that trend continues, I think you're going to see consolidation in the regional banks just to stay competitive, to stay afloat.

AKIKO FUJITA: Luis, just to follow up on some of those energy names, sure, alternative energy with some of these companies is a growing area, but those names that you mention still trade largely on where oil is. How do you think investors should be sort of deciphering that right now? On the one hand, you've got the positive that you said will likely come from climate policies from the Biden administration, but these are still companies that have a huge holding. Their revenue is largely still dependent on where oil trades.

LUIS STROHMEIER: Yeah, and I think that's where the disconnect is. I think if we would have looked at 20 years ago or 10 years ago where 90%, 95% of the portfolio is reliant on oil, particular exploration, distribution, and so forth, yes. But, you know, forward 20 years, and now their portfolios are in the double digits percentagewise and increasing 10%, 15%, 20% per year as far as their total business in the alternative fuels.

I think, you know, maybe the correlation is not as high as it should have been, and I think there's some value there. So it shouldn't be played exactly-- it shouldn't be such as high correlation with the price of oil. So that's where I think that you can pick up some value, and that [INAUDIBLE] over the last three or four weeks.

ZACK GUZMAN: Yeah. No, energy definitely one of those sectors that deserves a shoutout in terms of their performance, as you said, over the last three or four weeks and since the election in general.

Luis Strohmeier with Octavia Wealth Advisors, appreciate you joining us here to discuss all that with us.