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Markets are betting on stimulus ahead of the election: UBS Private Wealth Management

UBS Private Wealth Management Managing Director Rod von Lipsey joins the On the Move panel to discuss the latest market action as investors hope for more stimulus.

Video Transcript

JULIE HYMAN: Let's talk now to Rod Von Lipsey. He is UVS Private Wealth Manager Managing Director about the market perception of all of this. Rod, thank you for joining us. So talk to me about how markets are perceiving all of this because there has been a lot of discussion, not just of stimulus, but of markets and how investors are perceiving stimulus. How do you even game it out at this point and do you assume that it eventually gets done, even if it's after the election?

ROD VON LIPSEY: Julie, good morning. I think that's right. We're here in Washington DC in what's become the global financial center in part because everybody is looking at will we have a stimulus plan, will it come before the election, post election. But the markets betting, pretty much, that Congress is going to do the right thing. There will be some stimulus. I think that the comments from Fed chairman saying that we've done about all the Fed could do and we're going to need some help from Congress, that really tells us that we're going to get there.

When we get there is the question. And so, we are really trying to get investors to stay focused on the fact there will be a lot of volatility in the coming weeks, but we are going to get there at some point to a stimulus package.

ADAM SHAPIRO: When you talking about us getting to, quote, "More normal economic conditions," I know it's very hard to do this. But a of people would ask when. Because, for instance, what Fed Chair Powell is indicating at with the need for fiscal stimulus, it isn't going to be soon.

ROD VON LIPSEY: Adam, I think that's right. Listen, we have an election to get through. And until we get some clarity on that, we will not know exactly where this is going to go. We talked about the October surprise was the president's COVID diagnosis, was that our October surprise? Is there still something coming? We think there's probably more ahead. And the markets are seeing that in volatility.

Right now, it's very, very expensive for investors to try to hedge themselves through the election season. And so we're telling them to stay put, realize that Congress is going to do the right thing, the Fed is already doing the right thing, and so we just need to get through this with some patience. I know the 25 days between now and the election feels like an eternity from Washington perspective and for investors too.

But we are going to see some volatility. So we just want our investors to stay put and hang in there and look at opportunities should we started see some real weakness in the markets to perhaps step back in.

DAN ROBERTS: Rod, Dan Roberts here. One of the parlor games that was so popular on our show for a while was analysts coming on and talking about what kind of shape the recovery would take out of the pandemic. Now, of course, it's been replaced by what kind of effect is the election going to have on the markets. But we had people saying V shaped them, we had for a while people saying U shaped. And now lately, the consensus seems to be that as of right now, it looks like a K. Joe Biden in one of the debates mentioned K shaped. And a couple of us were discussing in Slack right now just a few minutes ago Joe Livonia was on Sirius XM before I did a shorthand. And he was saying that he and the president believe it's I shaped or it's a super V depending on the stimulus. Where do you see things right now in terms of the recovery and what the recovery could look like depending on if we get stimulus? Where do you fall on the shape of the recovery?

ROD VON LIPSEY: You know, I think it all depends on your aperture. And right now if we back out and widen the aperture and look at it from the beginning of the year, we sort of have a W going on. In other words, we had the problems in March, we had some incredible enthusiasm through August. We gave some of that back, and now maybe we're on the leg back up in that W shaped recovery.

I think that the key that we're looking at is that there are segments of the market that have not recovered. Goods have been very strong, services very weak. So the question for the financial markets is when will the cyclicals and when will value stocks, perhaps, start to come back. And we would say that's not going to come back until we get some more clarity on a vaccine.

- Ron, I think I've heard you say a few times that investors believe Congress will do the right thing. I mean, what does that mean? What does that look like? What is considered a positive? Because if you consider that this is going to be pushed back to after the election, you assume the Democrats and Republicans are going to hold their ground. And if you look at the two plans, there's still a wide divide right now.

ROD VON LIPSEY: There is an incredibly wide divide. But right now, that it is in the interest from a political. I'm outside of my financial lane. But from a political perspective, those are sort of working towards the benefit of whether or not which levers we want to put in, how do we want to press things, which things that we want the Democrats to have the advantage on, the Republicans. So this is all about-- the next 25 days are all about the elections and not about whether there will be some sort of a package to address the problems that if you talk about the K shaped recovery, those who are on the downward leg of that K have state, local government people who are in real jobs, they're having trouble.

We still have 12 and 1/2 million people unemployed. We are still looking at 850,000 people with new initial jobless claims the last week. So there is going to be a lot of pressure on lawmakers to make sure that they reflect the needs and the desires of the people. But we've got to wait 25 days until we have some clarity on which way that's going to go.

JULIE HYMAN: Well, in your line of work, Rod, you can't wait 25 days to do something, right? So what are you doing from an investing perspective as you await the election?

ROD VON LIPSEY: Yes. What we're doing right now is thinking about consolidating gains. There has been an amazing recovery in big cap names, the mega cap the technology sector, all of that is looking very strong. And we're seeing investors take a look and rebalance to see if their exposure in those areas is a little bit too high. We're also looking for opportunities where there are some lesser priced and potential to move.

And so, for example, in the mid-cap stock area we see opportunities there for continued recovery because there is not only a cyclical bend there, but there's also a smaller capitalization structure that allows for more recovery. Looking overseas, if, in fact, the US dollar is going to stay a little bit weak and we're going to have low interest rates, we're also seeing opportunities there in the bond market. Emerging market US denominated bonds, we think they're attractive. Over in Asia, we think that Asia high yield looks attractive. So these are opportunities for us to put cash in for clients put cash to work looking for higher yields that they may not find in the US, but also looking for a continued recovery.