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Markets fall on poor retail sales numbers, bank earnings

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Megan Horneman, Director of Portfolio Strategy at Verdence Capital Advisors, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Heidi Chung to discuss how the markets are responding to the coronavirus outbreak.

Video Transcript

BRIAN SOZZI: We're going to bring in Megan Horneman, Director of Portfolio Strategy at Verdence Capital Advisors. Megan, good to talk with you this morning. Why I like your experience, for many years, you've focused on investing themes. So when you see retail sales data out today, much worse than expected, the market reacting accordingly, what type of investing themes do you tell clients are good choices?

MEGAN HORNEMAN: So right now, our clients have a much more longer term time horizon. We're trying to look past the current pandemic and the current lockdown of the economy and take more of an 18 to 24 month view. So we're looking for some of those sectors, or investing styles, that may rally out of this, once we come out of this lockdown.

There is value, we think, in things like financials. I know some of the earnings have been challenging in this quarter, and that was expected. But as we come out of this crisis, we do think that financials offer some opportunity. There is the opportunity for things like energy to potentially rebound as well, once it can find a bottom and move higher from these levels.

ALEXIS CHRISTOFOROUS: Megan, Alexis Christoforous here. I want to talk to you about the bank earnings that are starting to come into the market, both yesterday and today. They are dismal.

We expected that, but we're also seeing eye-popping amounts of money that these banks are setting aside for possible credit losses. And even before the depths of this virus, consumer credit rose at the fastest pace in seven months, in February. What is your outlook for consumer credit and for the banks?

MEGAN HORNEMAN: So I think these numbers are going to be eye-popping from earnings, and not just from banks from a lot of other companies. I think sitting aside the reserves is definitely, I think, a good thing for them, and I think that that should not be taken as such a negative thing for the earnings. And when it comes to the consumer, we have to remember that coming into this crisis, the consumer balance sheet was the healthiest that we've ever seen.

I mean, if you looked at the savings rate, it was well above the past 20-year average. If you looked at the household debt service ratio, very, very manageable. You actually had that ratio at record lows. So once we can get past this-- and again, this is very difficult and very challenging for many people at this time. Once we get the economy reopened and we get some idea of what that reopening will look like, we think that we can weather this from the consumer side going forward.

BRIAN SOZZI: Megan, you mentioned that you invest with a look towards 12 to 18 months. Let's say 18 months out, what does the US economy look like? Are we back below double digit unemployment? Is it an economy that looks like the 2019 economy? How do you think about it?

MEGAN HORNEMAN: I think it's going to take some time to get back to what we saw in 2019. I mean, we had the lowest unemployment rate since the 1960s. I think there will be some time as we work this out and depending on the speed at which we come and the degree that the economy reopens. I think it will take some time to get back to that 3 1/2% level.

But the one thing that we have to remember is that the US government is putting more money towards this crisis than any crisis before, and that includes the 2008-2009 crisis. So there is a significant amount of support being given right now at such a rapid pace. Remember, in 2007, 2008, and 2009, it took a significant amount of time to get these programs out rolling in the economy. This is happening so quick and so fast that it is really there to help bridge that gap. So once that gap has been bridged, and we get beyond this, there's a significant amount of support still there to help get the economy back moving again.

BRIAN SOZZI: All right. Let's leave it there. Megan Horneman, Director of Portfolio Strategy at Verdence Capital Advisors, good to talk with you this morning.

MEGAN HORNEMAN: Thank you very much.