Yahoo Finance’s Alexis Christoforous, Michelle Girard, NatWest Co-Head Global Economics, and David Nelson, Belpointe Chief Strategist, discuss the latest market action amid a disappointing jobs report.
ALEXIS CHRISTOFOROUS: I want to talk more about the markets now and that jobs report with Michelle Girard. She is co-head of global economics at NatWest. Also joining us is David Nelson, chief strategist at Belpointe. Good to have you both with us.
I'm going to start with you, Michelle, just your initial reaction-- you've had a few hours to sift through it-- to that jobs report that we saw. Do you think that this drop in job growth is temporary? And if so, how long is it going to last?
MICHELLE GIRARD: Well, I do think it's temporary in the sense that it will-- I think it reflects what we've seen, in terms of rising infection rates and restrictions being re-implemented. And so I think with the-- you know, obviously, with the release of the-- for the vaccine and as the vaccine gets distributed and people-- you know, and companies can begin, once again, to normalize, we will see some-- you know, we will see a resurgence in employment, or certainly a recovery in employment.
I think, when I look at this report, while the overall headline was disappointing-- it was a little bit worse even than we thought, we had expected a smaller decline-- I think the breadth, actually, of-- when you look at the details of the report, as you noted, in leisure and hospitality, the sector with which restaurants are in, they lost almost 500,000 jobs. But most other sectors, and particularly goods-producing sectors, like manufacturing and construction, had healthy gains. And this is very different, of course, than what we saw last March and last April. So I think there is-- you know, we are seeing, obviously, a repeat, in terms of a virus-induced slowdown. But it's very different than what we saw before because we aren't seeing the broad-based stoppage of activity and therefore, broad-based employment declines, like we like we had seen a year ago.
ALEXIS CHRISTOFOROUS: You know, David, if you look at the market activity today, it's sort of been a bit volatile, but all in all, a pretty muted response to this disappointing jobs report. And when you take a look at the market since the beginning of the year-- we're only a few days into it-- we've had a lot to deal with-- the deadly riots on Capitol Hill, the death toll rising for the coronavirus pandemic-- yet, the stock market rallied to records in the face of all of that. Why is that? Where is this positive momentum coming from?
DAVID NELSON: Stocks are a discounting mechanism, and they don't care about the news cycle unless it affects earnings, cash flow, or dividends. And maybe the turning point for the market, certainly in the tenor of the market and what's working, was-- look back to November 8. When we had the advent of a vaccine, that was a game-changer, and it was largely reflected in stock prices.
Look at what's worked since that time-- energy up 44%, materials up 13%, financials 24%. That's a pro-cyclical recovery. Down there coming in number six, under the S&P, the market leadership from large-cap secular growth in technology pales in comparison. And it tells me right now, for the moment, markets are looking through that noise. FANG right now, the very popular large-cap secular growth trade, that's not the risk-on trade right now.
ALEXIS CHRISTOFOROUS: So David, what if someone finds themselves under-invested at the moment and they're looking for that entry point? When you look at the market trend over the past few weeks, we have not had many, if any, back-to-back-to-back down days. So if you're looking to get into this market, should you and when?
DAVID NELSON: There's no one single point to do it. I think if you're under-invested or you're not invested at all, and I'm sure there's a lot of people out there that fall into that category, you're going to have to find some mechanism to get back in. And for most people, it'll probably be a scale back in.
You know, put some money to-- put some capital to work right now, maybe 1/3 of your portfolio. Put 1/3 of the cash to work, and then slowly get in over time, on a time-based format, regardless of whether the news is good or bad. Unless you have some kind of quantitative way to trade around the wiggles, like a tactical mechanism or a quantitative approach, trying to trade around the headlines is death to your portfolio. You'll do quite poorly.
ALEXIS CHRISTOFOROUS: You know, Michelle, this week, I'm sure you saw, Credit Suisse came out and raised their target for the S&P 500 from 4,050 to 4,200. Do you think that's a little too optimistic? Where do you fall in there?
MICHELLE GIRARD: Well, I will say, I think, when you look at the performance of the market this week, one of the things I am a bit skeptical of, I guess, is what I think has helped propel the market forward this week is in the wake of the Georgia election results and the Democrats with, of course, tie-breaking vote from the vice president, having a majority in the Senate, I think that that really fueled expectations of much larger fiscal stimulus coming.
And I think that people are sort of missing the point, in the sense that this isn't like the blue sweep we had talked about possibly seeing in November, where you could have had a situation, Democrats picking up a far larger majority that may have ushered in the ability for massive fiscal spending, a $3 trillion Green Deal.
This is not-- even though the Democrats have that slim majority, it's too slim with the filibuster to really pass, you know, the kind of significant fiscal spending that I think is what has been driving the market over the last few days. And we saw some setback, even this afternoon, when some of the expectations for stimulus were dampened.
And so I do think we have to be careful here in some of the basis for the rise that we've seen in the equity market. I mean, clearly, a weaker employment report will put pressure on Congress continuing to do more. But I think some have overestimated what the election results out of Georgia might mean, in terms of fiscal policy.
ALEXIS CHRISTOFOROUS: So David, what do you think the short-term catalyst is going to be for this market? Because we're going to have earnings start rolling in very soon. But yet, Biden's going to take over in the White House, and we're expecting this big, robust stimulus package. What if we don't get it? You know, what happens to the stock market?
DAVID NELSON: There's a few more risks than that. I think there are several risks to the market. First and foremost is the rollout of the vaccine. It's obviously proved a logistical nightmare. Each branch of government is punting it to the next. The administration has said they've delivered to the states. The states are passing on responsibility to the local communities.
And it doesn't take an MBA in supply-chain management to understand that every branch of government is going to have to work to get this done. If we don't get the vaccine right, then all-- then stocks are clearly mispriced. The second issue that I have is China is going to test the Biden administration quite early, and it could be foreign policy, economically, certainly, perhaps even militarily.
So there are a lot of-- there's a lot of things to be concerned about. But right now, for me, number one with a bullet is the vaccine rollout, getting that done right. Because clearly, that's the basis of an economic recovery.
ALEXIS CHRISTOFOROUS: Michelle, the last one to you, David just brought up China. It makes me think internationally. I mean, 2021 is going to be the year of post-Brexit Europe. Do you see some opportunities outside of the US market for investors this year?
MICHELLE GIRARD: Yes, I-- when you look at, actually, countries and regions that are going to, perhaps, outperform in a post-COVID world, we think the euro area is actually a big winner. When the crisis first began, I think there was a lot of pessimism around not only China and Asia, but also around the euro area. And would this ultimately be the catalyst to breaking the euro area apart?
And quite the opposite has happened. What we've seen is that COVID has actually pulled the union closer together. It's effectively move them forward in taking steps toward fiscal union. It's unleashed fiscal stimulus that was unable to be put to work, say, in the wake of the global financial crisis. So I think we-- you know, we view the euro area, even more than the US and the UK, as a potential real out-performer in a post-COVID world.
ALEXIS CHRISTOFOROUS: All right, we're going to have to leave it there. Michelle Girard at NatWest and David Nelson at Belpointe, thanks for being with us.
MICHELLE GIRARD: Thank you.