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The markets are looking ‘six months ahead’ with positive vaccine data: Citi Private Bank Chief Investment Officer

Stocks are soaring today on upbeat vaccine data from Pfizer. Citi Private Bank Chief Investment Officer David Bailin joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: David Bailin, Citi Bank Chief Investment Officer joins us right now. And David, I appreciate you coming on to chat here, because your latest note had talked about investors moving past the election over the weekend, talking more about what we were going to see come out of these early vaccine candidate trials. Even Dr. Fauci called the results at 90% efficacy extraordinary. But as we see stocks trading up high today, curious to get your take on what this rally says. Are we moving too far, too fast? What's your take?

DAVID BAILIN: Well, I'm not sure we're moving too far, too fast, but we certainly have done something pretty extraordinary. We called for a trifecta, the election being over, the vaccine becoming efficacious, and, of course, some stimulus down the road. And we've already seen two of those things take place in a week. So you have, I would describe it as a bit of euphoria.

But when you look back at the macroeconomics of what's actually going on, this is actually probably a good repricing in several different dimensions. First of all, about 15% of the US economy has been turned off and now it's going to be turned back on. Second of all, that's going to cause fundamental demand to change, especially in areas like energy, especially in areas like travel, and retail, and health care, and education.

These are all areas of the economy that have been effectively shut down, and they're not going to be shut down six months from now. So that's what the market is doing is looking six months ahead. I do want to say that, you know, the vaccine data is extraordinary. It is early data, and it is something we're going to need to see in terms of the actual efficacy of the vaccine over time. But it is really heartwarming to have that kind of news.

So when you say is this euphoric, I don't think so. These were terribly depressed parts of the market, and now, I think, we're seeing a repricing. Last comment would be, you know, obviously we're going to see a repricing of technology too. Certain technologies like Zoom and other companies that were substitutes for being in-person are going to suffer a little bit now, and we're going to see higher differentiation among the technology sector going forward.

AKIKO FUJITA: Having said that, David, this comes at a time when we have seen 100,000 new daily coronavirus cases for five straight days here. So no question this vaccine is a-- it's promising. But we even got a statement today from president-elect Joe Biden saying, look, this is great news, but it's not going to be on the market for several months on a wide scale and masks will still be required. You don't expect a complete shutdown, but do you think investors should still be factoring in the potential economic hit from these viruses, even as we wait for this particular vaccine to come on the market?

DAVID BAILIN: So I mean, the answer is yes, but we're talking about two to four months, and stock markets still look ahead just two to four months, as you well know. So the other thing that we wrote about on November 1 was the degree to which the vaccines are being made in high quantities. All four of the phase III manufacturers are presuming that they're going to have good efficacious results and are producing tens of hundreds of millions of doses of the vaccine.

So when we talk about it, it's going to be about distribution, not manufacturing, two months, four months from now. I do think we have to be a little bit cautious, because we don't know how all the vaccines are going to work, and we do have to wait until they actually are there. And we should all be very careful.

There's no reason to take a lot of risk when you know you're going to have an effective treatment. So I hope people will be cautious, wear their masks, socially distance. But we do have a light at the end of the tunnel, and that's what this is about.

ZACK GUZMAN: Yeah, I'm glad you're using the term there light at the end of the tunnel because, as you're talking about this, it's not just Pfizer. Dr. Fauci was talking about Moderna's results, and we haven't gotten those yet, but seemingly optimistic that it would show similar results as what we're seeing out of Pfizer, since they used similar mRNA technology there. So we would boost that in terms of the production that Pfizer's limited to right now.

They said that they can hope 3.5 billion doses by the end of 2021. Keep in mind we're going to need more than 9 billion doses across the world, so just kind of putting that number in perspective here. But as you're saying, not just Pfizer alone working to kind of get these out there.

But you look at some of these travel stocks, you can call them leisure stocks, Carnival Cruise Line's up about 30% today. Obviously, it's going to take some time, but there are financial concerns for some of these operators here when we think about how hard hit cruise lines have been. So talk to me about that relative short-term risk for some of these travel-exposed companies and what you expect in those as we move into 2021?

DAVID BAILIN: Yeah, if you take a look at some of these cruise lines, you know, they've raised an extraordinary amount of money in terms of the amount of capital they have on hand. And for those that are adequately capitalized, they just have to get from here to normal-- to normal economics for their business. I'm not allowed to talk about specific stocks, but you know, the one that you just named has also raised a lot of capital.

So I think you have to take a look at the balance sheets of these companies and their ability to get from here to normal. And if they have sufficient capital, demand is certainly going to be back. You know, we've seen that in every aspect of the economy. People want to travel. People want to get back on airplanes. People want to go out and do normal leisure activities and go to restaurants.

And that's what we've seen. And I try to point that out, because there's been a huge substitution impact. If people couldn't travel, they fixed their homes, right? But when they can travel, and this is one of the reasons why a stock like Home Depot or Lowe's or whatever could be down for a little while, is because people are going to reprioritize their spending in 2021 until we get back to some type of normalization.

But overall when we look at the total economy, this is great news for 2021 and 2022. We're at the beginning of a new economic cycle. We're going to be past the-- past the pandemic. Sometime in the first or second quarter we're going to see real changes in the way the economy works, the way people behave. And that's all good for America and for the rest of the world.

AKIKO FUJITA: David, you talked about the repricing that's likely to happen on the back of this. You look at names like Zoom that are down more than 15% today, other tech names like Netflix also seeing a pullback, these are, of course, the stocks that have surged ahead during these stay-at-home periods. Is this an opportunity for investors to get in right now, or do you think there's even more downside?

DAVID BAILIN: You know, one of the things that we're measuring right now is the degree to which the pandemic has brought forward lots of revenue, right. So you take those names, for example, you know, are audiences going to be as big, let's say, a year or two or three from now for Zoom? You know, there are a billion users per month, for example, for Zoom here in the United States. And the answer's, you know, we have to think about that.

Certainly, Netflix may continue to add subscribers, fair enough. Those are two different-- you know, two different technologies. One's a substitute in the pandemic, and one is, you know, entertainment, you know, which people are going to continue to buy after. So each one is going to be on a case by case basis.

But the critical thing to realize is that when you pull forward revenues, for example in telemedicine, you know, there's going to be a peak, and then there can be a step back. And then the question is, what share will it gather? And we just think that growth rates are going to be far slower post the pandemic for some of these businesses, and we have to just be much more selective about them. And that's really what we're looking at, one by one by one.