Omar Aguilar, Charles Schwab Passive Equity and Multi-Asset Strategies CIO, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to break down what's moving the markets on Friday morning, in addition to his reaction of the August's jobs report.
BRIAN SOZZI: Let's stay on the markets here and bring in Omar Aguilar, CIO for Passive Equity and Multi-Asset Strategies at Charles Schwab. Omar, always good to speak with you. I saw you looking at your screens before we came to air. What is the market whispering you-- whispering to you moments after the jobs report?
OMAR AGUILAR: Well, the big part of the jobs report, obviously, is getting embedded into what the market thinks, this being the long term. There is no indication that there's bad news. Obviously, there is a recovery in the numbers. Having an unemployment rate that is below 10%, it's always very uplifting.
But as analysts and people have started to dig into what this means, you start realizing that there is, obviously, temporary relief from some of the census workers that were hired. And at the same time, the challenges that we still have in the employment growth, it is still going to be here until the service sector starts to get better. And I think what we see is the first reaction, obviously, is positive, because the headline number looks very good, 1.4 new million jobs added. But as people are starting to dig into what counts to that number, even the calculation of the unemployment rate, you start realizing that there is still a lag of trying to get into a trend where you can define what is going to be more permanent new jobs versus how much is just a reaction from the very low numbers we have to begin with.
ALEXIS CHRISTOFOROUS: Omar, I'm curious what you're hearing from your clients right now, because there's a lot of cash on the sidelines. Are they itching to get back into this market? And if so, what area are they looking to get into?
OMAR AGUILAR: Yes, we-- and it's an interesting situation we see behaviorally, because we have, I would probably say, two sets of clients that we've seen so far, especially in the last, I would say, month and a half. There is some clients that feel incredibly comfortable that the backstop of the central banks will continue to provide that liquidity that will make that market to continue to go up. Those are the clients that clearly are enjoying the momentum that is going into the market for the last five months. And they continue to be incredibly optimistic. I would probably say that it's also generationally very inclined to what we saw back in the late '90s, where people feel this is the new world, things are going to change, technology is going to drive, there's a new economy that is going in, the working from home situation-- those clients continue to be incredibly optimistic about where the market goes.
On the other hand, I think to your point, we see more clients asking us for protection, thinking about what may be the potential indication of the economy, concerned, putting more money in cash, looking for cash alternatives, looking for ways to generate higher incomes without necessarily having to go to either fixed income or to equities. I think those clients are they ones-- you can actually see even in the mutual fund flows in the industry, despite the market being high, you don't see the amount of flows that you normally see when you see this kind of market. So it's actually very, very much in two big caps.
BRIAN SOZZI: Omar, I'm still very much interested in what happened in yesterday's session. Can you point to a trigger that sparked that selloff? And do you think the selling in the NASDAQ is over?
OMAR AGUILAR: Well, two things. One is, just to put into context what has happened, what is called the momentum trade or the working-from-home trade or the coronavirus trade-- so 20% of the high-momentum names account for roughly 40% of the market cap. In other words, those companies that are in the top quartile of the good performance, which is for the most part in technology and the most are in the areas that we have seen get in all-time highs, continue to dominate the index performance. On the other hand, those that are cheap valuations only account for 10% of the market cap.
So what we observed yesterday was a reversal that is probably more technical in nature of people actually taking risk off the table and then putting it back on areas where they have been completely out of favor in value. So what was interesting to see yesterday was the leadership was not a panic, I would probably say, or something like what we saw in March, of people who were not worried or fear. It was really more a natural correction of some folks trying to take profits. So people were starting to move in rotation away from just the high tech, high-priced numbers, and also understanding that in this particular case, the actual company fundamentals are probably less important than what is the overall trend.
The biggest part of that, I would probably say, is the source of the recession has not been fully resolved. In other words, we don't have a solution for the coronavirus yet. Therefore, it makes sense for people to be uneasy when you see all-time highs in all these names.
BRIAN SOZZI: All right, let's leave it there. Omar Aguilar, CIO for Passive Equity and Multi-Asset Strategies at Charles Schwab, have a great Labor Day Weekend.
OMAR AGUILAR: You too. Thank you.