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Markets moving higher on optimism over stimulus: strategist

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Nela Richardson, Investment Strategist at Edward Jones, on the latest market moves.

Video Transcript

ALEXIS CHRISTOFOROUS: Want to talk about this early market action we're seeing. To your mind, what's behind this early rally?

NELA RICHARDSON: Great to be here with you, Alexis. Well, I think what it really is driven by is optimism around the stimulus. And what Trump's illness has done is-- the nation wishes him a full recovery at this moment-- is also put coronavirus back into the headlines. And as long as the pandemic stays in the headlines, there is a needed urgency that is transmitted to our policymakers that this pandemic is still at the forefront and something needs to be done. So hopefully, the stimulus will start to connect in the minds of Congress because it's needed on the grounds of the economy.

BRIAN SOZZI: Nela, I don't have to tell you this, there are a lot of concerns now on Wall Street regarding how a second wave of COVID-19 across the country, and even internationally, will impact growth. What would a second wave, in your mind, mean to fourth quarter GDP?

NELA RICHARDSON: We're already looking at an economy that after a quick bounce in the third quarter is likely to see a slower and more protracted growth spurt in the fourth quarter. And so a second wave only makes that-- that inching along of the economic recovery even worse. It makes a difficult situation harder.

And that's why the stimulus is so needed, because we need this handoff from the earlier fiscal and monetary stimulus to an economy that is sustainable and sustainably recovering. We're not there yet. We're not out of the woods in terms of the virus. And we're not out of the woods in terms of the economic challenges that are still facing the economy.

If you have any doubts on that, just look back to last week's layoffs. Airlines had started furloughing their workers again because their stimulus money ran out last week. That is the problem facing many businesses that have been hard-hit by the pandemic.

JARED BLIKRE: Good to see you--

ALEXIS CHRISTOFOROUS: Nela, what-- Oh, sorry. Go ahead, Jared.

JARED BLIKRE: Good to see you, Nela. I just wanted to get your take on the Fed, because we've got some speakers all week, as we normally do, but we also get the FOMC minutes on Wednesday, lots of talk about the communication strategy. We had two dissents at the last meeting. Is there anything to be teased out in terms of monetary policy this week?

NELA RICHARDSON: You know, of all the uncertainties we're looking at between the stimulus, the pandemic, the economy, the Fed is the only place of certainty. The Fed has made no-- has not hidden their intent, which is to keep rates near zero for a very long time, for several years. And I expect a reinforcement of that messaging. What's going to come into the play, in terms of uncertainty for the Fed, is how impactful their very accommodative monetary stimulus will be on its own.

And again, I know I sound like a broken record here, but monetary policy absent fiscal spending will not have the same kind of impact on the economy. The Fed is doing all they can, and I expect these speeches to reinforce that lower-for-longer message, that primacy of the unemployment rate and getting it back down. But at the end of the day, they need some help from Congress.

ALEXIS CHRISTOFOROUS: Nela, would love to get your take on big tech. If we do indeed get a blue wave in the next few weeks, if we get a Biden win and the Senate turns Democratic, what are the implications for big tech, especially when you consider the Biden administration's tax plan?

NELA RICHARDSON: Well, I think the first 200 days of the next administration, whether Biden or Trump, will be still focused on COVID. But there is a small window-- and anyone who's spent some time in Washington knows this, there's a small window in any administration to get some major legislation passed, and that's going to be in the first two years. So I think in the first two years, this is going to be impactful for tech stocks, maybe not in 2021, but as we go into 2022 and 2023, the market attention will be back to regulation.

I don't think that this is the death knell or this-- this big impediment that some strategists are looking at. I think a lot of industries are regulated. Banks saw their regulation moment decades ago, and they-- they survived it. Now, they're faced with a flatter yield curve, so that's a different challenge. I think tech grows beyond this because the future is tech, and they have-- there's so many ways to innovate and extend the connectivity, the digital adoption that we've seen advance because of this COVID-stricken economy.

BRIAN SOZZI: Nela, I hear what you're saying on stimulus. It should have been done-- done weeks ago. But for people battling COVID for weeks, for months, I'm not so sure how much a $1,200 check really improves their quality of life, which brings me to my next point, ultimately for the market to trade higher on a sustained basis, don't we need better treatments? Don't we need the vaccine to come out?

NELA RICHARDSON: Absolutely. We do need a continuation of medical advances in terms of test-- testing and treatments. And ultimately, we need a vaccine. And also, we need a vaccine that is widely distributed. And that's my concern. We've seen this fast sprint unprecedented globally to get a vaccine to market, but then what happens?

And how does it get to the most vulnerable communities? That is the test. It's going to need bipartisan action, strong leadership, and that's the concern that we-- even if we do get a vaccine, it won't be widely available to the people who need it most. So we need both, and it's important for investors to keep both in mind when they're thinking about optimism about the vaccine.

JARED BLIKRE: Nela, we talked about the tech sector. You mentioned banks. And I've also been seeing some rotation into materials and industrials. Anything out there that you like in addition to anything we haven't talked about so far?

NELA RICHARDSON: Well, you know, we always see this rotation, and we've seen it over the six-month rally. We see this rotation when there's better news about the economy or better news about stimulus, you see the rotation, however briefly, into values and cyclicals. Ultimately, we still like tech, because there are so many ways that tech continues to grow past COVID and some of this digital adoption remains permanent. But we are positioning for an economic recovery.

Yes, we think it's going to be slower in the third quarter, but ultimately, that recovery takes root, and that's going to benefit the more cyclical sectors like materials, like industrials. So we're telling our clients maintain that diversification, use pullbacks to fill in gaps, and position not only for an economy that's struggling, but an economy that eventually recovers. That means not just doubling down on less the winners of today, which is tech, but also the winners of tomorrow, which we think will be the more cyclical sectors.

ALEXIS CHRISTOFOROUS: Nela, what do you do with some of these ESG investments, companies that may be very sensitive to efforts to control climate change? Does it matter who wins the White House in terms of how you invest in that sector?

NELA RICHARDSON: I think over the long term-- and Edward Jones is a long-term investor-- ESG is here to stay. So in the sense of does it matter for our investors who takes over the White House, not as much. But does it matter in terms of the momentum behind ESG, I think it does matter.

President-- Vice President Biden has been more on the forefront of climate change and propelling industries that are associated with climate change. And for investors who are looking at that as a means or mechanism to invest, that's going to be impactful. So you might see some momentum developed around that. But it's not just climate change.

ESG is also being attractive for some investors because of the social movements we've seen, because of corporate governance. So ESG is a wide tent, and investors can pretty much pick and choose at this point what they determine is ESG. And so in that sense, I think, ultimately, it's going to be a regulatory decision of how we narrow this definition so that people know what they're investing in and they get the proper returns for that investment.

BRIAN SOZZI: Nela, does a Biden win finally bring ESG investing mainstream?

NELA RICHARDSON: I think ESG is going mainstream, regardless. I really think that this is a ground-up demand that clients want, especially younger millennial clients who want to put their buck to a meaningful investment, not just a return. So maybe the ESG future is accelerated in its adoption, but I think it's going to take-- take root again here, regardless of who's in office.