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Markets are 'overreacting' to Washington stimulus plan, says JPMorgan's Jack Manley

Markets rallied on Tuesday, with the Dow surging over 2,000 points on hopes of an economic stimulus plan from Washington, D.C. JPMorgan Asset Global Market Strategist Jack Manley joins The Final Round to discuss whether the bounce can sustain itself.

Video Transcript

JEN ROGERS: Welcome back to Yahoo Finance Live. We are about 13 minutes away from the closing bell. We are a little bit off the highs for the session, but still a big bounce here for equities, investors betting on a coronavirus rescue bill from Washington to help here.

Let's bring in Jack Manley, JP Morgan Asset Management. So Jack, you're watching this market along with us. Is this for real? Is this a bounce that's going to have some legs? What do you think?

JACK MANLEY: Is this for real? I mean, I certainly don't think so. It seems like yet another day of markets overreacting to good-- news, good or bad. It's something that, clearly, we've been seeing over the last couple of weeks. It's something, frankly, we've been seeing for the last several months, just with all the anxiety built into, really, the last innings of this expansion.

I think the single, largest, short-term risk, which was the absence of a meaningful fiscal policy, has been removed, or at least, it seems to be very close to being removed. But the fundamental, underlying problem still exists, which is that new cases continue to develop. The mortality rate seems to be a little bit higher than we'd like it to be. And this very clearly isn't going away in the next week or two.

I would expect markets to sell off at some point this week, perhaps even tomorrow. And I think, as was mentioned earlier, it could be possible to achieve new lows, even after today's such strong performance.

MYLES UDLAND: Jack, I'm wondering if you could just kind of set the scene for us and what your conversations with clients have been like. Because things have changed so dramatically, so quickly. I mean, by the hour, they change. And it certainly doesn't feel like that pace has let up at all.

But, you know, last week seems to be the week, from my reading, that you started to see the forecasts go from pretty bad to downright apocalyptic by the end of the week. So what are those conversations like as your clients are getting, you know, research from across your group and things are getting bleaker by the day?

JACK MANLEY: Well, just as the information is changing so rapidly, so, too, are those client conversations. I know the tone has shifted quite a bit every single day when we are talking about these things.

I think that, generally, what's going on here is that this is taking everybody by surprise, even though it probably shouldn't, given the experiences that we've seen sort of across the pond over in Europe and in parts of Asia.

We knew that this was extremely contagious. We knew that we would have to take drastic measures to combat it. And those things are now coming true here in the United States. They're coming through on our own home turf. And I think that that is shocking some people.

I'll say that the tone is not so fearful as you may anticipate, given everything that's going on. But I think people are out there just really looking for some clarity. When can we see a bottom? What will policy actually do? Those are the questions that we're getting asked right now.

JEN ROGERS: I mean, everybody wants clarity, but we just had Howard Marks on from Oaktree. And he's like, nobody knows. That's the problem right now. There is a real lack of clarity, and it doesn't seem like it's coming anytime soon. So when you think about what people should be doing right now, is it about keeping powder dry? Is it about getting into some pockets of value now? Is it about sitting on your hands? What do you do?

JACK MANLEY: Well, I think diversification, as always, is going to be your friend in this situation. I think all asset classes play a role in portfolio construction, even right now. The roles may have changed, though, a little bit. Fixed income, I think, with the Fed moving rates lower, with the credit market under some pressure, thanks to what's going on in oil, is not really going to be a source of income.

But it is, I think, a source of ballast, especially with treasury yields moving higher today on some of this risk off sentiment. There is room for that duration trade. On the equity side of things, we're approaching-- and I think we'll get there-- to very, very low multiples. Stocks are looking pretty cheap relative to history. And if we are indeed long-term investors, and maybe it is time to start thinking about re-risking those portfolios.

What's happened over the last couple of weeks is that even if we took no steps in protecting ourselves, our portfolios have already de-risked because of the moves in both stocks and bonds. I think we can afford to perhaps look to risk a little bit more, but look to it intelligently, look to quality, look to larger cap names, those more stable names, look for names that could provide you income while maintaining a fixed income allocation more for that ballast.

JEN ROGERS: Jack Manley, JP Morgan Asset Management global market strategist, great to see you. Thanks so much for your time.

JACK MANLEY: Thank you. Take care.

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