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Markets remain strong despite Capitol chaos, COVID-19

Brent Schutte, Chief Investment Strategist at Northwestern Mutual Wealth Management, joins Yahoo Finance's Kristin Myers to break down the latest market action.

Video Transcript

KRISTIN MYERS: Let's turn to Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management. So, Brent, I have to just kind of ask you, because we know that markets are forward looking and tend to ignore the daily bits of chaos, political chaos.

But yesterday, I think, was something else entirely. And I think a lot of folks are still surprised to see that on a day like today, that markets are not just-- not only are they not in the red or flat, but they are surging. Why is that?

BRENT SCHUTTE: Well, I think you answered your own question. I mean, to me, the current events of yesterday were certainly disturbing. But the market does look forward into the future. So it does pay some heed to current events. And if they thought that was a longer term outcome, it would certainly be concerned.

But the market is looking ahead to 2021. And it sees a brighter economy. It sees a broadening economy. It sees a COVID-19 vaccine, fiscal stimulus, monetary policy that is easy. And it's moving higher, based upon the future will be brighter than the current.

KRISTIN MYERS: So, given that, though, I mean, the NASDAQ up over 13,000 right now, first time surpassing that level. I mean, what do you think is giving so much support right now? I mean, because, yes, we do have the vaccine, but we keep hearing doctors saying that this virus is going to be continuing on well into 2021, especially as the vaccine is not being distributed at the levels that we need it to be.

The labor market, of course, still recovering. We got some of those jobless claims numbers out today, but still very much struggling. Stimulus right now fell a little bit flat. Folks saying it was too little, too late. What are you-- what do you think markets are so bullish about right in this moment?

BRENT SCHUTTE: Look, the markets know that fiscal and monetary policymakers have its back. And so, that is not going to change in 2021. There will be additional fiscal stimulus. Monetary policymakers are not going to back away. And so, the one thing I do think that's important to point out is that while coronavirus cases are certainly increasing, it really has narrowed its impact on a narrowing slice of the US economy.

And so, the ISM manufacturing and non-manufacturing indices were out this week. They were both strong. But if you look under the covers, there are 36 industries that are covered in those two reports, 18 in each. 30 of the 36 industries are reporting growth. That's up from four in April and only 14 at the end of the year before coronavirus. And so, while the virus has ticked up, only one industry-- so it was 31 at the end of Q3. Virus ticks up, we're now still at 30.

And so, there are certainly industries and people who are still being impacted. But broadly speaking, the economy has adapted around coronavirus. And the remainder parts of the economy are actually doing quite all right, right now.

KRISTIN MYERS: You know, a lot of folks have said that they see 2021 as building a bubble. And we don't have to go back very far in history to really remember the last time that we saw a bit of economic turmoil. I think a lot of millennials like myself do not like thinking about that time period. Do you think we're setting ourselves up for a repeat of history?

BRENT SCHUTTE: I'm not for sure. I mean, I've equated this year or last year to more like 1999. Certainly, there were stocks done that were overvalued like they are today. But there were parts of the economy that did quite well and parts of the market that did quite well over the coming years.

And so, you mentioned the NASDAQ, and I'm not suggesting it's a bubble. But certainly, technology stocks and growth stocks have been very popular. Story stocks are popular. That is because, for the last three years, the US economy and the world economy have operated on one cylinder of growth. And technology has been the only earnings growth in town.

As you look at the 2021, I encourage you to look at what happened in the fourth quarter. Small caps did better. Value did better. Those segments of the market are under invested. And looking forward to the 2021, I think it will be some of those segments that continue to provide outperformance as we continue to have this broadening economic growth.

And so, the good news is, is that if you have a diversified portfolio, there's always something to look to that can provide you with some gains. And we think that's the areas of the market that you need to focus on in 2021.

KRISTIN MYERS: What else are you liking for 2021 in investor portfolios?

BRENT SCHUTTE: Sure, and so, international stocks are kind of lumped into the same basket. They haven't done as well over the past few years. Keep in mind the trade war was really directed at hurting the global economy because the global economy, or the international economy, is much more dependent upon trade. It worked.

And last year, COVID kind of did the same thing. You are going to have a broadening economy in 2021. And we do think international stocks, an area that is economically cyclical, just like a lot of those places I just mentioned in the US, will also provide returns in 2021.