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Markets can still go higher from here: expert

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Yahoo Finance’s Julie Hyman, Brian Sozzi, and Myles Udland break down the market action and outlook with Lori Heinel, State Street Global Advisors Deputy Global CIO.

Video Transcript

MYLES UDLAND: Let's talk a bit more about the market and bring in someone who knows more than the three of us on everything happening these days. That's Lori Heinel. She is the Global Chief Investment Officer over at State Street Global Advisors. Lori, thanks joining the show this morning. I'd love to just get your thoughts on the market now and what the conversations are like that you guys are having with your clients. Because we hear from so many folks in a similar sense here that everyone's talking about retail, about Bitcoin, about this and that. Where are your clients at these days?

LORI HEINEL: Well, thank you for having me today. And I really complement the discussion you were just having. Those are the challenges all of our clients are asking about too. Markets are at highs. Can they go higher from here? And our view is that they actually can. And part of that is the enthusiasm around the reopening and the pandemic maybe not ending, but certainly having lockdowns go away to the degree that they had been the past.

But also, its fundamentals. I mean, we continue to see earnings being pretty strong in here. We continue to see policy support, whether it be monetary policy support from the Fed and keeping interest rates low, or whether it be fiscal policy support in helping to replace lost income. So unlike past recessions, we just don't think that you had that extended kind of draw down because there was the capacity for consumers to save and to continue to support their spending pattern. So we actually think that we're set up for a reasonably good 2021 and maybe even into 2022.

JULIE HYMAN: So let's talk positioning then if we can, Lori. Because even if we get this rally continuing overall on the markets, there are certain areas of the market that you think are less likely to benefit from that, or do you think we're going to have the kind of rally we've had pre-pandemic, where everything got swept up in it?

LORI HEINEL: Well, there are a couple of ways to think about that. I think first and foremost, we're pretty bearish on bonds because pretty much anything that speaks of reflation, reopening, economic recovery, is actually quite negative in the aggregate for bonds. And when you couple that with a lot of public spending, that becomes also a bit of a challenge. So we actually think over the short term, the place to be most cautious is in fixed income.

On the other hand, in equities, surely not everything is going to be lifted the same way. We continue to like elements that are geared towards consumers, so consumer discretionary. We continue to like technology and information services where you have more transparency of forward earnings possibilities. But increasingly, we're starting to like some of those unloved sectors, and even some of the areas like value-oriented securities that have been so beaten down for so long. And the spreads that the market has become much more important.

So seeing participation from small caps, seeing participation from emerging markets. So we do think that there's a lot more breadth. But yes, we still want to be a bit more selective and find those places where it's a bit more defensive if things do go a bit more south again.

MYLES UDLAND: You know, Laura, I want to just ask about the broad economic backdrop as well. And you mentioned the role that yields are playing here. And we're seeing another morning where we're backing up, certainly at the longer end of the curve. But going from 1% to 5% on a GDP outlook-- pretty marked move. Do you guys still feel like there's maybe risks to the upside here, that we're still stuck at home, it's snowing outside. It's kind of a bummer right now frankly. But July will come. And maybe we're even still underestimating just how much pent up energy there is for people to get out and engage economically.

LORI HEINEL: Yeah, that's a good point. And I would say we were more positive in the depths of the worst days in March and April. We actually thought that it was going to be a very severe, but a relatively short, sharp contraction. And part of that was because of the stimulus that we saw, the ability for replacement income for unemployed workers and things of that nature. Conversely, we're probably a little bit less optimistic than average right now. But it's more because we see this being a bit more elongated recovery.

So we do think that we're going to see about 5% in the US GDP this year. But that's actually a little bit below consensus right now. And we think that this will extend out into 2022. And part of that, as you say, is that while there's a lot of enthusiasm around the vaccination rollout, it still is likely to be quite bumpy and take longer than what everybody thought back in December.

JULIE HYMAN: Even if you look at the underlying economics as positive and what we're seeing in the market as positive, there is a feeling, and I know Myles was just talking about not building your whole basis obviously on behavioral economics, but that's going to be a factor, there is this sense right now of make hay while the sun shines. Look at Bitcoin. Look its backs. Look at all of these areas in the market. Let's take advantage of it while it's happening.

Are you seeing that risk appetite really ratchet up among your clients? And is there a risk in that? That if there is a bump in the road, that it's going to then sort of have a ripple effect?

LORI HEINEL: Well, there seems to be a pretty big demarcation between classic institutional investing where you're taking more diversified bets, you're buying broader market type instruments, whether it be indexes or active strategies that far [AUDIO OUT]

But that's from another sidebar conversation around individual securities, Bitcoin, Tesla, things of that nature. In general, we think that the fundamentals underpinning the broad market are actually quite strong. That, as I mentioned before, there's good monetary policy support. There's good fiscal policy support. We're starting to see earnings come through. So for investors that are taking a broader picture view and investing in a more classic way, we don't think that the risks are quite so high.

But as you note, chasing any particular investment, whether it be a stock or a crypto or some other things, that's going to have a lot of volatility. And there are going to be significant winners and losers. That's still not the major thing that's driving markets though.

MYLES UDLAND: All right, Lori Heinel with State Street Global Markets. Lori, great to get your thoughts this morning. Thanks so much for joining the program. We'll talk soon.

LORI HEINEL: Thank you.