Brian Levitt, Invesco Global Market Strategist, joined The Final Round to discuss his market outlook as stimulus talks in D.C. remain uncertain and his thoughts on how the election will impact the market.
SEANA SMITH: So for a little bit more on today's action and really what we've seen play out over the last couple of weeks, let's bring in Brian Levitt. He's Invesco global market strategist.
And Brian, great to have you back on the show. Let's first just start with today's gains. I mean, it's been kind of a whipsaw action over the last 24 hours. Investors trying to wrap their heads around what we could actually see come out of Washington. What do you think is priced into the market at this point?
BRIAN LEVITT: Well, I think right now, what you're seeing is churn amid the uncertainty around it. I mean, this is a market that if you're in a slow growth environment can likely press higher. But for the more economically sensitive parts of the market that are doing well today, you're likely to require more cushion, fiscal cushion, for investors.
We'll see where this goes. I keep adhering to the view that at least has been attributed to Winston Churchill that Americans always do the right thing, but only after exhausting all other options. So I suspect we will see a fiscal deal come down the pike at some point, which should help to support this recovery into 2021. But for right now, the markets are volatile because of the uncertainty around it.
DAN ROBERTS: Brian, Dan Roberts here. I know you posted a blog post on the potential of increasing the capital gains tax and what a President Biden might mean for that. I've also heard chatter among traders about a transaction tax that I guess would be in addition. So they're not very excited about that. What are you hearing from your clients?
And I don't necessarily mean this as a political question, but about the concerns with the various two outcomes here with the election. And would you say, as many of our guests have recently, that that is all you are hearing about. We've had people come on our show say, that's all any of our clients care about-- election, election, election right now.
BRIAN LEVITT: I can't even begin to believe the attention that's being given to this election by investors. It's pretty much all anybody wants to talk about. And, you know, it's interesting. When I think about investing, I always ask myself a couple of questions. First, what's the direction of the economy over the next couple of years? And I have to expect it's going to get better, given medicine, science, human ingenuity. We'll get out in front of this.
And what's the direction of monetary policy? And the Fed is telling us all on that. So the outcome of this election doesn't change my answers to those two questions. But yet, investors just seem to be so focused on it. What I find over time, looking historically, is the markets tend to do fine under both parties. Investors are far better off staying the course.
We do not radically reengineer or restructure the economy. Monetary policy tends to matter more, and starting points matter more. This is a pretty good starting point, a nascent economic recovery, stocks cheap to bonds, Fed accommodative. All of that doesn't change whether it's Donald Trump or Joe Biden taking the oath of office next January.
JARED BLIKRE: Hey, Brian, all good points here. So let me ask you, what are the potential headwinds to the market here and things that aren't necessarily on everybody's front burner, but could take center stage again once we get over this incredible election focus here?
BRIAN LEVITT: Yeah, I mean, Jared, over the next couple years, I see more tailwinds to the market. I think what investors are focused on with regards to headwinds in the near term is, do we have a contested election, and how long will that play out? And how long is there uncertainty around what type of fiscal policy we may get?
I don't want to sugar coat it. If we don't know the outcome for the election and there's prolonged policy uncertainty, you may see some volatility and drawdowns in markets. But again, does that change the direction of the economy over the next couple of years, and does that change monetary policy? I would suggest that it doesn't.
And so, you know, I would actually argue that there, in the short term, you may see some headwinds over the next couple of years. I think a new business and market cycle have emerged. It doesn't mean it doesn't happen with some fits and starts along the way. But I expect it to play out over multiple years.
SEANA SMITH: Hey, Brian, so what's going to lead us higher here? If you're looking to invest right now, is it going to be the same stocks that have been working? Is it going to be some of these big tech names that are now under increasing scrutiny here down in Washington over the last couple of weeks?
Is it going to be the work-from-home names? Or are we eventually going to see this rotation into those more cyclical sectors that we have been waiting for, for some time?
BRIAN LEVITT: Well, I'd answer that over a couple of different time horizons. I would expect into 2021 and beyond that you'll see an economic recovery play out. And there's a lot of economically sensitive parts of the market that are trading at very attractive valuations.
So I wouldn't be surprised to see some shift over the short-- maybe, you know, one to two-year period for the more recovery parts of the market to do well. But I don't think investors should forget about those big growth winners. It really comes down to, over the long term, who's disrupting versus who's being disrupted.
And what I would expect to happen is a recovery to give way to a slow expansion. And in a slow expansion, which could play out over multiple years, you would expect the companies that can generate true earnings growth in a slow growth world to be the outperformer.
So in the near-term, better economic activity at least, you know, into 2021, rates up, more economically sensitive parts of the market. But that will give way to a weak expansion, relatively low rates, and growth stocks rising to the fore again.
SEANA SMITH: Brian, we've had a couple of weeks. We mentioned the stimulus talks, election. We've also got earnings starting to kick off. We're going to hear from a lot of the big banks starting next week. And it's interesting what we've seen for the third quarter. We've seen Wall Street raise estimates. So the bar is a little bit higher for this quarter. What are your expectations going into it?
BRIAN LEVITT: Yeah, the bar is a little bit higher. And we've seen-- you know, we saw gradual improvements in economic activity and maybe a little bit of a plateauing and rolling over. But I would think, as usual, most businesses will surpass expectations. And I think, you know, the market has largely priced in a good amount of that.
You know, again, it's going forward, what does the state of this recovery look like? How can we keep-- how can we get cases under control? How can we increase human mobility? How can we safely reengage with the economy? That's what the market's going to be focusing on.
So I think the third quarter will be fine. It's more about thinking about, as we go through the fourth quarter into the first quarter, how successful are we at navigating which looks like a little bit of a spike in cases, some slowdown in human mobility? How do we get that under control? And how do we begin to safely reengage with the economy again?
SEANA SMITH: All right, Brian Levitt, always great to have you on this show with Invesco. We'll talk to you soon.