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Markets volatile with economy, election in focus

Stephen Dover, EVP and Head of Equities for Franklin Templeton Investments, joins Yahoo Finance's The First Trade with Alexis Chrisotoforous and Brian Sozzi to discuss what's moving the markets on Tuesday morning.

Video Transcript

BRIAN SOZZI: All right, let's stay on the markets here and bring in Stephen Dover, Head of Equities at Franklin Templeton. Stephen, good to see you this morning. So the debate, it is going to come up very quickly tonight. What will you be watching for from an investment standpoint?

STEPHEN DOVER: Well, I think from an investment point of view, typically debates do not really change market or the election results very much. But these debates are important, of course, because we have candidates who have very, very different views. And I think it's kind of an interesting time to be in a debate, and also some information about taxes, because I think one of the things investors should be looking about, especially if there's a blue wave, is some changes in their personal taxes that will affect how they might invest. That's particularly capital gains tax changes and estate tax changes.

ALEXIS CHRISTOFOROUS: Stephen, what do you believe is the biggest risk to this market at the moment? Is it that second wave, which some may argue we're already in regarding the virus? Is it no stimulus? Is it a volatile election? And to your mind, what's the number one risk?

STEPHEN DOVER: The number one risk is absolutely that the unknown is that we don't know what's going to happen with COVID and there might be a second wave. That's a force of nature that we just don't know. The lack of stimulus, a lack of an outcome of the election, those are more man-made, if you will, and risks that we can adjust for in our portfolios.

BRIAN SOZZI: Stephen, a lot of strategists we talked to on the Street are already starting to look beyond the election and think about investments and putting money to work in the front part of 2021. What do you see as some of the key trends, outside of COVID, to kick off the new year?

STEPHEN DOVER: Well, I think in the short term, there will be volatility around the election, of course. Today, there'll be tremendous interest in this debate tonight, although I would argue that it probably won't be defining one way or the other. It does look likely that there'll be a blue wave, and so that sets up a lot of opportunities for investors and also some things that they should be looking at.

There'll be increases in green infrastructure spending and probably infrastructure spending, regardless of which side wins. Technology sector, kind of surprisingly, I think will win either way with infrastructure spending because it's not necessarily just building roads and bridges, but actually the underlying infrastructure includes a lot of technology. I think you have to look for areas that will be hurt if one side or the other wins, energy obviously being one of those areas, health care being another.

ALEXIS CHRISTOFOROUS: Stephen, I'd love to get your thoughts on the commercial real estate market, which you say is in crisis right now. There's a very good story in "The Wall Street Journal" this morning about how few people are returning to their glass towers and their offices in Manhattan. And we're seeing that happen across the country in major cities. Is this something that we should be paying more attention to, defaults that are going to start-- that are going to start piling up in the commercial real estate industry?

STEPHEN DOVER: Yeah, I'm less worried about defaults than I am just about a huge change in our society. What's happened with the COVID crisis is trends that might have taken five or 10 years have now been pushed forward into this last year, working from home being the obvious one. It's unlikely that we will go back to the same way that we were before. Obviously, people will want to go back to offices for all sorts of reasons.

But maybe people go back to offices for a couple days a week, rather than all-- all the time like they do now. So I think those trends are what we have to look for in commercial real estate. It particularly hurts those big cities where there was a huge concentration of people moving there for jobs, New York, probably Chicago, certainly San Francisco, where people probably will increasingly look to work outside. That said, if we look at countries where the COVID virus has relaxed, like China, you find that people have pretty much returned back to their normal lives.

BRIAN SOZZI: But Stephen, don't some of those trends unwind once we get a vaccine? Look, we'll no longer be broadcasting from our homes. We'll be back in the studio. Perhaps if we bought a home out in the country somewhere and we move back to the city, how does it impact how you think about putting money to work?

STEPHEN DOVER: I think there will be a hybrid between where we are now in COVID and perhaps where we were before. Yes, people will go back to their offices, but perhaps not for five days a week, perhaps for a couple days a week. So what this does is accelerate trends that we had seen before. And it's definitely positive for the technology sector.

And I think it's probably will just change the consumer and what the consumer buys. But like I mentioned, if you look at places where they don't have a vaccine, but people have gone back to work, just sort of something interesting, restaurants are at about 120% of capacity in China now compared to where they were before. That's because there's such a pent-up demand to go back to restaurants. So if you do think that we'll have a vaccine and we'll go back to normal, then certainly those very beaten-down stocks, whether it's cruises, or the entertainment industry, or restaurants, those would likely bounce back very strongly.

BRIAN SOZZI: All right, we'll leave it there. Stephen Dover, Head of Equities at Franklin Templeton. Good to see you.

STEPHEN DOVER: Good to see you. Thank you very much.