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Markets volatile as jobless claims surge to 6.6M amid coronavirus

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Paul Schatz, Heritage Capital President, joins Yahoo Finance’s Editor-in-Chief Andy Serwer, Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss the latest market action.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, I want to welcome Paul Schatz, president of Heritage Capital, back to the show. We've also got our editor-in-chief, Andy Serwer, along with Brian Sozzi and Jared Blikre. A full slate of minds here to help dissect what's happening in the markets right now. We've got the Dow off, guys, about 120 points right now and continuing to fall lower. Paul, what do you make of these latest jobless claims numbers, and how bad is this going to get?

PAUL SCHATZ: Well, the jobless claims numbers, I can't-- I don't believe anybody is totally shocked by how bad they are, and we all know they're going to get a little bit worse as states continue to struggle with more and more claims. And, look, the sheltering in place has been a moving target all over the country, so until you get everybody in place with the worst of the worst filing, you know, the numbers are going to be amazingly volatile. They're going to be as dark as they've ever been, but the key is-- I always say this when times are bad-- forgetting about the human toll, don't look at what the news is so much. Look at how the markets react to the news.

I fully expect-- I've been saying this here for a month. When the markets make their final bottom from where we really go up, whatever number that is-- when the markets make their final low, it's going to be with the darkest of dark news. Bear markets end with really bad news. They don't end with glimmers of hope just like bull markets don't end with bad news.

Bull markets end when you go, holy jeez, it can't get any better than this. So I'm looking for-- as we continue to probe, and retest, perhaps break the lows of March 23, I'm looking to see which stocks and which sectors are resisting the selling. That, to me, is going to tell me where the next leadership group is going to be.

BRIAN SOZZI: Paul, point well taken on the data. And to your point, look, the market has reversed here. We had seen some strength in the pre-market. Markets reversed on those very bad initial jobless claims added. So do you think we retest those march lows within the first two weeks of this month?

PAUL SCHATZ: I-- wow. I like how you give me the first two weeks of the month. I love that.

BRIAN SOZZI: It's all about timing, baby.

PAUL SCHATZ: They always say give them either a price or a time but not price and time. I think we're going to have another selling wave in the first half of April, so whether that's-- so we could fully retest a little higher, a little lower than the lows we saw in March. I think if we're going to break them and unravel, it's going to take a little bit more time, but I won't be surprised.

So if the S&P is under 2,000, which would be a pretty good-- what-- 20% move from here down, will I be totally shocked and under my desk in the fetal position? No. I think given how-- and I keep looking at my screen. Now the VIX is 57. It's a far cry from 85. VIX being the volatility index. So I would imagine on the next selling wave, the VIX won't go above 85 where it was a couple of weeks ago. That will be a positive. You won't have new lows spiking higher than it was.

I think on the next selling wave fewer stocks will make new lows. Fewer sectors will make new lows. The selling won't be as indiscriminate and across the board. There'll be a few more silver linings in the clouds. But we're in this amazingly volatile period, and from every amazingly volatile period comes opportunity.

ALEXIS CHRISTOFOROUS: Hey, Andy Serwer, want to get you in here, and I want to go back to the jobless claims and the stimulus the government is going to be pushing out. Those checks to Americans should be arriving in the next couple of weeks. And I'm wondering if they're really going to have the intended consequences that the government was hoping for, which would be to get people spending and help boost the economy, because the last time we saw the government handout checks, they weren't as much, but it was back in 2008 during the financial crisis. And it seems like a lot of people held on to those checks or they went toward paying down debt. What do you make of what's going to happen when those checks actually hit Americans?

ANDY SERWER: Yeah, I mean, that's a good question, Alexis. And no one really knows, and you're right. That fear out there might make people want to hold onto those checks. But just to dig into the numbers a little bit too for a second, I mean, isn't it ironic or interesting that we actually doubled last week? We went from 3.3 million to 6.6 million. And if you think about a growth rate, it sort of matches, you know, the way we're looking at growth rates of the coronavirus itself.

And I think that, you know, to Paul's point, it's still may be under reported because states are having trouble actually processing the number of claims, number one. And number two, more employees are eligible, more gig economy employees are eligible. Another point to make here is what does this mean for the actual unemployment rate, which we're going to hear about tomorrow? We know that the march rate will not include a lot of this damage because it won't be taken into account.

But I saw one and analysis that for every 1.5 million jobless claims, it's a full percentage point of the unemployment rate. And so, you know, that could take us up a little bit already from the 3.5% level record low that we've got right now. And you think how high could it go? I mean, you remember 10.8% back in 1982, so we're definitely going to be going up from there.

And you're right. You know, how much are these checks going to help? You know, I've talked to some people, and they said that's just not enough money, and, you know, there's a limit to how much money the federal government can hand out. And we haven't hit it yet, but I think they're going to have to dig deeper.

ALEXIS CHRISTOFOROUS: You know, I was taking a deeper look into these numbers myself, and I saw that layoff spanned a range of industries. We keep talking about the restaurant industry, hospitality industry getting hit hard but also health care, social assistance, construction, that makes sense, and, of course, manufacturing. We got that dismal PMI manufacturing number earlier this week. So right now, Paul Schatz, when you look at opportunities in this market, when you're talking to clients who say, I have a little money that I want to put to work, or I want to move things around here in the portfolio, how are you guiding them?

PAUL SCHATZ: So that's one of the things that worried me early on in the decline. As we-- as the decline unfolded, more and more people kept wanting to put more and more money in, and that doesn't build the proper wall of worry and fear that you normally see at a low. But in all my client communications I have said, if-- capital I-F-- if you can afford to take on more risk, I share what I do. And each successive panic day, I've added some more risk in the last couple of weeks. I'm going to continue to do that.

You know, I said within crisis comes opportunity. We rolled out what I call my survivors portfolio, portfolio-- a [INAUDIBLE] portfolio of stocks that I think will make it through this and the other side. If clients can afford the risk, I think into the next panic-- we're going to have several more, I believe-- you can-- if you want to buy some stocks, find stocks that are going to survive. If you like mutual funds-- clearly, people have their own favorite mutual funds. But I think if clients are really uneasy, if investors don't feel right, and they are in a panic mode, you'll have an opportunity during a bounce to reduce your risk.

But for me, I think, a year from now stocks will be 25% to 30% higher. I think you'll see new highs by the end of 2021, and I-- you'll laugh, but I think you could see a Dow of 40,000 by 2023, 2024. So we're going to get through this. There's a ton of opportunities.

A number-- so I said this the other day. Is the government going to save a Dave and Busters? I like the place, but probably not. They have to make it on their own. Are they going to-- is Boeing going out of business? I don't think so. Chapter 11 is there for companies to reorganize.

It's not an all or none, so we should all stop talking about how we should save every airline. No, we shouldn't. Some should go to Chapter 11, and reorganize, and come back out healthier, but let's not reward everyone's bad behavior. Let's help people who had good behavior, and this is through no fault of their own.

ALEXIS CHRISTOFOROUS: All right, Paul Schatz, we're going to leave it there. Always good to hear your thoughts, Paul Schatz from Heritage Capital. And our thanks to Andy Serwer, our editor-in-chief, as well.