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'Most investors are probably pretty content with some sort of mixed government': Jason Trennert

Jason Trennert, Strategas Securities LLC, Chairman and Chief Executive Officer joins Yahoo Finance's Kristin Myers to discuss the latest on the markets as Wall Street awaits election results.

Video Transcript

KRISTIN MYERS: All right. Well, let's go to Wall Street and their reactions. We're joined now by Jason Trennert, Chairman and CEO of Strategas Securities.

Jason, about a month ago in a note you said that the race was an even money proposition. And at the time, of course, polls had been saying something very differently, abundantly calling a Biden victory. And as we see it now, pretty much a dead even heat for the White House. What do you think Wall Street was getting so wrong about its calculation of this race?

JASON TRENNERT: Well, yes, it's a great question. I think what they were getting wrong was simply the polls were all in one direction. And so people were keying off of the polls. I think, you know, obviously we learned in 2016, and we actually called the race in 2016 for Donald Trump-- and we're wrong on plenty of things, trust me-- but, you know, this, for some reason, we saw it clearly that it's a 50-50 country and it's going to be awfully close. Donald Trump actually, obviously he lost the popular vote last time but actually picked up another two or three million votes, if I'm not mistaken, this time around.

And so part of what helps us is really just traveling around. We have clients in 45 states. So we, you know, we're, in a way, we're doing our own campaign. We're talking about obviously the financial markets and the economy. But it does tend to give us a good sense of what's happening.

This year, obviously, we're not doing the traveling but we're talking a lot to our clients. And I think that's one of the things we have made good use of, is just our contacts across the country.

KRISTIN MYERS: So Jason, speaking of your clients, you know, Deutsche Bank actually sent out the results of a flash poll that they had done a little bit earlier this morning, found that essentially Wall Street still counting on a Biden victory with the results due in by the end of the week. As you're speaking to clients and as you're seeing investors making some of their moves, do you think that they were baking in this, you know, quote, unquote, blue wave into some of their calculations that they were making in terms of their own positions and how they were going to be reading the market going forward?

JASON TRENNERT: It appears like it, if you look at the internals of the market today. And of course, they're bouncing around a lot. But if you look at some of the stocks that aren't, let's say, participating in the rally, they tend to be green energy stocks or they tend to be some of the infrastructure stocks. Because there was an expectation if there was a blue wave that obviously there'd be probably a lot more spending and certainly spending as far as a Green New Deal or things along those lines.

So I think internally, the market itself seemed to be pretty consistent with a blue wave. And I think that's, it sounds somewhat milquetoast to say this, but I think most investors are probably pretty content with some sort of mixed government. If you had a blue wave, you would get more stimulus, that would be the good thing. The defect in that scenario for the market would be that you'd probably have a lot more tax increases as well and you'd have tax increases at a period of time when the market's still rather fragile.

So this, in some ways, could be the best of both worlds. You get more stimulus but you don't get the tax increases and you don't get some of the regulatory oversight of, let's say, big tech or other very big parts of the market.

KRISTIN MYERS: Now Jason, we had been talking for quite some time about election uncertainty. And that, of course, will eventually subside. Not for the next couple of days, but it eventually will calm down. But once we do see that election based volatility go away, we still, of course, have so many headwinds, so many questions and risks to the markets right now. How much churn do you think is due in for the markets up ahead, even once we get over this hump of the election?

JASON TRENNERT: I think that's a great point. Because I wouldn't-- I mean, of course it feels better to get something that's stressful over with. By the same token, there are other stresses. We're still in the middle of a pandemic. And I feel quite strongly, we feel quite strongly at our shop that another fiscal stimulus deal is not in the nice to have category, it's in the must have category. Because about 35% of the economy is still largely shut down.

And so unless you get rid of the lockdowns completely, you're going to need a lot more fiscal stimulus. And even then, you would probably need more. And that, to me, is the bigger question is, how big is that stimulus package? And when is it actually passed? And that's why some of the controversies around some of these states, it can have a big impact on when that bill is actually passed. So if you have a series of weeks of court battles, it's going to be very difficult to get anything passed in Congress. And to me, that could be the down, that could be the downside. It's not my base case but it's certainly a risk.

KRISTIN MYERS: And Jason, before I let you go, I do want to ask you about the tech sector. That sector rallying today, up over 4% right now. I'd highlighted some companies at the top of the show that were doing well. Facebook, for example, up over 8% right now. Now one economist was saying that investors were essentially running for tech because they perceive tech to be the likely winners going forward. Are you seeing it the same way in the long run? That whole sector had been underperforming over the month of October.

JASON TRENNERT: Yeah, I think, I don't know if it's a complete green light, mainly because of valuation. But certainly, the regulatory headwinds, I think if, in a Biden presidency, I think it's safe to assume that they would be less than they would if President Trump were to be re-elected. I think it's quite clear. The president had an animus towards some of those companies. I think some of the reasons are somewhat justified. But there would definitely be a problem. I think it would be a problem, a regulatory problem for those companies.

The only issue I have with those companies as an investor is just that if you take a look at the MAGA plus Facebook, you're looking, those five stocks are about 23%, 24% of the S&P 500, the entire index. So five stocks were making up about a quarter of the index. And that, if you're a passive investor, that's a problem. Because the main reason why you're investing in an index is to diversify your risk, and yet you tend to have a very strong concentration in these very, very large, large cap technology companies.

So again, it's good for them, because there's a paucity of growth. And those companies give you growth. You're not going to get the regulatory oversight, probably, that you had before. But there are other longer term issues, I would argue, from a valuation perspective.