We’re not convinced we need additional stimulus to maintain the economic momentum: Strategist

Wells Fargo Asset Management Multi-Asset Strategist Brian Jacobsen joins Yahoo Finance's Akiko Fujita to break down his market outlook amid more disappointing jobless claims data and the stimulus deal standstill in Congress.

Video Transcript

- Some positive economic data helping fuel the rebound we're seeing in the market today. The latest data on new home sales pointing to a 14-year high in August. But we also got those initial unemployment claims on the week. Last week, we saw the number actually rise 4,000 870,000 last week, pointing to potentially some stalled momentum in the labor market. Let's bring in Brian Jacobsen in. He is with Wells Fargo Asset Management. He's a multi-asset strategist there.

Brian, just give me a sense of what your read was on the weekly claims that we got today. I know we don't want to make too much of one week, but it does feel like we're starting to see a bit of a stalling here in the job market, especially because we haven't gotten any indication of additional stimulus coming from Congress.

- Well, yeah. You make a very good point there. It does look like some of the economic data may be pointing towards a bit of a labor market stall. And I think that's where investors need to really look at the whole picture about it's not just the labor market improvements, which maybe the pace of improvement is going to slow, but we're seeing the housing data pointing toward a housing market that is just on fire.

It seems like that's really charging ahead full steam. We also have very good data out on consumer confidence, and then also with business activity, especially the ISM manufacturing and non-manufacturing indexes. So yeah, the labor market, the jobless claim is a little bit worrying. But when you're looking at the mosaic of the information that's out there, to me, it does point to an economy that's continuing to plow ahead. But then the stimulus talks-- that can be really hit or miss depending upon the time of day, it seems like.

- How much of the momentum in the market do you think is contingent on getting that stimulus bill? It seems like the expectation is largely for some kind of bill to come forward after the election, and yet I have to wonder what you see in terms of what's actually already been priced in.

BRIAN JACOBSEN: Yeah. It's really tough to read that. We're monitoring the daily data and intraday data looking at what's going on with the headlines and then as far as what the market moves. It seems like the two really big items out there are about what's the probability of there being a vaccine sometime soon, meaning probably before the election or around the election, and then what's the probability of there being some sort of fiscal stimulus.

Now, I think that it is encouraging that despite a lot of the apparent dysfunction in Washington DC, that they were able to pass a stopgap funding bill to fund the government through December 11. So maybe they can walk and chew gum at the same time. And so maybe they can come to terms with fiscal stimulus. But for my team, we're not really banking on that idea, though. It would be a nice-to-have. And there would likely be a market move lower if it seems like the talks completely fall apart.

But when we're taking that longer-term view, we're not convinced that we necessarily need that additional stimulus to maintain that economic momentum. So it's more affecting the shift in sentiment that we're seeing on a daily basis as opposed to really affecting the fundamentals of the economy, which we think are continuing to improve and heal.

- And Brian, what does that mean from an investment standpoint for you? We had a guest on earlier who was talking about the rotation that's already begun outside of growth into value, and yet he said at the end of the day, he was still overweight tech. And so I'm curious where you're putting your money, whether you're shifting up your allocations just given some of those headlines that you just pointed to that are expected.

BRIAN JACOBSEN: Yeah. Well, as far as the way that we're positioning portfolios, we do have more of what we're referring to as a re-opening trade on, which is the expectation that economic growth is going to get more traction as we go on. And so that would tend to favor what your previous guest had talked about, more bias towards value as opposed to growth.

We don't like to think about it in terms of necessarily growth versus value because there can be value stocks that represent good growth opportunities and growth stocks that are good value opportunities. And so we like to think about it more in terms of cyclical versus the non-cyclical. And so the cyclical would be more like, say, industrial, financial, material, those types of sectors that you expect to do better if the economy is getting more traction.

And so those are the areas that we've begun to overweight, that and emerging markets, because emerging markets are almost like a cyclical play, but multiplied by 2 as far as how sensitive those stocks can be to an improved global economic outlook.

- Yeah. We have had a number of guests who've talked about the opportunities they see in EMs. What particular markets are you looking at, and how much of that opportunity and potential growth in emerging markets is contingent on where the dollar goes?

BRIAN JACOBSEN: Well, yeah, good point as far as the stronger US dollar does tend to make it more challenging to invest outside of the United States because you've got that little bit of a headwind coming at you from the currency moves. But we do think that within the emerging market complex-- if you break it up into three sections, you've basically got Asia, you've got South and Latin America, and then you have everything else, like Europe, Middle East, South Africa.

The areas that we actually like more are, say, in South America with Brazil. We think that that area has been beaten down. Their currency came under a lot of pressure. And so perhaps we could see a bit of a rebound there.

And then also in emerging Asia, even outside of China-- because if you're investing in emerging markets, it's hard to escape China as far as a large allocation. So we want to be a little bit more nuanced there, favoring some of the other areas, like, say, Indonesia and even India to a certain extent.

Now, one of the big challenges with emerging markets, of course, are all the political issues that can pop up. But I think that over the last couple of years, we've proven that even the developed markets, we can't escape those political issues.

- Yeah. It feels like you can't escape politics anywhere in the world today. Brian Jacobsen, good to talk to you. He's the multi-asset strategist at Wells Fargo Asset Management.