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‘Not every day is going to be a rally' between now and when vaccine gets distributed: Strategist

Invesco Chief Global Market Strategist Kristina Hooper joins Yahoo Finance's Kristin Myers to break down how the markets are reacting to Pfizer's positive COVID-19 vaccine news.

Video Transcript

KRISTIN MYERS: So we're joined now by Kristina Hooper, Invesco Chief Global Market Strategist. And, Kristina, as we see the market soar today, you had mentioned something in your note that I want to really pick up on, which is that the market might be getting too far ahead of itself. It seems that the markets have routinely done this throughout the last couple of months, really hanging on to any piece of good news that it ever got and really riding with that. Do you think that that might happen here? And if so, do you think that we might be setting ourselves up for a pretty big pullback, like the one that we saw not too long ago?

KRISTINA HOOPER: Well, I do worry that the market is getting ahead of itself, but not in a way that sets it up for any kind of dramatic pullback. I just want to recognize that we can't have the stock market go up day after day based on this particular news flow. Yes, it is great to hear this announcement about the development of a vaccine that seems to be so effective. But as Jared explained, there are a lot of steps between here and when it is broadly distributed. And there are going to be down days where we hear some disappointing news.

There are likely to be some delays in getting it out, or there could be some bad test results. There's a lot that can happen between now and FDA approval and broad distribution. So we just need to recognize that. But it is certainly understandable that we would have a rally on a day like today. We just have to recognize that it's-- not every day is gonna be a rally between now and when this is distributed.

KRISTIN MYERS: So picking up on something that Jared had said, because he wasn't too bullish about vaccine stocks in particular, what do you think is going to be happening more broadly to the health care sector going forward? Is this a sector or an industry that you think folks should really start to pile into? Or is it something that everyone should be taking more of a wait and see approach?

KRISTINA HOOPER: Well, I think that it makes sense to have some exposure to health care, certainly. but we have to recognize that what we often expect to have happen, especially under a particular administration, doesn't necessarily happen. For example, there was a lot of concern about health care and the viability of parts of the health care sector heading into the Obama administration, but health care was one of the three best-performing sectors in the S&P 500 for several years during the Obama administration. Similarly, we saw a lot of excitement around energy as President Trump was coming into office, and yet energy has been the worst-performing sector in the S&P 500 over the last several years. So we just have to take everything with a grain of salt and recognize that what we might expect to happen may not happen. But there's certainly a lot of longer-term secular trends that suggest health care is an attractive place to be, including, of course, demographics.

KRISTIN MYERS: So keeping that piece going just a little bit, you know, today we were seeing travel stocks really starting to rise on this news of the vaccine. But on the flip side, we're seeing some of those stay-at-home plays, the Zooms, the Amazons, for example, really not doing too well and taking a hit. Do you think that with this news that there's going to be some sectors-- and I know you had just mentioned after the elections what sectors have done well or didn't do well in the long run-- do you think that there are some sectors going forward on this vaccine news that are going to continue to outperform the market more broadly and if, on the flip side, you see some sectors really setting themselves up or being set up, for example, to really underperform?

KRISTINA HOOPER: Well, I'm not sure. And let me give the caveat that we have seen this pattern before. On days when we get positive news flow around developments of a vaccine or therapies or we get strong economic data that suggests the recovery is more robust, typically we see the cyclical names, some of the key themes that are associated with a return to a normal economy, perform well. And that, of course, is at the expense of those more defensives, the secular growth names, and, of course, those key themes that have been so closely associated with the pandemic, like the stay-at-home theme.

What is likely to happen going forward is what we've seen in the past. There will be days when the news flow is positive around the vaccine, around a more robust economic recovery. And those are days when we'll see the cyclical side outperform and vice versa. But-- and there could be more days where we see the cyclical side outperform going forward, because we do see that proverbial light at the end of the tunnel.

But let me argue that many of the names that are associated with that work-from-home theme, there are a lot of driving forces behind them that have nothing to do with the pandemic. This-- what we've seen over the last six or so months is an acceleration of trends that were already in place before the pandemic and, I would argue, will remain after the pandemic. So I wouldn't give up on those by a long shot.

KRISTIN MYERS: Kristina, before I let you go, I, of course, have to ask what you're thinking is going to be happening going forward with the economic recovery given this news, or do you think that this might be a little bit too early for us to start coming up with some ideas on what the economic recovery is going to look like with this vaccine as it is at this moment?

KRISTINA HOOPER: Well, I do think it's a bit premature. But it is exciting to think that, potentially, our upside scenario may come to fruition. I will stick with a base case, which is an assumption that we won't get a vaccine that's widely distributed until mid-2021 or the back half of 2021. But if, certainly, that timeline were to move up that would suggest, again, an earlier rotation and a sustained rotation into the more cyclical parts of the stock market, the smaller-cap parts of the stock market.

So it's a very exciting time. And keep in mind that no matter what scenario we see, no matter how robust the economic recovery is, we have the Fed standing behind us, and that is a really powerful force.

KRISTIN MYERS: All right. Well, we will have to leave that there. Kristina Hooper, Invesco Chief Global Market Strategist, thanks for joining us today.

KRISTINA HOOPER: Thank you.