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‘You’re not going to have a similar recovery we saw in Q2’ without stimulus: Expert

Salt Financial President & Chief Operating Officer Alfred Eskandar joins Yahoo Finance’s Kristin Myers to break down the latest market action, as coronavirus cases continue to spike and hope fades on a second stimulus package.

Video Transcript

KRISTIN MYERS: But let's get to what we're seeing right now in the markets. We're joined now by Alfred Eskandar, Salt Financial president and chief operating officer. If I can talk today, Alfred, let's get to what we're seeing in the markets. So obviously, a lot of jitters yesterday, fading hopes of stimulus.

Of course, now the president is saying, we'll definitely get one if you elect him president after the election. We're seeing the surge in cases of coronavirus volatility likely around the election. How do you think investors are going to be reacting to all of these many headwinds over the next week or so?

ALFRED ESKANDAR: Well, yesterday was a huge reaction to COVID globally. You know, we were looking at early September. Markets were continuing to rally. You had records just across, you know, the major indices. And you saw volatility really staying calm.

What happened yesterday was COVID cases around the globe are picking up. And the fear of a second lockdown essentially halting all kind of recovery economically just scared the bejesus out of everybody. And the market sold off appropriately with the VIX, you know, hitting-- and I believe even today, it's still elevated over 30.

KRISTIN MYERS: So I want to ask you about something that you mentioned in your note, as I had mentioned a little bit earlier, right now, industrials leading the way lower, down over 1 and 1/2% right now. You're saying that a lot of the concern right now is over the recovery, correct? Not so much about the elections, which are, of course, just a week away.

ALFRED ESKANDAR: Yeah, I think, you know, again, in my humble opinion, if you think about the number of undecided voters, I think everyone's telling you that, you know, that really isn't going to be much of a factor. I think the Biden campaign has continued to do its job, and it's been fairly consistent.

And, you know, elections are decided state by state. So, you know, the national polls to us don't reflect really the probability of outcome. It's more about the state and how they're polling. And the Biden ticket has been very consistent for the last few months. So, you know, obviously, anything can happen.

But I believe the market already in September priced in a Biden win and, as a result, has kind of gotten comfortable with it. What you've got right now, though, is the stimulus package, which helped fuel the recovery early on, is nonexistent. And I think it's fair to say that it's not going to happen prior to the election.

So the market's looking past that. And it is, you know, discounting a non-contested election because of the consistency of Biden's lead. And you're seeing a lot of put-- call out-- put options, actually, heavier activity in puts than in calls, which is calling for a common market. But right now, it's choppy. It's really choppy.

KRISTIN MYERS: I want to ask you about coronavirus.

ALFRED ESKANDAR: Sure.

KRISTIN MYERS: Those cases are really starting to surge, starting to spike. We're seeing some cities go into lockdown, impose curfews. Now, of course, when we first had the pandemic fully hit, what, seven months ago now, of course, there was a huge drop in the markets. And then they went and soared.

Wondering if we are in the midst of a second wave. Not asking you necessarily if we are, but if we continue to see these case counts continue to rise, do you think the markets are going to start reacting negatively then? Or do you think that the party is just going to keep on going?

ALFRED ESKANDAR: I don't think so. I think what helped fuel the market recovery back in April and May was the stimulus package. You know, you cannot have an economy completely shut down and expect things to be normal without some assistance. And it's really unfortunate that it's become political theater right now with the stimulus package part two.

And, you know, there's a lot of folks that really need it. And we're going to have to get a package that's sizable. If you're going to see a second wave, you know, shutting down some cities and businesses, without the stimulus, you're not going to have a similar recovery as we saw in Q2.

KRISTIN MYERS: All right, I want to ask you now about earnings, tech specifically. Wondering what you're expecting this week. We have Microsoft reporting a little bit later today. I'm wondering specifically if you think that the bar has been raised on these tech companies.

I mean, so many people have been using them, have been buying them. You yourself have been on talking about tech and how you think they're going to continue to lead. Do you think that people are essentially expecting that these tech companies are going to have to come out and really crush earnings?

ALFRED ESKANDAR: I think it's more about guidance. You've seen companies really get punished, even if they beat earnings-- you know, they beat their earnings number. But then they guide lower, or they reduce their guidance for the following year. So it's really what they're going to say about their optimism and their business going forward for the next year. So regardless of how they deal in their earnings, it's all going to be about guidance.

KRISTIN MYERS: Do you think we're in the midst of a tech bubble right now? David Einhorn says that we are. A lot of people are talking about that. We've heard warning bells about this before. I wanted to ask you your thoughts.

ALFRED ESKANDAR: Well, I'm not going to argue with David. But you if you look at the S&P, obviously, it's up for the year because it's got nearly 27% weighting in tech. If you look at the equal weight S&P, it's actually negative for the year. So technology is not only popular with consumers, but with investors alike. And I am not smart enough to call a bubble, so I'm going to pass on that one, Kristin.

KRISTIN MYERS: [LAUGHS] One last one for you, Alfred. I know we're running a little bit out of time. And I want to ask you again about elections. And I know we've been hopping around just a little bit. But wondering how much you think markets right now are actually caring about elections, how much you think that they're going to care next week.

At first, we had this contested election as a baseline. That seems to really have faded over the last couple of weeks. But next week, right, if we do get a result on November 3rd, how do you think markets are going to be reacting then? I know you say that they've already priced in a Biden victory. But do you think that they're just going to shrug it off?

ALFRED ESKANDAR: I don't think so. I think regardless of Biden winning or a Trump surprise win, you're going to get a massive stimulus regardless. Last time I was on your show, I think that the bid ask between the Dems and the Republicans was $1.6 trillion in a package versus 2.2.

That spread has now moved to 1.9 versus 2.4. So bottom line is, the market is expecting a second stimulus package with a trillion-- you know, $2 trillion potentially, which is just massive. And unfortunately, I think it's also going to be needed.