Yahoo Finance’s Alexis Christoforous and Brian Levitt, Invesco Global Market Strategist discuss the latest market moves.
ALEXIS CHRISTOFOROUS: I want to stick with the markets now and bring in Brian Levitt, Global Market Strategist at Invesco. Brian, good to see you again. I want to talk about this market action we've been seeing over the past week or so. Would you say this is just a healthy pause after what we saw was a pretty vigorous post-election rally?
BRIAN LEVITT: Yeah, it's a pause as market participants attempt to assess this-- this bit of a tug-of-war that's going on between some optimism around the vaccine and obvious concerns about rising COVID cases and a potential for further restrictions on the US economy, and then, quite frankly, on the global economy. And I think the way investors should think about it is there-- there's likely to be some disappointment in the near term. I mean, things are getting a bit worse relative to expectations, and, you know, that's when you start to see some downward pressure on markets. But for, you know, investors thinking beyond a few weeks or even a few months, we should be focusing on what is likely to be a economic recovery as we progress in 2021 and beyond.
ALEXIS CHRISTOFOROUS: When you look at 2021 and beyond, where are you seeing some of those opportunities? What is sort of the recovery trade as the economy strengthens in the months ahead?
BRIAN LEVITT: Yeah, recovery trade would be classic. I mean, we're coming from depressed levels, so you would expect interest rates up and the yield curve to steepen. You would expect some pressure on the US dollar, which helps the commodities patch. And then equities over-- over bonds, credit over treasuries. And within the equity market, it's the cyclicals over the defensives.
It's smaller and mid-cap over larger-cap. And it's, dare we say, even the more value-oriented parts of the market. It's a classic recovery trade. Now, obviously, it's going to play out with some fits and starts as we're dealing with some of the uncertainty that we're living in right now. But if this [? uncovery ?] takes hold, as most of us suspect it will, then that type of recovery trade would play out.
ALEXIS CHRISTOFOROUS: What do you make of the US Treasury this week coming out and saying it's going to let some of those emergency facility programs from the Federal Reserve expire December 31? I mean, we saw the Fed do something it really hasn't done much of, which is make a statement objecting to that. They sort of wanted those programs there as a backstop. If they do indeed expire and nothing's there to take their place, what's going to happen to the economy?
BRIAN LEVITT: Yeah, so it's not helpful to tighten financial conditions during a weak economic recovery. And so I don't-- it wasn't necessarily the right approach. The good news is if you're watching markets today, we saw the Treasury market rally a bit, but we have not seen financial conditions tightened meaningfully. We've not seen the dollar rally significantly. So the markets are taking it in stride.
The reality is, some of these facilities were there as, you know, in sort of Hank Paulson's term, you have a bazooka so you don't have to use it. They were there. There wasn't a huge uptake on it. And so they're returning that money perhaps to-- to fund other parts within a fiscal deal.
The Federal Reserve's not going to run out of ammunition here. The good news is is if you look at the municipal bond market or you look at the corporate market, there's a lot of investors that have insatiable demand for income that are back involved in these markets and expecting an economic recovery. If you were to need additional support, I am very comfortable believing that the Federal Reserve will come up with additional ways to provide support to the markets.
ALEXIS CHRISTOFOROUS: We saw this week unemployment claims rising for the first time in five weeks. I know one week doesn't make a trend, but are you concerned at all that the labor market is going to lose steam and then that will start to cascade into a loss in confidence, consumers might not be as freely to spend in the coming weeks? Are you concerned about that?
BRIAN LEVITT: Well, let's first stick with the optimism. We've come a long way. You know, jobless claims have come down meaningfully week by week, and the number of unemployed has come down. So positive signs, but we've got a long way to go. And quite frankly, there's 6 and 1/2 million jobs open in this country. Now, there may be some skills mismatch that prevents those jobs from being filled. So there is some optimism to look at.
Now, of course, we're dealing with more uncertainty here. We're dealing with greater restrictions. We're likely to see the economy slow. We're likely to see jobless claims pick up. We're probably going to need more fiscal support to bridge us through this.
But let's not lose sight of the optimism. Remember what we woke up to on Monday-- I think it was Monday. It's hard to even remember at this point-- with the news from Pfizer, the news from Moderna, the news from AstraZeneca, 95% effective on vaccines, emergency approval pending. And so, you know, there's-- there's things to look to to suspect that we will see a better environment, and we will stage an economic recovery and a jobs recovery. Unfortunately, what we're dealing with right now is-- is this period of uncertainty until we get there.
ALEXIS CHRISTOFOROUS: Sticking with that optimistic outlook, you are out with 10 reasons for investors to be grateful this Thanksgiving, and, of course, the vaccine news among them. But you also listed shipping, the shipping side of the US economy strengthening as being something we should be grateful for.
BRIAN LEVITT: Yeah, absolutely. I mean, we've seen the goods sector do quite well. We've seen shipping up pretty significantly. We've seen the trucking industry doing very well, rail car. I mean, it's the-- this part of the market has been doing very well in this type of an environment because there's a need to get goods to where people are.
And we're not traveling as frequently. We're not congregating. And we're-- so the-- you know, I see the-- speaking of shipping, I see the Amazon truck here just about every day, unfortunately. So that part of the market-- that part of the economy is doing very well.
As you talked about earlier, the at-home part of the economy is doing well. We're-- you know, we need to see the re-opening trade-- or the reopening parts of the economy perform better. And we'll ultimately get there.
I'd also point to, you know, look at what's going on with Chinese economic activity. And if you don't believe the numbers, take a look at Japanese exports. I mean, it's-- that's a V-shaped recovery. And so it's proof that if you can compress cases, change human behavior, get some medical or scientific breakthrough, you will stage a recovery. And that should be investors' expectations into 2021.
ALEXIS CHRISTOFOROUS: We'll leave it on that optimistic note. Brian Levitt, Global Market Strategist at Invesco, thank you, and have a good holiday.
BRIAN LEVITT: Thank you. My pleasure. You, too.