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Recovery Effort is 'Far From Complete': Fed's Powell

Dan Eye, Fort Pitt Capital Group head of asset allocation & equity research joins Yahoo Finance's On The Move to discuss Fed Chair Jerome Powell's on the necessity for more economic help.

Video Transcript

- And what we've heard from the chair is that you, at least, when he talked about the recovery being stronger than what had been expected, you still have a bullish thesis because of the massive monetary stimulus. But what about this fact that the chair is calling for Congress for more fiscal stimulus, Dan?

DAN EYE: Yeah, good question, Adam. And thanks for having me. It's nice to be with you. So it's nothing new from the chairman. We've seen multiple calls for more fiscal stimulus from Chairman Powell. It looks like both sides in Congress are starting to get a bit closer to a fiscal stimulus deal, but still a ways away in terms of the size and the scope.

So we'll certainly see what happens there, but we've been pleased with the strength of the economic rebound and recovery. So we think when the market looks at the situation, they look at the fiscal stimulus package as something that we'll get eventually, whether it's before or after the elections. But we do think that the expectations are that something happens there eventually.

- Hey, Dan, it's Julie here. It's good to see you. So as we look at the sort of back and forth on fiscal stimulus, as we look at the coronavirus numbers, as we look at the economic data, which, as you said, has been relatively strong, although certainly the job gains seem to have stalled out, to some extent, recently, does any of that matter as much, on that side of the ledger, as monetary stimulus does on the other side? In other words, can the market go down very much while the Fed is still doing what it's doing?

DAN EYE: That's a good question. And we heard in their September meeting that the Fed is going to be extremely accommodative, with plans to keep interest rates at or near zero through 2023, and even through full employment. We don't know exactly what the definition of their full employment structure is, but extremely accommodative. And it really does constrain other investment opportunities outside of the equity markets.

We're looking at a 10-year treasury yield at 80 basis points. You know, it's not very difficult to find very high-quality dividend-paying stocks that pay investors, you know, 3% or 4% yields. You know, we haven't seen that type of divergence in a very long time. So you know, they both work together, but on the economic front, we've been really encouraged by what we've seen on the jobs front. We've added back more than 50% of the jobs that we lost in March and April. You know, the housing market is on fire. On the corporate front, earnings growth-- earnings results have been really resilient, which has been encouraging. So the two definitely go hand-in-hand.

BRIAN CHEUNG: Dan, it's Brian Cheung here. I want to ask about volatility. Not just the VIX, but broadly speaking, do you feel like the volatility has kind of come down? Because it seems like that's what the Fed's mission is here, committing to keeping rates near zero and doing whatever it takes over at least the next three years or so. So have they succeeded in reducing market volatility, or do you think that it's just other types of news headlines that have now entered the chat here, in terms of keeping everyone on their toes?

DAN EYE: That's a really good question, Brian. And we've seen-- you know, obviously volatility levels have come down from historic highs back in March, but you know, the VIX is still trading at around 28. That's significantly higher than long-term historical averages. So we think a lot of that probably has to do with some of the uncertainties that we expect around, you know, the November elections.

Do we see, you know, a contested election cycle, where the results are really, you know, extended over weeks and months. So we think that's probably a contributor why the-- we've seen such a powerful rally in the equity markets, but the volatility hasn't crept down to, you know, below historical averages. And it is still fairly elevated.

- Dan, I wanted to ask you about some individual stocks that you like here, as well. Bristol-Myers is one of them, of course the company announcing yesterday it was going to buy MyoKardia for about $13 billion. And it's interesting because there's been sort of a pile-in to segments of the pharmaceutical space, but it's been more on the sort of biotech, higher beta names. Why-- what's bringing you to Bristol-Myers?

DAN EYE: Yeah, so we think that Bristol-Myers has really just a leading oncology and cardiovascular portfolio. We think that that was really strengthened through their merger with Celgene, which closed late last year. And I think valuation is really a key component for us, as well. It's one of the cheapest stocks in our portfolio. It trades at eight times earnings estimates for next year.

And given that low valuation, you know, you would tend to think there's some structural issues with the company. Certainly not the case with Bristol-Myers. Earnings are expected to grow by about 30% this year and almost 20% next year. The stock also pays investors a really attractive 3% dividend yield. So we just really like that attractive combination of value, growth, and income from the stock.

- One of the stocks you also like is Ciena Corp. And you know, they're a little bit more expensive, trading at roughly 13 times earnings. But what is it that you like about this, especially as the world goes 5G?

DAN EYE: Yeah, very good question. So Ciena really supplies the platform and the architecture that supports internet traffic, and also telecom infrastructure. Some of their clients include large service providers, the web scalers and the cloud players. And we do think that they're really well positioned for those long-term connectivity trends, not only the rollout of 5G, but the growing demand for bandwidth growth, network densification, and just a greater connectivity of the data centers around the country and around the world.

The stock-- or the company gave some weak earnings guidance on their last call. It sent the stock down about 35% from those August highs. So it now trades at about a 50% discount to the technology industry. You know, we think this is a company that can grow their earnings at 15% to 20% over the intermediate term. So we've used that weakness to add a position in Ciena Corp.