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'Relief in terms of the election' has pushed the market higher: Strategist

John Stoltzfus, Oppenheimer Chief Investment Strategist, joined Yahoo Finance Live to discuss what is driving the market higher and his outlook for the market as more developments are made towards a COVID-19 vaccine.

Video Transcript

MYLES UDLAND: Let's turn our attention now back to financial markets and everything going on there in the wake of the election, and of course, as we see a rise in COVID cases. For more on that, we're joined by John Stoltzfus. He is the Chief Investment Strategist over at Oppenheimer Asset Management. And John, it's great to speak with you once again. Let's start with--

JOHN STOLTZFUS: Great, thank you for having me.

MYLES UDLAND: How you think about this rally we've really seen for the last couple of weeks, which obviously the news from Pfizer Monday morning is very positive, but if you take it in context with the election week rally, it almost looks like a blow off top here in that excitement we saw coming into the month of November. So how have you been talking through the recent market action with clients?

JOHN STOLTZFUS: Well, I tell you, Myles, we take a look at it and see that it really is a multiplicity of factors that have risen, that have caused the market to rise the way it has. It's a combination. There's a certain amount of relief in terms of the election where we believe we really do have a distinct winner in terms of the election and even a description-- even a definition of how the vote came out. Where it turned out that what caused Biden to win was likely, many people were just voting against Trump, but related to the progressives, a vote against the progressives, and towards centrist view for the Biden administration.

So we think that was positive. The market like that, the Fed continues magnanimous in its support. Q3 earnings have come in remarkably better than was originally expected. GDP has come in better than expected. Manufacturers, ISM Manufacturing last week came in better than expected. This morning's initial, I'm sorry, this morning's initial jobless claims that I saw that came across earlier looked better than expected. When we look at it, we we've got to say, you've got a lot of positives here, even as uncertainty looms.

You've got January 8, you've got what's going to happen in terms of, or January 5, I'm sorry, what's going to happen in terms of the runoffs, and of course, December 8 is bearing down upon us. You know, will President Trump call the moving vans and leave the White House? We think that's likely to be resolved in the next few days. We think that that gets clear, the latter one, and we think the, hopefully, we think the market is hopeful that the Senate will remain in control of the, of the Republicans, limiting progressive advances here.

JULIE HYMAN: John, it's Julie here. It's good to talk to you.

JOHN STOLTZFUS: [INAUDIBLE], Julie.

JULIE HYMAN: With all of that to consider, I was struck this morning by a few tweets from David Chang, a restaurateur, where he highlighted the plight of restaurants right now, and we know there are a lot of small businesses like restaurants in particular that are still struggling right now. Market participants don't seem concerned. The economic data doesn't really seem to be reflecting it. Is that, though, a longer term, underlying problem that at some point is something that the larger economy and markets are going to be affected by?

JOHN STOLTZFUS: Julie, I think that's a terrific, terrific question to bring into the mix here. I do think at near term, it is, it would appear to us to be a serious situation for restaurateurs that has been recognized since the pandemic really took hold, but is now aggravated after a summer, which gave some hope to recovery as moving forward. The good news is the vaccines. That's another thing that has buoyed the market that I failed to mention. And with that, the [INAUDIBLE], the proc-- the process of the vaccines. We believe that in the first quarter of next year, even though many people now still say, I'm not taking that, I'm not going to try it. They will be so fed up with the semi-lockdowns, the worry, the masks and everything, that they're going to line up for the vaccine.

So we think there's hope for the restaurants. Near term, we're going to lose more of them, likely. The good news is that one of the most entrepreneurial areas of the economy are restaurants. Restaurateurs face the roughest hurdle in terms of making it and gaining some kind of traction when they open up a restaurant and to maintain that is very difficult. So that's a very hardy group of individuals. Interest rates are low, so financing to come back or financing to come back and merge situations likely, because at the end of the day, people got to eat, and they love to get together in restaurants, especially in the big cities. So we have great hopes for the restaurants, even though we acknowledge right now this area of leisure and just daily activity is under severe pressure.

BRIAN SOZZI: John, a COVID-19 advisor to President Elect Joe Biden, Dr. Michael Osterholm, telling Yahoo Finance he's open to a four to six week lockdown. So let me ask you this, if we do get a four to six week national lockdown, does that [? poor trend ?] a [? bare ?] market in stocks, and what is fair value to the S&P 500 in that scenario?

JOHN STOLTZFUS: I think, Myles, I think in that scenario, it certainly is a challenge to equity valuations where they stand right now. The likelihood of us reaching that, that type of situation that would require a drastic lockdown would seem to be challenged what Dr. Fauci said in the last few hours where he thinks we are, with the vaccine progress that he's noted, he is predicting that we move to an endemic versus a pandemic with COVID fairly soon. So we've got to hope that Fauci is right on this.

We also think that the greater adaptability of the population to masks has been very helpful. You know, you see fewer people scoffing at the masks nowadays than you did before when you walk in Manhattan. I know you guys know Manhattan like I do. It's like, you walk down the street, you don't find the people who are going around going, I don't need a mask. I can do what I want. No, people are wearing the masks, all kinds of them, and we think that's very positive.

We think, especially in Asia, they knew how to deal with masks. In Japan, they have been using masks just against common colds for over 70 years, and we can't help but think that [? that's ?] [? we're ?] beginning to get hip to that and the simplicity of it. The danger is the bars. I hate to say it, it's the gym. Near term, it's, this is, you have to watch those super spreader areas where people gather and they exhale a lot.

MYLES UDLAND: And John, we've got about a minute left here. I just want to ask you quickly, we're talking about a very fluid situation as it relates to the spread of the virus, but the market had looked at 2021 and been quite constructive on the earnings outlook there, given expected rebound in growth. Is this changing your view on that at all, or are you going to let it play out a bit before you start reshaping your 2021 view?

JOHN STOLTZFUS: Myles, you got, you gotta let it play out. It's, to extrapolate on any given moment to moment crisis has proven to be the wrong thing to do, to project negatively on these things, but rather to project the likelihood that the challenges will be met. So we remain-- we like cyclicals. We like technology. I mean, our favorite sector is consumer discretionary information technology, industrials, and financials. We'll stick to that right now, and we like materials, because we think we're going to get a global economic recovery on back of all this.