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‘We shouldn’t have any hubris to know how markets will react’ to the election: strategist

Samantha Azzarello, J.P. Morgan Asset Management Global Strategist, joins Yahoo Finance’s Akiko Fujita and Zack Guzman to discuss her thoughts on what’s driving the markets politically and socially, and where investors should be investing.

Video Transcript

AKIKO FUJITA: For a closer look on what all this means for the markets, let's bring in Samantha Azzarello. She is J.P. Morgan Asset Management Global Strategist there. And, Samantha, an important thing that you note here, that policy, not politics is what matters more to the markets. And yet here we are a day before the election. We're seeing the Dow up 400 points. What does that tell you about what investors are thinking about policy on the other side of the election?

SAMANTHA AZZARELLO: I mean, it's a little bit unexpected that the market would be rallying the day before the election. I will just say we're coming off of the worst week since March, right? The market was down last week almost 5%, so you could have a little bit of a technical rebound given that.

But I will-- I will say, Akiko, this really comes down to the idea that uncertainty is at its highest point. The VIX spiked to 38. From here, we only get more information, right, tomorrow and then, you know, through the week. We're going to have more information. And once we know the outcome, markets can settle down. They just want to know one way or the other which way is the election going?

ZACK GUZMAN: And when you look at where investors should be kind of bracing for that short-term volatility-- you mentioned the VIX spiking there to 38. Still elevated over what we've seen over the last couple months here. When you look at that front, obviously it's tricky to call things in the short term, but how are you looking at maybe portfolio positioning to maybe use this as a reset opportunity for investors looking at where they should be positioned moving forward?

SAMANTHA AZZARELLO: So, Zack, that's a great question. We really want to focus on what has worked to date, right? What is working right now? We want to keep some of that, some of those pandemic winners. That means we're not abandoning large-cap growth. We're not abandoning those things that are tethered to work from home and, you know, the digitization of many industries, but we also want to take note of what isn't working and what could work in the future.

And for a lot of people and their portfolios, that means value, right, going to some of those underloved, cheaper names. So we're talking about value stocks. We're talking about the parts of the market that are a little bit more cyclical so they're going to recover as we crush the COVID curve and as the global economy continues to recover. So I'm really talking about industrials, materials, and financials, and these are parts of the market that have not done well year to date.

AKIKO FUJITA: And, Samantha, I take it you're looking at those sectors regardless of who wins the presidential race whenever the results actually come out. What about the timing of these results? You know, we've been talking so much over the last few weeks about the volatility that's expected, the uncertainty that's expected on election night. What are you sensing right now based on the market moves in terms of the timing of any kind of resolution in this race?

SAMANTHA AZZARELLO: Well, so I think the first point is we shouldn't have any hubris to know how markets will react. I mean, all we have to do is look back to 2016. No one was expecting the market to surge the way that it did after we had that election result. So that's, you know, base case.

And secondly, as you're mentioning, right, the timing. This looks like it could be drawn out. It could be extended. You know, there's a possibility that it goes into the end of the week. So all we're telling our clients to do is just to stay pat, to stick with the plan. And I think sometimes that can seem sort of boring, but really, our clients have an investment plan for a reason. We would only be making tweaks around the edges right now, right?

So there are parts of the market that are more tethered to a Democratic win, right? We're talking about clean energy, right? We're talking about some kind of China-hawk companies and stocks such as that. And, you know, maybe you want to have a little bit more positioning toward those, but at the same time, we don't know the outcome.

So we're really just saying stick to the plan. Make some edges around-- you know, make some changes around the edges. But for the most part, elections do come and go, and people's financial goals and their portfolios are for a much longer time horizon. So I would say regardless of the timing, we're really just kind of holding pat with our asset allocation.

ZACK GUZMAN: Yeah, boring can be fine as long as you're still making money here. And, of course, before we started focusing so strongly on the election, it was earnings season that we were discussing here on Yahoo Finance, and investors were obviously keen to look at that.

On that front, though, it does seem like the bar has been raised relative to Q2, and we saw analysts heading into this earnings season raising their expectations. What's your take on that and how companies are working harder here or having to work harder to really show continued growth, even with that headwind we talked about and the question marks on the pandemic front?

SAMANTHA AZZARELLO: That's exactly right. I mean, fundamentals matter more, and that comes down to earnings. Interesting you pointed out, you know, almost 85% of companies are beating their earnings expectations, and about 75% are beating revenue expectations. So in any other given quarter, that would be incredible. That would be shooting the lights out. We would see fireworks. And yet everyone's just kind of, you know, shrugging it off. You know, you're not really seeing-- after reporting, you're not seeing gains in the prices.

So I think that's exactly right. Investors have a higher bar. They want to see more progress in terms of earnings even though, you know, we're coming out of a pandemic.

But I would just add unfortunately right now we're getting a retrenchment of corporate guidance. So we didn't get any. Then we were getting a bit. And now companies are saying, hey, I don't know. You know, we don't really know what it's going to look like because we can't call second waves and lockdowns and whatnot.

This makes it really difficult for equity analysts to do their jobs. So I think there's even more price discovery that needs to happen. It means there's even more opportunities when you think about misinformation or just lack of information, I should say. So it's an interesting time to be investing given that there's these holes in kind of the information, at least in the short term, around earnings.

AKIKO FUJITA: Yeah, certainly good to get your insights around this uncertainty. Samantha Azzarello, global strategist at J.P Morgan Asset Management, thanks so much for joining us today.