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Stimulus checks could help growth, but ‘also might trigger some inflationary fears’: Strategist

Brian Jacobsen, Wells Fargo Asset Management Multi-Asset Strategist, joins Yahoo Finance’s Kristin Myers to break down the latest market action as Congress agrees on a $900B stimulus deal.

Video Transcript

KRISTIN MYERS: I want to turn now to Brian Jacobson, a multi asset strategist at Wells Fargo Asset Management. Brian, I want to start with this news on stimulus. For a while we have been asking, or at least I had been asking, how much of a catalyst stimulus was going to end up being and we're now seeing it doesn't look like much. In the markets right now. I'm wondering if you think that the stimulus news is really being overshadowed by all of the news about the lock downs, especially in the UK or do you think the market kind of really already priced in some of this good news around stimulus?

BRIAN JACOBSEN: Yeah, that is something that you know it's been part of the broader narrative as far as the market rally that we continued to see run, really over I would say the last-- since they started negotiating, people have been weighing the odds of whether or not stimulus would get passed. And so to a certain extent it was always somewhat priced in. You'd see Treasury yields rise when it looked more likely and then Treasury yields fall when it looked less likely. And now that looks like they're going to actually sign this into law, we have to see if that actually gets voted on and put into law but to an extent it might already sort of be baked in the cake. And that is one of the problems with markets being forward looking and with investors, if you want to try to react to some of these big headlines, that can be tough to do because sometimes it's a giant nothing burger for the market because it was already priced in.

KRISTIN MYERS: What about when folks start to receive their checks? It's only $600 compared to the 1,200 from last time, at least that was the cap, I'm wondering if you see a chance of a pop there kind of similarly to what we saw the last time around when folks really started to have some money in their hands?

BRIAN JACOBSEN: Yeah, I think that last time was a little bit different as far as the context, if you think about the timing of it, and also I think a lot of people were somewhat surprised by not just how much of it people were spending but also trying to see the broader reopening of the economy, because it was starting to reopen at that point already.

Now it's a little bit different, the timing of this is somewhat unfortunate. I think that the people who are receiving the money are going to receive the money, they could have used it three months ago as opposed to now or as opposed to a month from now, right? It's almost like this is stimulus delayed and when you get stimulus delayed it's not really the same relief that you would have liked it to have been because we are going through a slight slowdown with growth in the fourth quarter because of the rise in coronavirus cases, increase in restrictions on activity.

And so that big jump in activity we had in the third quarter isn't likely to be repeated in the fourth. Stimulus could have smoothed that over but it didn't. So instead when those checks hit, it might actually be at the point where we're beginning to see another economic upswing. So my team, the way we're looking at this is it's possible that when people get those checks and do spend it, yes, it could help growth but it also might trigger some inflationary fears.

KRISTIN MYERS: Right, so to borrow the phrase, we're actually months late and billions of dollars short, at least when it comes to this package. You know, markets right now are being weighed down, the S&P 500 and NASDAQ in the red, at least on this news of that mutation in the UK and of course, we hear this all the time, markets are forward looking, you even repeated that just a couple of minutes ago.

But I'm wondering how much you think markets are going to be paying attention, at least in the near term, of this surge that we are going to see worsen over the next, let's just say couple of weeks to months, doctors have been saying the Christmas holiday is going to contribute to a pop, a rise in those cases and this winter is going to be a lot worse before it gets better. So how much do you see really this surge weighing on markets going forward, let's just say in the next couple of months?

BRIAN JACOBSEN: Yeah, so the way that we're looking at it on my team is that this actually does lend itself to increasing some of the volatility mainly due to everybody knew that we would see the slowdown in economic activity, probably a double dip recession of sorts in Europe. This is likely to make it a little bit worse, but the question is how much worse. And as long as it's viewed as just being temporary, then markets can look through it because markets not only are forward looking, believe it or not, they oftentimes are very forward looking as far as how far into the future that they look.

So as long as the economic surprises are somewhat muted to the downside, we don't think that this is going to cause any sorts of big draw downs in the market that from our view would not be a buying opportunity. We are very bullish about the long term outlook. You think about where we were in 2019 going into 2020, earnings per share estimates for the S&P 500 were around $157 per share. Right now it's only back up to around $142 per share. So there still is some room for the fundamentals to believe it or not, kind of help support this market moving forward. 2021 could be a year of almost a do over of sorts because now, just like in the beginning in 2020, we thought we had synchronized global recovery in place and then it went to a synchronized recession, it looks like we might have that legitimate foundation for synchronized global recovery for the next year, if not the next few years.

KRISTIN MYERS: And it sounds like based on what you're saying, correct me if I'm wrong, that this actually might present a really nice buying opportunity for folks, especially if markets are going to look way past this pain that we have here today. I know everyone was anticipating or hoping for a Santa Claus rally, not great on this Monday right now, but I'm imagining, yeah, you're seeing this more as a great time to snap up some equities?

BRIAN JACOBSEN: It is. Yeah, from our team's view that is what we are trying to do is actually view this as more buying opportunities. And just keep in mind the Santa Claus rally doesn't technically start until after Christmas, right? So the 12 Days of Christmas, who knows? You could get a Santa Claus rally still. But the problem is maybe we're going to get a little bit of a lump of coal beforehand. But from our view, that would actually set us up for a nice-- a much better foundation for a market move higher. You do need that wall of worry for bull markets to continue to climb. And it didn't look like there was a lot of worry out there for the last few months.

KRISTIN MYERS: I would say. Brian Jacobsen, Wells Fargo Asset Management. Thanks so much for joining us today.