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Stimulus is the 'only catalyst' to move the market up: Key Advisors Group Co-Owner

Stocks are rebounding after four straight weeks of losses. Key Advisors Group LLC Co-Owner and Managing Partner Eddie Ghabour joins the On the Move panel to discuss.

Video Transcript

AKIKO FUJITA: And Eddie, you have been Warning about that election risk for some time. More of it has been about the contention around, or the question about the clarity around the election results. But how do you look at the revelations that came out over the weekend, this big report coming out from "The New York Times"? How does that rank in the broader election risk you've been talking about?

EDDIE GHABOUR: Look, this just falls right into the political risks that we feel are out there right now. We know that the gloves are going to come off [INAUDIBLE]. And the entire market and all the focus from now through November is going to be on this election. And I think the markets are going to respond to that.

As I told you, I really believe, and I strongly believe, the only catalyst right now that could cause the market to actually go up sustainably here in the near-term will be stimulus. And I don't have a lot of faith in the fact that there'll be a stimulus bill passed before the election. So I think these types of headline risks and things that we're going to see politically in this toxic environment that we're in are just going to continue to get bigger and bigger and cause markets to react.

DAN HOWLEY: Eddie, what happens if we see the election contested? What do we see in stocks? And does the usual kind of turmoil we see around elections and the market continue then past the election season?

EDDIE GHABOUR: If this is a contested election, the last time-- so in 2000, during the Bush-Gore, the market dropped by about 8%. OK? And back then, it wasn't as toxic a political environment as we're in today.

My opinion is, if we have a contested election-- if we do not have a clear winner on election night-- I certainly expect to see a 10% to 15% drop in the equity markets, because I would only have to assume that it would stretch out for weeks. And the one thing we know that the market hates is uncertainty. And there's nothing more uncertain than not knowing who the leader of the United States will be.

Now, I will say this. If we see that, we're looking at that as a buying opportunity, because we're pretty bullish on equities heading into next year due to the economy opening back up.

INES GARRE: Eddie, Ines here. Jefferies came out with a note about a potential price hike for Netflix and what that could mean. It could mean up to $1 billion in incremental revenue for 2021. Amazon's got its Prime Day coming up in October. Do you go with a streaming name like Netflix or an e-commerce name like Amazon, or both at this point?

EDDIE GHABOUR: You know, I like Amazon more than I like Netflix. You certainly aren't going to go wrong with owning both of those companies. But my opinion is, I feel like Amazon is a more diversified business that can really pivot in any environment and be successful in any environment. It's not just a streaming-based company.

So I prefer Amazon over the other. Again, everyone's risk tolerance is different. So they have to determine for themselves whether they should own that or not themselves.

AKIKO FUJITA: Eddie, I know the last time we spoke we were talking about the rotation out of tech into value. And you've said this time along, you think this is a rotation that's going to stick. I think your words were, this is not a head fake. How much more upside do you see in value? And given that initial risk you talked about with the election, is now the time to put your money there?

EDDIE GHABOUR: So what we've been doing for clients is we've been slowly rotating, and we've been dollar cost-averaging into the market from cash positions. As we saw this dip in September, we plan to do the same thing in October.

But as I shared with you last time, we are keeping ammunition on the sidelines to be able to buy a potential November and December dip if we have a contested election. So I firmly believe-- my opinion is to have dry powder for that election risk that we have, because I do believe that the value companies are going to do the best as we open back up, have the most upside heading in the 2021. So I plan to be fully invested for our clients January 2021, unless something crazy happens that we don't know who the president is by then.

AKIKO FUJITA: And Eddie, to that risk that you keep talking about with the election, how much of it do you think has actually been priced in? I mean, there are so many different scenarios that have been put on the table here. Can you really price that risk in given the uncertainty that's waiting in November?

EDDIE GHABOUR: No, it's not priced in. You know, everyone's talking about how we had a four-week sell-off in the equity markets. But considering where we came from, it's not really that big of a drop that we saw.

That's why I think it's great that we see this bounce today. I don't think it's sustainable short-term, even though I'm bullish going into 2021, because again, I think we're going to be in this seesaw market between now and the election. And then again, dry powder for afterwards. And you know, prepare for the worst and hope for the best in regards to knowing who the president is on election night.

AKIKO FUJITA: Eddie Ghabour, always good to talk to you. He is with Key Advisors Group joining us today.

EDDIE GHABOUR: Thank you so much.