Julian Emanuel, BTIG Managing Director & Chief Equity Derivatives Strategist discusses the latest stimulus negotiations as investors await a deal.
ADAM SHAPIRO: We invite into the stream Julian Emanuel, BTIG Managing Director and Chief Equity Derivative Strategist, joining us from Scarsdale, New York. And Julian, I would imagine a lot of people watching right now don't care if you're a Republican or a Democrat, it's the size of this stimulus deal and how it's going to impact the decisions they make with their investments. Have they already priced that in? Or do they need to be ready for some kind of humongous money drop?
JULIAN EMANUEL: No, they need to be ready for we don't know what. I mean, honestly, when you think about the range of outcomes, and you think about the idea that, you know, within the Republican Party there's division and within the Democratic Party there's potentially division as well, you know, discomfort with Speaker Pelosi continuing to slow play, there is an incredibly wide range of outcomes. And when you look at the action yesterday in the market with that huge sell-off, and then, of course, today sort of reversing, as it were, because we do think maybe something will happen, it just tells you that whatever the outcome's going to be, the move one way or the other is likely to be substantial.
JULIE HYMAN: So Julian, if you're an investor considering that wide range of outcomes and the disparate reactions we could have in the market, how do you prepare for that? I mean, when the range is so wide, how do you hedge against the possible outcomes?
JULIAN EMANUEL: So this is one of these times, Julie, where if you're a long-term investor, you just want to think about the long term, OK? From our point of view, when you think about not just the stimulus, but the potential for the virus to accelerate, and then, of course, the uncertainty surrounding the election, there's a lot of reasons to believe that the market could be weak between now and, say, Inauguration Day in early January. That having been said, when we think about the backdrop of an economy that likely will benefit from some sort of medical advance either late this year or the first half of next year, along with a Fed that isn't going to move off of their easiness and the potential for both an economic and an earnings recovery, the long-term picture is much more favorable than this potential short-term volatility.
BRIAN CHEUNG: Hey, Julian. Brian Cheung here. I'm glad you brought up the Fed. I wanted to ask-- it seems like all the chatter about what the market is doing is within the context of whether or not we're going to get a stimulus. But I think it's an underrated fact that investors are probably also thinking about the backstop or maybe the, I guess, ability of the Fed to step in if there isn't any stimulus.
We've heard a lot of Fed officials say maybe further quantitative easing or shifting to longer durations within their quantitative easing pace right now could be part of the picture there. What do you think is priced in in terms of Fed actions right now? And is there the possibility that after the November election in that FOMC meeting that Thursday that the Fed can maybe step into a degree that might even surprise the market?
JULIAN EMANUEL: Well, the first thing I'd say, Brian, is that as a citizen, a voter, and an investor, I for one am incredibly happy that the Fed is going to announce something on Thursday the 5th, two days after the vote. It's very reassuring. It's very reassuring to the people we've talked to.
The issue here, and Fed Chair Powell has been very plain about this and it's part of why he's encouraged greater fiscal stimulus for months now, and rightly so, because really, the Fed, they can do more. They can do more quantitative easing. But we're at the point where that transmit-- transmission mechanism is likely being somewhat less effective. I mean, you had, you know, incredibly successful backstopping of the economy and the markets over the last six months. But as he said, there really is only so much that the Fed can actually do.
ADAM SHAPIRO: Julian, a lot of investors follow the philosophy of buying what they know. So if you know Home Depot, or even if you know an airline, like American Airlines, when you say that there's a potential that the markets have underappreciated the election risk, don't the people who are following that kind of conservative strategy already understand those issues and really need pay no attention to the risk from the election?
JULIAN EMANUEL: Again, if you're thinking long term, the answer is yes. However, we've got to step back a little bit and think about the unexpected bolt from the blue that we basically had in February and March, and the reaction was, you know, massive outflows out of equities. So the issue here, like in a high-volatility environment you have generally, is that you let your emotion overcome your rational thinking. And so from that perspective, you know, we would just encourage long-term investors to try and be patient. And if, in fact, there is a material sell-off, it's likely going to be a good time to put cash to work.