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Stock market opens lower with earnings, election in focus

Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down today’s market action with iQ Capital CEO and Managing Partner, Keith Bliss.

Video Transcript

ALEXIS CHRISTOFOROUS: Keith, good morning. And good to see you here. I know that you were in the Google Hangout when we were speaking with the Fed president of the Boston Fed, Eric Rosengren. And he painted a rather pessimistic picture of the job market, saying a lot of the job losses we're seeing now have not been temporary. They're turning into permanent losses. Were you surprised by his pessimistic take on the job market?

KEITH BLISS: I was, quite candidly, because it actually doesn't square with some of the messaging that we're getting out from the broader Federal Reserve statements. Now, I'm not naive as to think that all the Federal Reserve presidents, as well as members of the FOMC, agree on all the data and the statistics and how they view it and what lens they look through. But that was a little surprising to me.

I guess the uptick in jobless claims that we're going to now start seeing in the weeks here in September and October actually makes sense, because as we continue, you know, lockdowns or modified lockdowns-- especially in the very populous states like California, New York, New Jersey, Connecticut-- outdoor dining is now going to go away, because we're starting to get colder weather. And that 25% capacity restaurants and other types of hospitality businesses will likely be laying off employees, so we'll see an uptick on that.

I think the bigger thing I took away from President Rosengren's comments was two things. Number one is that we are not going to be back to full employment anytime soon. And in fact, he didn't think it would even come back in 2021, which I think was a little surprising to me, and dare say will be to a lot of traders.

And the second thing is that we're going to have the Fed funds rate tethered to the 0 to 25 basis point range, likely like the statement from last month's meeting or this month's meeting rather tethered in that range for the next three to four years. And quite frankly, that really starts to reduce one of the major bullets, if not missiles, that the Fed has to prop up the economy. They just have no wiggle room on interest rates at this point. And that's going to be-- that is going to be a headwind going forward.

BRIAN SOZZI: Keith, as you were speaking the S&P 500 index has-- it's erased its gain for the year. It's now down 10% from the September 2 all-time high. As we look into October, what would stop the selling? I don't see it. Do you see it?

KEITH BLISS: No. Well, I don't at this point. You know me. The times that I've been on with you throughout 2020, despite what's been going on. I've been very bullish on the market. I did call that we got very oversold at the end of March. And we're very oversold again here.

I think what's most unsettling at this point in time has just the whipsaw that we've seen. Apple, because it's the largest market cap and it's in every index, acts as a very good proxy to watch what's going on in the market. You know, Apple did a 40% roundtrip from late August into the middle of this month, moving from $100 to $139 and then back down to $107 and trading off again. And that's having a major impact there.

So I think what you're seeing going on in the market right now, Brian, and until we get some positive news on some of the broader themes that we have-- like reopening on COVID, like getting a stimulus bill, like calming down tensions with China, which has started to rear their head again, like getting more news, positive news on a Phase III vaccine from both Pfizer and J&J-- that's not going to stop the selling and the selling pressure.

And what you're seeing is that it's a momentum trade now. It's not a logic trade with what's happening in the marketplace. And the momentum players, they're putting very tight stops, because they don't want to be caught getting into a mass reversal if the market starts to head south.

So until we get some positive news-- and I think the stimulus, getting a new stimulus package would be the most positive news that could impact the market right now-- I don't see the selling pressure stopping. At the very best, I think we move sideways.

ALEXIS CHRISTOFOROUS: Keith, all right. I get it. Stimulus is going to be a big catalyst. But what about this election?

I mean, President Trump coming out and saying it's not going to be a smooth transfer of power if he were to lose. He keeps saying that mail-in balloting is wrought with fraud, although he's not shown any evidence to support that. I mean, is that really the biggest risk to this market, an election with a big question mark over it over the next few weeks and months?

KEITH BLISS: I don't think it's the biggest risk, but it's starting to rank right up there. You know, back in July and August we were asking the same questions. And in my opinion, at that point the market wasn't really paying attention to the market.

But now that we're 40 days, less than 40 days out from the actual election, people are really paying attention. And they're nervous. I mean, when you hear statements like that coming out from the president of the United States, one can only wonder what's going to happen on November 4, if we don't have a clear and decided winner on either side. At this point, I think it just doesn't matter. We need to have a clear and decisive winner on the night of November 3.

I do think, like a lot of the things that President Trump says, that's a lot of bluster. I can't imagine here in the United States-- for over 200 years, we've had the peaceful transfer of power. It's one of the things that definitely is different about our country than any other country in its history. That would-- that wouldn't happen. So I think there's just a lot of bluster out there.

But it does make people unsettled, Alexis, to your point. And it will start to factor into the calculus. I think an important night, obviously, that we're all looking for will be next Tuesday, September 29, the first presidential debate. That's where a lot of the tea leaves, certainly for me, will start to be sorted out. There'll still be a long time to go.

But October-- well, September. Most people don't know. September is historically and traditionally, from a seasonal standpoint, the most volatile month on the trading calendar. October gets all the headlines. But October may outdo September this year.

JARED BLIKRE: Keith, I've got to ask you about the dollar here. It's been surging and strengthening broadly for about five days straight. We've got the DXY at a two-month high.

And it's considerably weighing, I would say, on the risk markets right now-- emerging markets, multinationals, et cetera. Do you think that this is a trend, because the dollar has been going down most of the year-- or at least, mostly over the last few months. Do you think this is a trend that's reversing now and causing a pain to the upside?

KEITH BLISS: Yeah, it really is. That's a good observation, Jared. In our quantitative work, one of the patterns that we look at very closely every day is looking for the relationship between the dollar and the euro.

Typically in that pattern, if you get an overbought dollar, which is where we are right now in an oversold euro, which is where we are right now, at the same time that is a negative trend for equities globally. But most assuredly, in the US market we're seeing that play out.

Interestingly, though, you would expect that if capital is going to flow out of equities, it would flow dramatically into bonds-- we've really not seen that-- or flow dramatically into commodities, which we've not seen as well. So the really interesting part about what's happening with the dollar is because the strength has been so rapid, it's actually created an environment where shiny commodities like gold and silver and copper are now oversold themselves.

So until we get to a top in the dollar-- again, and we haven't overbought-- it should reverse here. That is better at trading on overbought and oversold signals, even better than equities. It should reverse. And that should work to lessen the pressure on equities globally and here in the US.

But again, as I mentioned earlier to Brian, I think all it will do is make us go a little bit sideways here for the next few sessions. But the dollar should be rolling back here as people get a little bit comfortable with where they're positioned, and also recognize that the dollar is overbought.

Again, stimulus package-- positive news on reopenings. Vaccine news will make money come out of the dollar and pour back into equities.