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Stocks drop as another 3.84 million Americans file for unemployment benefits

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Weekly jobless claims climbed another 3.84 million on the heels of worse-than-anticipated first-quarter GDP data. Invesco Global Market Strategist Brian Levitt joins Yahoo Finance’s Seana Smith discuss.

Video Transcript

SEANA SMITH: Let's start with today's market action, and for that I want to bring in Brian Levitt, Invesco Global Market Strategist. And, Brian, as it stands now, we're seeing a downward move in the markets today. But overall, it was an extremely strong month for stocks in the month of April, and the stocks are heading for their best month that they've seen in decades. What do you think of the momentum that we've seen over the last couple weeks?

BRIAN LEVITT: Seana, it's a natural pattern where you put in a bottom amid extreme sentiment and lopsided investor positioning and heightened volatility, and then you retrace higher. And this has been one of the better retracement periods we've seen because of massive policy accommodations and some better numbers on the number of new cases. And, you know, and then from there you look to see, is there a catalyst to go higher? And, you know, what you see today is investors questioning whether there's that catalyst.

And I think we could all expect continued volatility in markets and perhaps another draw down, but I actually think the market bottom is in. It's just more when does the new catalyst emerge to take us to the next levels?

SEANA SMITH: Brian, talking about some of that positive momentum in the markets-- I mean, it's interesting because the economic data that we've gotten out recently, or the majority of it, I should say, has been pretty disappointing. I mean, that jobless claims number today, 3.8 million additional Americans filing for unemployment, pulling over 30 million in the past six weeks-- why do you think investors have been continuously able to look past some of these big numbers?

BRIAN LEVITT: Yeah, you call it disappointing. Let's call it what it really is. It's been catastrophic. I mean, it's been beyond anything that we ever would have thought that we would have seen. The reality is markets get out ahead of this, so the market declined 35% in a month. That's pricing in a full recession in, you know, 20, 30 trading days.

And, you know, from there we would have gone down a lot more but for the fact that monetary policy stepped in and the federal government stepped in to provide a cushion to American households and small businesses to bridge us through this. So let's be clear, the market priced in pretty substantial damage.

Now on the other side of that also is that, you know, the markets doesn't-- the markets don't always care about good or bad. They care about better or worse. And so, you know, even though we're at 30 million unemployed-- which, again, is catastrophic-- the number of new jobless claims has been coming down. So it seems like, you know, we've hit that extreme peak of over 6 million in a week. The rate of change of that is slowing. The market priced a lot of it in.

Look, this isn't an all clear. It's just to say that investors should realize that the market priced in a lot of this damage already, and policy responded far quicker than we're used to during an economic downturn.

SEANA SMITH: Brian, what do you think investors are watching most closely at this point? Because I know you're saying in order for us to continue this upward momentum, we need some sort of catalyst. Not exactly sure what exactly that will be. But in terms of the headlines that we are getting, what do you think is the number one most important thing to investors right now?

BRIAN LEVITT: Well, you want to see the number of new cases, number of hospitalization, and, please, the number of deaths, you know, start to come down, and you want to see signs that we can start to re-engage with large segments of the economy without another wave. And so obviously that will be very important.

And then from a market perspective, what you want to see is that the Federal Reserve can continue to ease financial conditions but also, we hope, start to raise some inflation expectations because it's a little bit of a tale of two markets where the equity market is out in front thinking that some type of recovery is on the horizon where the bond market and the commodity market is still pricing in an awful lot of deflationary forces. And so, you know, ultimately it's this tug of war.

I suspect that the human ingenuity, the medical community, scientific community will start to get out ahead of this. We can start to re-engage with segments of the economy again. You'll get inflation expectations up, and the markets will move higher. But it might take a bit of time, and so volatility in markets may persist for the time being.

SEANA SMITH: Hey, Brian, I want to talk to you about this consumer-spending number that we got. So it obviously plunged in March, declining over 7%. What do you think this tells us about the speed we'll likely see for the-- for the economy to recover? Do you think a quick rebound now probably isn't likely at this point?

BRIAN LEVITT: Yeah, I think a quick rebound is probably not likely. I mean, a lot of damage has been done. You have a third of American households saying that they or or someone in their home has either been furloughed or lost their job or taken a pay cut as a result of this. And so it's a consumer-driven economy. I think we're hard pressed to envision a snap back. Again, a lot of damage has been done.

But I think what's important for investors to recognize is that markets don't need robust economic recoveries in order to perform well. Seana, if we were sitting here in 2008, we would have been lamenting the fact that, you know, the mortgage-default rate probably wouldn't peak until the end of 2010, and then households would have to delever their balance sheets for a couple of years, and yet by that point the market would have been on a three- to four-year massive advance.

So we don't need robust economic activity for a good market. I think what's-- you know, what's more upsetting is the fact that it will take some time for jobs to come back. You know, it will take some time for wages to get back where they were. It's going to be a slow-growth environment heading out of this.

It's why I personally favor true growth companies over companies that need sustainable cyclical activity. But the markets will get out ahead of it and will recover far before the economy does.

SEANA SMITH: Hey, Brian, what are you looking at now just to identify attractive areas to invest? Just because with earnings, we're not getting nearly the number of companies that we usually get providing guidance right now. It's such an uncertain time, like you were saying. There's really so much unknowns out there-- continues to be so much unknowns out there-- so many unknowns at this point. So what are you looking at when you're identifying areas to invest?

BRIAN LEVITT: Well, there were a lot of big structural themes that were taking place before this, and there were winners and losers in the market. And so I think what ends up happening during a pandemic and a prolonged quarantined is that a lot of the structural themes get accelerated. And so you're seeing, you know, the types of business models that were perceived to be less sustainable in the environment heading into this have now accelerated into a period where, you know, we're seeing bankruptcies and unsustainability. So I'm looking to focus on those companies that I think are on the cutting edge of these structural changes that are now being accelerated.

And, you know, going forward, obviously what we all-- what we need to assess is, to your earlier question, is the extent of the recovery because, you know, when you go from a defensive or buying the true growth companies, when there is an economic recovery, we know that the hardest-hit, deepest-value, cyclical parts of the market will outperform. The question is how sustainable is that? And I suspect that it will be relatively short lived because we will quickly emerge to a slow-growth world, and we'll be back investing in those companies that can generate true revenue growth in that slow-growth world.

SEANA SMITH: All right. Brian Levitt of Invesco, thanks so much for taking the time today.

BRIAN LEVITT: Thanks, Seana.