Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland discuss how the markets are reacting to the election uncertainty with Art Hogan, National Securities Chief Market Strategist.
MYLES UDLAND: All right, well, still with us is Art Hogan. He's the Chief Market Strategist over at National Securities. And Art, something I want to ask you about, and we're seeing it really just kind of pick up where it left off maybe back in the summer, but this growth overvalue trade that I think for a couple months seemed like maybe it was going to unwind.
You know, everybody wants to pick the right time to get involved with value. All of a sudden, we're sort of back to where we were. How do you see this playing out as we get into 2021, a year that I think a lot of people expect will be better than 2019, at least, in terms of GDP growth and a positive backdrop for corporate earnings and all that?
ART HOGAN: Yeah, that's such a great question. That's exactly how you should think about this. So why is it that growth has outperformed, especially over the last 12 months? And clearly, part of that has to do with the fact that growth is scarce, right. So when you have that economy that you slow down on purpose, you know that the economically sensitive cyclicals are not going to be in favor.
So what is in favor? It's things that grow agnostic to GDP growth, and that has been those mega-cap technology companies. Now, we've had certain fits and starts of rotating out of growth and into value. And when I think about value, I really just think about what are the underperforming sectors like the cyclicals, like the materials, the industrials, the financials, energy, et cetera, and what would it take to have one of those rotations actually stick?
And I think you hit it right on the head when you asked the question, we need to see consistent economic growth. So likely, the rotation that's happening right now back into growth and the mega-cap technology is because without a large, an explosively large, fiscal policy stimulus, that growth pattern is likely to be pushed out a little bit. So if we're going to get $400 billion to $600 billion in stimulus, that's a whole lot less than that $2 and 1/2 to $3 trillion that we might have gotten in the blue wave scenario.
So I think that's why you rotate back into what's going to be more valuable, and that's growth. That's not going to last forever. As we head into the first and the second quarter of next year, as we have a vaccine or two that's broadly available and durable, and as we start to see a pickup in economic activity that comes after that, when we get to do all those [AUDIO OUT] that rotation out.
So it's not at-- it's not a zero-sum game where you say, OK, Amazon, Facebook, and Zoom video, and all of those popular sort of plays right now are going to go to zero. No, we're going to continue to use technology. But what you're going to see is a resurgence of that rotation into the cyclicals, which is long overdue.
JULIE HYMAN: Hey, Art, as you're thinking about the stimulus as part of your investment thesis, whether it has to do with the rotation or otherwise, you were talking about gridlock a few moments ago. What gives you confidence that any kind of stimulus is going to get done at this point, even a smaller one? I mean, if you're looking at a Joe Biden presidency and a divided Congress with really tight margins between the Democrats and the Republicans, I don't know. How do you get there?
ART HOGAN: Yeah, that's-- that's a great question. I think it's a bit of a hey, what were they willing to do before this? And then now that we're on the other side of this election, "hopefully," what do you think they'd be willing to do now. So oddly enough, Mitch McConnell, one of the first things he said after it appeared as though he had won his election, was job one for us is to get stimulus out the door. So that-- you know, that's one point that gives us some confidence.
The second is if Joe Biden wins and is the president next year, we have a guy that's been working with Congress for, you know, call it the last 47 years. So probably better able to get down there in the trenches and negotiate and get something out the door. Now, the disappointing thing was we won't get what we thought we were getting in order of magnitude, scale, and scope. But the good news is we likely have a better negotiator in the process in terms of getting something done and being realistic about what we can get out the door.
MYLES UDLAND: All right, Art Hogan with National Securities. Art, great to get your thoughts. Thanks for joining the show. And I know we will be in touch soon enough.
ART HOGAN: Thank you.