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Stocks rise, hovering near record levels

Invesco Global Market Strategist Brian Levitt joins Yahoo Finance’s Akiko Fujita to discuss his outlook on the markets after the S&P 500 hit a new record this week.

Video Transcript

AKIKO FUJITA: Let's break down all the market action on this Friday. I want to bring in Brian Levitt. He is Invesco global market strategist. And, Brian, I feel like we're always asking about tech here, but let's talk about the action that we saw this week, because these are huge gains that we've seen-- Apple and Tesla certainly notable, but also we've seen the gains in stocks like Alphabet as well.

We had a guest on in the last hour who said, I'm starting to have flashbacks to 2000. Is that a safe comparison right now? I mean, what do you see the market action right now in terms of tech and just how quickly it's run up?

BRIAN LEVITT: Well, it feels-- you know, I think the similarity is that it's an environment where investors are favoring growth wherever they can find it. I think a lot of these companies are delivering more than what you saw from some of the so-called dotcom names in the late 1990s. I would argue that while the concentration of the market has gotten pretty significant and the run-up has been significant, it's not yet at 1999 levels. I think that that's hyperbole.

If you look at the weighted average top-10 names at NASDAQ-- sorry, weighted average price to sales in 1999, you were looking at 20 times. Today, the weighted average price to sales of the top 10 names in the NASDAQ are around eight times. So it's not-- it's not 1999. But certainly, market leadership and investors want companies that can generate true growth in what is still a weak growth environment.

AKIKO FUJITA: How are you positioning yourself in the sector?

BRIAN LEVITT: So I'm still exposed to the growthier parts of the market. And you know, a lot of what has won through this-- you know, the tech names, the communications services names-- I'm still exposed. What I think investors want to start thinking about as the year progresses is what type of a recovery takes hold. We will have a recovery between now and the end of next year.

And so you want to start to get some exposure to the more economically sensitive parts of the market-- you talked about Deere having a good day, the more cyclical parts of the market. But you know, when we have concerns about growth and you have fits and starts along the way, the true growth companies are going to have weeks like they had this week.

AKIKO FUJITA: What about something like real estate? I mean, we're looking at economic data that came out this morning-- existing home sales seeing the biggest monthly gains in history. This is pretty consistent with the kind of recovery we've seen in the housing market.

BRIAN LEVITT: Yeah, and you're seeing it in lumber prices as well. I mean, so, obviously, there's a recovery going on in home sales and housing, which is a good sign for the broad economy and a good sign for the consumer. I think when you're talking about real estate broadly, you want to be selective, though. Because if you're thinking about commercial real estate, there's going to be pretty significant winners and losers in this type of an environment.

And you know, we see what's going on in retail. We have the concerns about office space. So you want to be very selective with commercial real estate. But in terms of the residential market doing well, it is in recovery. And that's a good sign for the broader US economy and for the consumer.

AKIKO FUJITA: Brian, you talked about rotating out of not just growth stocks, but really starting to diversify your portfolio, instead of crowding in what we call the stay at home trades. How much of this, though, in terms of your outlook, hinges on getting that stimulus bill over in Washington? We still don't have any specifics-- no real resolution. Do you still feel comfortable in the overall recovery picture, even without that in place right now?

BRIAN LEVITT: Yes, so two points-- the first thing is I'm not selling-- you know, I'm not saying sell those winners-- the big growth companies. Those are companies that have sustainable business advantages. And so we want to be exposed to them. The idea is more around starting to dip into the economically sensitive parts of the market. So it's not an either/or. It's starting to increase exposure where a lot of investors hadn't been for a number of years.

I think you make a great point-- any nascent recovery can be ruined or can be curtailed by a policy mistake. And so what we saw in 2008-2009 was a Federal Reserve that was very accommodative. We saw some stimulus up front. And we ran into a European debt crisis, which caused some concerns about the extent of that recovery.

So to the extent that-- and that was largely because of countries trying to be austere in a nascent recovery. To the extent that we don't get additional fiscal support, that will curtail the recovery. That will hurt the more economically sensitive parts of the market. And I think investors will be back exposing themselves and investing in those truer growth companies.

AKIKO FUJITA: Brian, another risk that's emerging-- the presidential election. We're really getting into the thick of things here, the DNC just wrapping up last night. We were talking about a story last hour about Facebook looking at the potential of President Trump legitimizing the election. We've heard a lot about the election risk hinging on what happens after the outcome is announced. How are you calculating that right now?

BRIAN LEVITT: Yeah, I mean, I think the first thing I would say is that I think investors put probably too much emphasis on elections in terms of the long term. I think the mark are set up for a nice long cycle here, irrespective of who wins. But in terms of any type of policy uncertainty-- any type of policy uncertainty will create volatility in the markets-- that's whether it's monetary policy, fiscal policy, reopening policy, or either understanding what the executive branch of government is going to look like.

So I would say to investors, if we have some type of volatility around fiscal uncertainty, that would probably represent a buying opportunity, because I think the Congress and the administration are getting closer together-- at least both sides, the House and the Senate, are getting closer on this. And if there is uncertainty around the outcomes of the election and that creates volatility, to me, that would be a buying opportunity as well.

I mean, the broader backdrop is there will be an economic recovery. It is already taking place. Monetary policy is incredibly accommodative. Real yields are negative, and stocks are very cheap to bonds. To me, that's an environment where you want to own risk assets, irrespective of some type of volatility that may emerge around the election.

AKIKO FUJITA: Is there a case to be made for political certainty being positive for the markets? In other words, regardless of policy if you've got a Democratic sweep, let's say, that would suggest there's not as much gridlock as we've seen in Washington.

BRIAN LEVITT: Yeah, and that could enable you-- that could enable the government to provide additional support on the fiscal side, as we've been talking about. And you certainly saw that in 2009 with the American Recovery and Reinvestment Act. And so yeah, a-- you know, I think like you saw with-- I want to be clear-- like you saw when Trump won with single-party rule, you had a seven-week rally, you had interest rates up, value stocks outperform-- and then we returned very quickly to the cycle with which we were in.

I would expect that to be the case too. If there's any type of excitement or negativity around the election, we will ultimately return right back to the cycle which we were in. Nothing really changes all that meaningfully. It's more driven by sentiment around investors in the aftermath of the election.

AKIKO FUJITA: Brian Levitt, some good takeaways there, joining us from Invesco. He's a global market strategist there. Appreciate your time today.