Ben Mandel - Global Strategist Executive Director at JP Morgan Asset Management joins Yahoo Finance Live to discuss how markets are faring after Moderna announced its upbeat coronavirus vaccine progress.
- Let's bring in Ben Mandel. He is with JP Morgan Asset Management. And Ben, you've been listening to Marshall talk about what this means, largely for the biotech sector. But, you know, looking at the Dow right now, we're just under that 30,000 level. And yet, even with the positive news today, this is still very much a 2021 story. So how are you looking at things shaping up going into year end?
BEN MANDEL: Well I find it fascinating hearing the bottom up perspective from Marshall. I'd say the top down view from a macroeconomic perspective is a little bit different. I think we've learned something about the nature of this shock. Which is that it's of unknown depth in the near term, as restrictions get reapplied. And we're seeing that we're sort of sliding slowly down that slope.
However, the shock, albeit of unknown depth, is of limited duration. And so, really, it's the tension between what is the depth of this thing over the next quarter or two, versus a somewhat more sturdy view on the other side. So discussion of, is this priced in, is very different from a macroeconomic perspective. Than the individual stocks for the vaccine. We still have nine million people in the United States, fewer employed people in big numbers, than we had prior to the shock.
So there's a big segment of the economy that has yet to open. This early cycle phase in the economy is going to have two parts. And the second part will happen once activity normalizes completely. And so those early cycle dynamics driving growth, above trend growth on average, from now till the end of 2021. The fact that policy is fairly ample behind that, and particularly monetary policy. Where you've seen that, kind of, shift over the last few weeks.
So you put those two together and I think your default positioning it still to be pro-risk. You know, you like equities, that's your source of upside. You like credit, as a high sharp ratio complement to those equities. And I don't think we're making big bets on rates going to the moon here, even as the economy reopens. So we think about having a little bit of balance in portfolios through a bit of extra duration here. It's a bit of an environment where you want to own everything.
- Yeah, and Ben, we've been talking about that too. Because Goldman Sachs was out last week with their boost in terms of the overall market and where it could go. We saw the same thing for Morgan Stanley this week. Showing about a 9% opportunity here for the year end 2021. But when we talk about where those opportunities are, as you're talking about being on both sides. On cyclicals, as well as what we've seen here in terms of the growth stocks. How does that general break down work when you're trying to put together a portfolio to play? Maybe a quicker than expected opening and recovery with the vaccine news we're getting, but also, sticking with the winners we've seen so far.
BEN MANDEL: I think that balance is exactly the right way to think about it. You want exposure to growth, and you want the exposure of the secular winners, and a bit of the defensive nature of those tech stocks that have been driving the momentum there year to date. You also want exposure to those cyclical stocks that are going to benefit the most when we do get that second portion of reopening.
And the second portion of early cycle as or as a result. So you want some mixture of growth and cyclicality, as we think about the regional composition of our global equity positioning. We've, kind of, squared that circle by going overweight US large cap, emerging markets, which is your cyclical exposure. And also a little bit of Europe, which is exposure to value, as we've seen, can have periods of out performance as markets price in higher growth in the future. And a steeper yield curve.
But really, you want to balance those things. Because you're seeing a lot of very quick rotations from one to the other. Which we're not really betting on in a large way in the near-term. So this is really a 12 month view. You want your portfolio to be robust to those rotations back and forth along the way.
- Ben how are you how are you looking at policy? Being supportive of your base case right now. I mean, as we look to January and the potential for new policies under a Biden administration. It certainly looks like there's still a lot of question marks. Largely because the Senate is still unsettled. But when you look at issues like health care, like tax policy. How are you viewing that in the potential for a big shift?
BEN MANDEL: Well I think the we have learned something over the last few weeks, in terms of the lay of the for policy. So there's things that reside within the control of the executive in the United States. There are things that reside within the control of Congress, and that's mostly thinking about fiscal policy, taxing and spending. And then there's monetary policy.
So I think what's happened over the course of the last few weeks, is that the incidents of policy and all the burden has more or less shifted to that monetary policy side of the spectrum. And so we'd expect, and actually we'd expected prior to the US election, that the Fed would remain active. And in fact, be expanding its asset purchase program. Either in the volume, or the maturity composition of its purchases of treasuries. That's kind of a baseline expectation for December.
Who knows, maybe even prior to that meeting. And so when we say ample policy support, it's really the fact that central banks are on the case here. And there's a QE club of developed market central banks who are using their balance sheets very actively. And so that's another reason why you probably don't want to bet that interest rates are going up 2%, 3%, 4%. We view 1% on the Treasury, 10 year Treasury where we are right now. And it's slightly higher than that to be a buying opportunity.
- Yeah, Ben, that's one question here that we get from a lot of viewers when it comes to watching these stimulus bills come through here. We're talking about trillions of dollars. I'm not sure you can see it right now, but the Bitcoin pillar has reemerged on my set here at home. Because we're trading about 16,000 on Bitcoin here. And there seems to be some fears out there that you might see inflation run pass what's being expected right now. You say it's hard to see inflation rising sustainably above the fence growth target here for that. Talk to me about what's being missed in that discussion. And why inflation, in your mind, is expected to stay low.
BEN MANDEL: I mean, you don't have to take my word for it. You can look at the inflation data. Which I've strongly suggested over the last five months, that inflation has been following the demand shock to the US economy. So you had a lot of negative inflation in the outset. March, April period where you had that trader in demand. You had a recovery in inflation a few months after that. But that was in line with the recovery in the economy.
And now you're seeing that waver a little bit. The inflation data from last week consistent with the idea that you've seen a little bit of softening as that growth acceleration has leveled off. So really, inflation is along for the ride at the moment with demand. And you'd expect it, in trend terms, to continue slowly improving over the next few years.
But this is not something that's running away. And one thing we've learned from the global financial crisis, was that even with ample policy support, large central bank balance sheets. A tight labor market, which as I said, we're nowhere close to right now. Even then, it was difficult to manufacture sustainably high inflation. And so I think inflation is going to factor into our long term thinking. But it's more of a 5, 10, 15 year view. The next year or two is going to be characterized by rates being brought back down to earth by an actual inflation process, which is pretty tame.
- And certainly some good context there. Ben Mandel with JP Morgan Asset Management. Good to talk to you today.
BEN MANDEL: Thanks.