John Lynch, Comerica CIO, joined Yahoo Finance to discuss the day's market action as stocks traded sharply higher on Election Day.
ADAM SHAPIRO: John Lynch is Comerica CIO, and he's joining us now. And I'm just curious what you make of the fact that we really are seeing a pop, at least in the 10-year, today.
JOHN LYNCH: Hey, Adam, good afternoon. Yes, the 10-year-- I mean, the markets have been phenomenal these last couple days, trying to determine what signal they're trying to send, whether about the global recovery or even today's election. And the 10-year yield backing up, I guess we're-- what-- 89 basis points now?
ADAM SHAPIRO: Yup.
JOHN LYNCH: There's been a 4% jump in yield today. That would suggest the market is favoring a Biden victory. At least the bond market would be pricing that in when you factor in deficit spending, the likelihood of another fiscal stimulus package coming in. The combination of those two things would suggest at least the bond market is suggesting a Biden victory. It looks like equities are suggesting something else.
SEANA SMITH: Well, John, what are equities suggesting, from your point of view? Because it seems like sometimes we talk to our market guests, and they're saying that the equities are still actually pricing in a Biden win. That's what's on their radar. What do you think?
JOHN LYNCH: Yeah, I think it's always different this time, right? If you look at the S&P 500 for the 90 days leading up to the election, going back to 1984, if the market is up, as defined by the S&P 500-- if the market is up, that favors the incumbent party. And what we're seeing now is the S&P is up about 2%, even with last week's massive sell-off. Today's move now has us up about 2%, 2.5%. So the equity market-- and the dollar is up about three basis points since August 3, and that's another one. Seven of the past eight elections, if the dollar was down in that 90-day period, it would favor the incumbent.
So we've got a couple of mixed signals. Bonds are suggesting a Biden administration. We'll call the dollar a push right now if it's two or three basis points. But equities being up to 2%, 2.5% since August 3 would suggest the market looking to a second Trump administration. But looking at-- to your point, Seana-- about the possibility of the market just pricing in a global recovery, pricing in another stimulus package, that could also be altering investors' mindsets.
ADAM SHAPIRO: John, do you make anything of the fact that large companies have been holding off on some of their stock repurchases? In some cases, they have to because of COVID-19 and different--
JOHN LYNCH: Right.
ADAM SHAPIRO: --requirements but holding off because stocks might be too expensive, even though we see things moving higher right now?
JOHN LYNCH: Yes, I do think that corporations have pulled back on the buybacks, but we can't lose sight of the fact that, you know, if we're looking at these, you know, much higher-than-average multiples, for the past decade, companies have been in a situation where they've been gradually then suddenly aggressively buying back shares. But what we've also seen is that the Fed and Treasury have created all this liquidity.
So we're in an environment where we have more dollars chasing fewer shares, which we're always trying to convince our investors, let's not confuse genius with a bull market, right? We want to make sure that E-- when you're looking at PEs, always want the foundation of the E to be supportive of the P. And that's when it really comes down to forecast for profitability next year.
SEANA SMITH: John, how should we be positioning our portfolios for investors here that may have some cash and looking to put that money to work? What should they be focused on?
JOHN LYNCH: Yeah, we've had a massive run-up in growth. And I-- looking at some of the multiples, very concerned about that. As you all know, the top-five stocks making up 25% of the S&P. Whether or not it's a second Trump administration, you're going to get an infrastructure package. If it's a Biden administration, you're going to get a bigger infrastructure package.
So I would encourage investors not to give up on value just yet. The infrastructure plays-- thinking about what's leading the market today, whether you look at materials, industrials, to some degree, financials. You know, those are all classic value plays that would benefit from infrastructure. And the financials, while they may have increased regulation under a Biden administration, a steeper yield curve benefits net interest margins.