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If we can’t stabilize the virus ‘we are in for another round of steep job cuts’: Strategist

Jeffrey Kleintop, Charles Schwab Chief Global Investment Strategist, joins Yahoo Finance’s Akiko Fujita to break down the latest unemployment numbers.

Video Transcript

AKIKO FUJITA: Let's begin this hour, though, with the latest economic data that we got out today. Initial unemployment claims falling to 787,000 last week. That's the lowest number we have seen since the pandemic began.

Meanwhile, the housing market continuing to see strong momentum. Existing home sales rising 9.4% last month. That is the highest level we've seen since 2006. Let's bring in Jeffrey Kleintop. He is Charles Schwab's chief global investment strategist.

Jeffrey, it's good to talk to you. Some positive economic data that we got out today. Certainly early solid numbers there, but there is a backdrop here of a resurgence of coronavirus cases. Also concerns about the absence of any additional stimulus, how that is starting to slow the momentum. How are you looking at the data we got today in that context?

JEFFREY KLEINTOP: Well, I think today, if you look through the data, it points to more of a stalled economic environment. Sure, home sales and mortgage applications look pretty good here with interest rates so low. But focus on those initial jobless claims numbers. They come in every week, but this week's a particularly important one. Because it's the week where we do the survey for the jobs report that will come out the first Friday of next month.

And the difference between this week's initial claims number and the one from the reference week in September, it only fell by 39,000. That's not a big move, suggesting kind of a stall in labor market improvement when we get that jobs report.

And that's not a new sign. For, really, April-- I'm sorry-- August, September, and October now, we've seen global economic activity stall-- not retrenching, but not really getting much better, really awaiting maybe that vaccine to unlock the next stage of the recovery. And who knows when that will be?

AKIKO FUJITA: There's also-- you know, when you look at the number of workers who've been unemployed for so long, we're also seeing the eligibility for those benefits being capped six months in or seven months in. How much of that do you think contributed to the drop, too, and how big of a concern is that?

JEFFREY KLEINTOP: Yes, that's a factor as well. In fact, some states aren't even reporting. So that is a factor, and it relates back to the stimulus, which you just talked about. So, you know, there's this push and pull as to whether we get the stimulus, if we do, whether the Senate will even vote on it this year, much less before or after the election.

And so there are a lot of unknowns. And that's in sharp contrast to what we're seeing around the world, where in Asia and many countries in Europe, where they've extended unemployment benefits all through next year. So the US is really an outlier in that regard. And it's beginning to show up in the data.

AKIKO FUJITA: You've talked about the stimulus. We've talked about vaccines. We haven't talked as much about earnings in terms of it being a big market driver. Where do you think that falls right now when you look at the market activity?

JEFFREY KLEINTOP: I think it's a push and pull. I think it's good news that we're getting from companies. Obviously, they're exceeding estimates. But I think even more important are the things related to what we were just talking about. What I think people want to hear is not so much that they beat for the quarter. That's not a big surprise. But they want to hear is that the cost cuts are behind them.

And that includes job cuts. You know, just ahead of the earnings season, we heard from Disney and Allstate and Exxon about big job cuts. We want to hear that that's over and we can expect to see some further, at least, stabilization in the labor market.

We also want to hear that the precautionary cash hoarding that might be paid out next year in the form of dividends-- of course, many of the financials have had to suspend their dividends. They might return next year. I think that would be a good sign if business leaders said they were feeling pretty good about their cash balances here.

And then finally, that the slowdown in economic momentum that we're noting here in initial jobless claims and elsewhere means they don't have to warn about the fourth quarter. All three of those things are much more important than just whether the company beats or not.

AKIKO FUJITA: When you talk about job cuts, what's your sense on how much worse things can get? Especially on the corporate level, you know, we've talked a lot about this wave of white collar jobs being lost. You've seen a number of the airlines talking about furloughs and cuts in the absence of additional stimulus. A number of companies that have reported layoffs later in the game here. Are things going to get worse?

JEFFREY KLEINTOP: Well, we've got to track the COVID situation. I think that's critical here. We've got to get the remaining part of the economy that remains shut down, travel and entertainment, to turnaround. Of course, a vaccine would do that.

But what would make it even worse in the near term is this revival we're seeing in 46 US states, in France, in Spain, in the UK. Ireland recently just shut down its economy for a number of weeks. The UK, of course, just announced a six-week national lockdown.

These lockdowns have vast economic consequences that can certainly contribute to job losses. I think there's talk of another 150,000 job losses in the UK as a consequence of the six-week lockdown that they're about to start. So that's the critical factor to watch. If this begins to show some signs of containment, then maybe the worst of the job losses are over. We can see some stabilization. If not, we're in for another round of some pretty serious job cuts.

AKIKO FUJITA: And Jeffrey, going back to earnings, you could argue there's been so many beats here because the expectations were so low. We've got 84 S&P 500 companies reporting so far, 85% beating analysts' expectations. What's been your takeaway? Any positives to the upside, going into Q4?

JEFFREY KLEINTOP: The one positive that really stands out is sales to Asia, and in particular, sales to China. The Chinese consumer is really supporting the global economy right now. It's been absolutely remarkable, whether you're talking about car sales and GM or you're talking about even Coca-Cola and their numbers, how they were supported.

Nike-- so many others are really pointing to an incredible resilience with the Chinese consumer, who's now seeing retail sales above where they were at the start of this year, completely recovered back to pre-pandemic levels. And that's a real bright spot as we look around the world. So those companies that have had a long-term China strategy and really capitalized on that are really seeing the benefit this earning season.