Technology and adoption pushed productivity to more ‘historic levels’: strategist on pandemic
Stocks trade higher after Wednesday’s market sell-off. Ben Mandel, J.P. Morgan Asset Management Global Strategist joins Yahoo Finance Live to breaks down the outlook for U.S. economic recovery amid pandemic.
Video Transcript
JULIE HYMAN: Futures are pointing to a higher open here as we head about three minutes until the opening bell here this morning. To talk about the action, let's bring in Ben Mandel. He's Global Strategist at JPMorgan Asset Management. Ben, it's good to see you. You know, we, of course, have been watching the GameStop phenomenon with a lot of interest. I know that your clients have as well.
When you get this sort of market that is underpinned by index funds, and ETFs in many cases, do you start to see more of these sort of marginal groups of investors have more of an outside influence going forward? Is this, should we be, should we get used to this perhaps? And then, is that going to have a feedback loop into strategy?
BEN MANDEL: Well, I think you hit on the main question here. And we've been receiving variations of this theme over the past few days. Is this idiosyncratic or is it broad? Is it persistent or is it transient? In other words, is a signal or is it noise? And we lean heavily towards the noise side of the ledger in the sense that you have an odd constellation, an odd juxtaposition of factors going on here. So you had a very broad and sharp selloff in equities yesterday across different styles and sectors and regions.
At the same time, you had macro data that were, if anything, good, solid indications of global goods demand, and the fact that the cyclical recovery is underway globally and in the US in particular, and you had a Fed meeting yesterday as well where if anything, I mean not much happened, but if anything, it was a dovish meeting. Underpinning the idea that you have a very persistent and ample policy support between monetary and fiscal policy over the next few years. And so what that does, is kind of hone your sense of what is happening to a very idiosyncratic factor that's affecting equity markets.
The other perspective on that, is if you look across the suite of asset classes, bond yields really didn't move much yesterday. So this was not a classical growth shock in the sense that you didn't have bond yields falling as equities sold off. And so that also tells you that it's not as if bond markets and equity markets are looking at different things. Everyone's looking at the same information.
And it's sort of focused on a very idiosyncratic factor within equities. And so we view this largely as a deviation from what is otherwise a generally constructive macro trend. And I think the question is, is this a buying opportunity or not? And if so, what are you buying? That's kind of how we look on this on a 12-month basis.
MYLES UDLAND: Yeah, and it's certainly a chaotic environment right now. A chaotic environment this morning as well. And we're about 10 seconds away from the opening bell here on this Thursday morning. Seeing live pictures now from the floor of the New York Stock Exchange.
[RINGING BELL]
We've got PIMCO ringing the opening bell. Down on the floor, things getting underway. We've got a few things open. But then maybe let's go back in time and pretend it's two weeks ago and we're talking about the outlook for 2021. And I guess the conversations then, certainly there were questions about, was the street too bullish on the growth trajectory for this year relative to vaccines, relative to where earnings are expected to come in. Given what we've seen an earnings season so far, are you still convicted that that corporate rebound theme remains in place here?
BEN MANDEL: Yeah, definitely. The economic backdrop is solid, and that's going to give rise to a decent backdrop for earnings. And so really, it's not a question of how much, but when you get that earnings recovery, and what is the distribution of that earnings recovery over the next year or two years. I think all indications point towards this year being a big chunk of that recovery in earnings. And underneath that is an economic outlook which is very sanguine.
Our long-term view of the US economy has not really changed given, even notwithstanding massive shock that we saw last year and the big, the massive volatility that that gave rise to in terms of growth and the level of economic activity. So not only did we not see wholesale destruction of productive capacity, but we actually had for all the tragedy of COVID, some really concrete examples of how technology innovation and adoption was pushing productivity back towards more historic levels.
And so we are not in a fallow period of technological growth and innovation. The fact that we're all doing this on screens is a very good example of that. And so the long-term anchor is there. In the medium term, as we think about and as we got US GDP for the fourth quarter of the year, one of the disappointing aspects of the report was that consumer spending was a little soggy at the end of the year.
And that's going to move up and down with restrictions. But the medium term is also very well supported insofar as you have this pile of cash and savings on household balance sheets that's going to be spent out over the course of the next few years. And so the medium and long-term endpoints are anchors to the forecast. And so you don't have a lot of path dependency in the meantime.
Little wobbles over the next month or quarter are going to be paid back in the subsequent months and quarters to get you to the same end point towards the end of the year. And we see the output gap as basically closed across developed market economies at the beginning of 2022. And so that's your earnings story right there. Nominal earnings are going to be keying off of a fundamental backdrop, which is highly supportive.
BRIAN SOZZI: Ben, I want to go back to some of the market activity that we've been seeing of late. How does this Main Street versus Wall Street thesis that is not playing out clearly with these Main Street-type investors in these chat rooms, how does this change your job and the job of others like you on Wall Street?
BEN MANDEL: You know, I think at the end of the day, we're all macro investors. My firm belief in the long-term is that you're basically getting out of markets what the economy is giving you. Maybe that's my brainwashing as an economist speaking. But I think that's a very important factor. And so to the extent that the composition of the buyers and sellers in markets changes over time to be a little bit more retail versus institutional, that's not a long-term structural driver of returns.
And so that's not something that we're really trading around. And therefore, it hasn't it hasn't changed my job fundamentally as we think about where the opportunities in our global public multi-asset opportunity sit. I will say, however, that it does, it's not as if it doesn't influence your thinking at all. I think we need to consider very carefully what signals we could be taking from this experience and this recent change.
For example, are we in bubble territory, is a question we're going to be asking ourselves probably pretty regularly over the next little while. I think the question on everyone's minds is, is this early 2000? And are these indications that we're headed into some type of financial bubble? And what are the implications if and when we are, and if and when that pops? We don't think we're there at the moment. But that's something that we have to consider as we tactically shift around in portfolios.
And then I guess maybe a little bit more subtly, is this an indication that sentiment for risk is a little bit more fragile? So maybe it's really not about the retail investors. Maybe it's just symptomatic of this idea that risk sentiment is going to be pushed around a little more in an environment where growth is not surging. And so the flattening out of the growth trajectory, even if it's positive, might give rise to a little bit more market volatility as we debate what is the timing of the vaccine, what are the ebbs and flows of the virus, how much fiscal policy support are we going to get. And so, it's really a vol question rather than a matter of direction.
JULIE HYMAN: Yeah, that makes sense. I love all of you guys on the street trying to get your arms around this issue, which we're all thinking a lot about right now and interpreting it in different ways. It's interesting stuff. Thanks so much, Ben, good to see. Ben Mandel of JPMorgan Asset Management, appreciate it.
