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'There's been two economies in this pandemic': Veritas Financial's Greg Branch

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Greg Branch, Managing Partner of Veritas Financial, joined Yahoo Finance Live to discuss his market outlook and how the latest developments regarding stimulus talks are impacting the market.

Video Transcript

ADAM SHAPIRO: That the Dow is positive, and it went green after the news of this possible negotiation breakthrough went through. We're up about 40 points right now. S&P 500 is positive by about seven points. NASDAQ, essentially flat, it's off by about one point.

Let's bring into the stream to talk about where we go from here with Greg Branch, managing partner of Veritas Financial. And Greg, I just got to start off with you on one thing. You had thought that there was-- you didn't think there was any chance of even talk of stimulus while you have the two entrenched parties focusing on the Georgia Senate runoff. Do you still--

GREG BRANCH: Thank you.

ADAM SHAPIRO: --hold to that point of view? Because a lot of investors are watching.

GREG BRANCH: Look, I hope I'm wrong. But everything that Jessica covered, for example, is being repackaged as though it's new, and none of this is new. The bipartisan committee has been around for quite some time. They were never actually formed to bring about policy but, in fact, were formed to make sure that we were keeping the discussion alive. The McConnell proposals, again, are just a repackaging of a lot of the things that he's floated over the last few months to give, ostensibly, members in his party who feel uncomfortable some cover to say, hey, we're trying. But as Jessica rightly noted, that doesn't mean that they're actually coming to the table.

And so I haven't heard anything new. The only thing I've heard that's actually new is that we spent much of the last couple of months with all the political bandwidth, all the political will being tied up in contesting on election or contesting a Supreme Court justice. And so I am optimistic that now the political pressure seems to be at least forcing our elected representatives to even care about the appearance that they're getting something done, which is a starting point.

SEANA SMITH: Well, Greg, what's priced into the market, though, at this point? I know you're saying that you're not too optimistic that we're going to get something done by the end of the year. What do the markets care about? Does something need to happen then in January, or at least by February, in order to avoid a massive sell-off?

GREG BRANCH: Right. So I think there's a more eminent danger, right? As we rightly pointed out at the beginning of the show, a lot of what's remaining of the CARES Act actually expires at the end of this month. There are 10 million American homes facing eviction. Student loan payments will resume. There's foreclosures and forbearance that will start to take effect in our economy.

And so I think that there's an immediate-- a more immediate-term danger, and I think that the outcome's binary. Either we get the stimulus we need and the market can end appreciably higher and we can start to look through to the cyclical rebound next year, or we don't get the stimulus we need and we're dealing with a much more cataclysmic set of events than we're facing even right now, especially considering that the COVID numbers are likely to be appreciably higher than where they are right now.

If you want to look through that set of circumstances, I still do believe that next year-- and I think that the market has shown that this is the prevailing view-- that it looks a lot like 2010 to 2012, where we saw value sectors rebound off a cyclical bottom as other parts of the economy outpaced tech and growth, in terms of their earnings growth.

ADAM SHAPIRO: Do you discount the fact, though, that there's so much pent up demand and so much money on the side that one-- Americans may actually spend money as we get into 2021? That will help some of the more traditional retail-type stocks. But there's also pent-up demand to get some return in equities. So isn't that coming our way, even with what could be a potential slowdown right now?

GREG BRANCH: Right, and I'm glad you made the distinction, right? The pent-up demand in the real economy I will quibble with, right? Because if what we're doing is we've expended the generous federal unemployment benefits on top of the state, if we've expended the checks, if we've expended our ability to live rent free, if we've extended our ability to not pay student loans, I think we need to reexamine what pent-up demand there will be in January, what pent-up ability to spend beyond the basic necessities, where a vast majority of American households there will be.

Now, agreed, there's been two economies in this pandemic. There have been some lines of work, some lines of unemployment that have luckily been-- of employment-- that have, luckily, been unaffected, and there is pent-up demand there. But when you look at the country as a whole, I think that that has been greatly diminished. That doesn't affect the pent-up demand to buy equities so much, which will remain strong, so long as there's a Fed backstop. And I believe that that pent-up demand will be value shopping come December and come January into that weakness. That's certainly what I'll be doing.

ADAM SHAPIRO: All right, Greg Branch is managing partner at Veritas Financial. It's good to have you here.