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What Trump’s COVID-19 infection, September jobs report means for the stock market

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Investopedia Editor-In-Chief, Caleb Silver, about the state of the U.S. stock market.

Video Transcript

BRIAN SOZZI: OK, the US added 661,000 jobs in September, bringing the unemployment rate down to 7.9%. Let's discuss with Caleb Silver, Investopedia editor-in-chief. Caleb, always good to see you.

Now, coming into the session, if you would've told me that the president and the first lady contracted COVID-19, are reportedly experiencing symptoms, and we had a disappointing jobs report, I'd say the Dow would be down about 1,500 points. Clearly not the case. Why is that?

CALEB SILVER: Yeah, well, it was earlier this morning. And I think investors were bracing for the worst. But the unknown, right? The unknown and the unimaginable is kryptonite for investors. So we saw the selloff early.

But markets are bouncing back, as they have all summer. They assume, investors, that this will pass, too. We'll eventually get into a more robust economic recovery. We thought we'd see that more in the tape this morning on the jobs report. But there were less jobs added than expected.

And we still have this crisis of the long-term employed not being able to get back to work. But investors really don't care much about that. They want to buy the stocks that have been leading the market gains all year. And they continue to do that this morning.

ALEXIS CHRISTOFOROUS: We've already had a lot of uncertainty swirling around this election. Will it be a contested election? Now you've got President Trump positive with COVID-19. Do you think that in some ways, Caleb, this might make him a sympathetic figure? I mean, we saw British Prime Minister Boris Johnson when he got COVID and he was actually hospitalized, his popularity actually rose after that diagnosis.

CALEB SILVER: Right, and that's-- I wouldn't be surprised to see a similar dynamic playing out. It all depends on how the president approaches this and how he communicates about it. Obviously, everybody wishes the best for anybody who's been affected by this virus. But the question is whether the things that are out there that have been uncertain, that stimulus bill, are going to get one? More aid to the airlines, is that going to happen?

Will we get a contested election? Probably. What about the Supreme Court nominee? All of those things are now boiled into this one focal point, which is the president is quarantined for the next two weeks at least inside the White House. What kind of policy will he dictate from there, if any? And is he going to be OK?

BRIAN SOZZI: Caleb, I know you guys run a lot of surveys over at Investopedia. Is there anything you have seen in the past week or so that would suggest that the selloff, that the steep selloff I think a lot of people on Wall Street are starting to brace for, that that might actually happen before the election?

CALEB SILVER: Well, we did see that 10% correction for the S&P 500, just as we had surveyed our readers, who said we expect the market to fall ahead of the election. It did. The fact that it's clawed its way back means that I think investors are like OK, I think that that has sold off low enough.

We hit that support level. Markets have bounced from that. We've had a rally five of the last six days. So that's out there right now.

But I think today's jobs report tell us something-- tells us something very significant. Most sectors of the economy have seen an economic rebound-- manufacturing, industrial production and the like. The labor market has not.

And that labor market, as you know, translates into consumer spending, into personal incomes, which we saw dip last month. When consumer spending starts to fall, the retailers and even the e-commerce businesses that have done so well through this pandemic are going to start to feel it. That could lead the entire market a lot lower going in and through the election.

ALEXIS CHRISTOFOROUS: Caleb, you said a moment ago that a big concern here are those workers who were temporarily laid off. They've now moved into permanent layoffs. How difficult is it going to be for these people to re-enter the workforce in the coming months and into 2021?

CALEB SILVER: Right. There are 7.3 million of them, according to the BLS, that have been unemployed 27 weeks or longer. How hard is it to get back into the labor force when you've been out that long? A lot of these workers may be service employee workers. They may be in the retail and hotel and hospitality and restaurant industries.

Those industries, as you know, are very compromised. So it's going to be very difficult. There are jobs out there, but they are the minimum wage jobs. They are the $15 to $20 an hour jobs in temporary retail and seasonal hiring.

That's not a career for people. But with pandemic insurance running out, people may need to take any job they can get and hope for the best. It's going to be very hard to bring that number down to the 3% to 5% range where it was before this whole thing started.

BRIAN SOZZI: We've been having this discussion all morning long, Caleb, if we are, in fact, back in recession. It remains unclear. Where do you stand?

CALEB SILVER: I think we're out of a recession. I've spoken to the equity that monitors the business cycle and all the elements that go into it. I think we left the recession back in May and June. But the people recession, the real-feel economy, what people are feeling on the ground, especially those that have lost hours, lost jobs, or lost family members is much more real and much more dire than what the numbers tell you.

So you know how it is. The headline numbers are one thing. They tell us one thing. But down on the ground, folks that have been very compromised by this pandemic in terms of labor, in terms of their earnings, I think that's going to take a very long time to recover. So we may have a labor recession for several years, but the overall economy is out of it.

ALEXIS CHRISTOFOROUS: But do you think we're going to continue to see the disconnect between what's happening on Main Street and Wall Street? I mean, to Brian's point earlier, you would think that the market would be selling off much more sharply, that the selloff would be sustained, given all the news of the day. Yet we have the Dow down about 230.

CALEB SILVER: Yeah, I know. But investors, as you know, are projecting into the future. They're always discounting the future. They thought the recovery would be here sooner. That's why we saw the rally so aggressive in May and June. But now that they're seeing it could be tempered a while, we may see that pullback.

I think investors, especially the big money, which has been out of the market by and large until the last couple of weeks, needs a place to put it for yield. And they're not getting in treasuries. They're not getting it in the money markets. They're not going to get it much more in government bonds.

So they're looking for yield. And yield has been in the stock market. And the you know the stocks that have delivered. So I cannot see them turning their back on that now.

And the US especially has that growth, where you can't really get that around the world. We've seen other stock markets rally, like China and India. But the US stock market has the biggest growth potential. So I see a lot of money coming back into it once we get through this uncertainty.

BRIAN SOZZI: Caleb, this heightened level of uncertainty we have seen this week, the debate, now with President Trump contracting COVID-19, is this the backdrop where you see would see a rotation back into the FAANG stocks, those consistently steady high growers, that while richly valued have been really top performers all year long?

CALEB SILVER: Yeah, we've seen it in the last couple of days. But a few weeks ago, it was the cyclical recovery, right? We saw the consumer discretionaries rallying. We even saw some oil and mineral and mining stocks rally. We saw the broader-based rally, even with financials.

But that sort of dissipated as that recovery now seems even more distant and more uncertain. Uncertainty is kryptonite for investors. And when they can't get a clear picture, they either don't do anything or they start selling. Looks like they're starting to buy again because they're over it this morning. But it's going to be a long day.

BRIAN SOZZI: That much is for sure. Caleb Silver, Investopedia editor-in-chief, always good to see you.

CALEB SILVER: Thank you.