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Trump's COVID-19 diagnosis increases the odds of a democratic sweep: Strategist

Stocks are falling after President Trump tweeted he has tested positive for COVID-19. Charles Schwab Chief Market Strategist Liz Ann Sonders joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: Liz Ann, I want to start there, because this breaking news from early this morning about the president and first lady. It might seem simple, but how does this-- because I hear other-- these pundits on TV saying this throws everything up into the air. Why does this throw everything up into the air, do you think?

LIZ ANN SONDERS: Well, it clearly adds to uncertainty. It means that traditional campaigning that we would likely see in the final 30 days, including the next two debates, are called into question. It probably puts greater importance and emphasis on the vice presidential debate.

I'm not a political pundit, but those that I see and follow, I would say the consensus is that this increases the odds of a Democratic sweep. Obviously, that has implications in terms of potential policy. But if there is a speedy recovery, we might get through this and finish the election season in a more normal way. We're all flying blind here.

DAN ROBERTS: Liz Ann, Dan Roberts here. Just to continue off that, you mentioned that it affects the campaigning that we would expect to see. But I would say that, of course, amid the pandemic, we already were not seeing traditional campaigning, of course-- Zoom things, and especially on the Biden side, not nearly the number of events you'd expect.

And so other than the immediate shock and uncertainty today from the news of the positive test, I wonder what you think will happen for stocks as a direct result of today over the next few days. Because hypothetically, knock on wood, but as long as the condition of the president doesn't worsen, if he's just going to quarantine now for two weeks, and I imagine he'll tweet right through it, I would think that the turmoil in stocks would sort of fade after a few days. What do you expect?

LIZ ANN SONDERS: Well, looking at market action today, I actually, I find it a bit odd-- not that the market is down. That's not terribly odd. But given that this news came in conjunction with what had been weakening virus news and some mixed economic data, and then you throw in, at least on the payrolls front, a weaker-than-expected jobs report, and in particular, the fact that temporary job losses continue to come down, but permanent job losses are going up, that, in turn, would also impact the market.

Yet it's the more cyclical sectors within the market that are relative outperformers today, like materials, like industrials, which is in contrast to probably heightened concerns about the economic trajectory here somewhat tied to the president's COVID diagnosis, given that it probably just adds to the concern factor, where that limits mobility and activity and could potentially hurt economic growth. So what it tells me today is it may have just forced more of this rotation trade with trimming of the prior winners, given that the weakest areas are those three momentum areas-- technology, consumer discretionary, consumer staples. So it's actually kind of hard to get a lay of the land in looking at today's market action. It's kind of an odd picture.

JULIE HYMAN: So given that, given that it's an odd picture today and it's an odd picture in the wider world, I think we can all agree, how do you position yourself? And particularly going out to the election-- I mean, we have, of course, seen an increase in sort of VIX buying, right, VIX futures buying closer to the election. Is that the way to do it? Or is there something else you can do for a sort of capital preservation right now?

LIZ ANN SONDERS: I think for the average investor that has no experience in trading things like VIX futures, I'd be cautious about that. The natural way to focus on this is typically at the sector level, or maybe more broadly growth versus value or cyclicals versus defensive. I don't think that's the way you approach this kind of market, not just because we've been seeing these huge swings in either direction. And again, it depends on how you segment the market. Is it reopening versus stay at home, growth versus value, cyclical versus defensive? You can slice the dice in a number of ways.

But the one consistent factor that has driven outperformance, regardless of which sector you're talking about, regardless of whether you're looking at growth indexes or value indexes, is quality, and in particular balance sheet quality. So that's what we've been telling investors, that the factor of quality is likely to be a more consistent driver of outperformance across the spectrum of indexes and sectors. And that also, with this kind of volatility and these big swings in and out of the momentum stocks, back into the cyclical stocks, that may be taking a more frequent rebalancing approach, using volatility and letting your portfolio tell you when it's time to rebalance. And that will help investors sort of stay in gear in this very difficult time.

ADAM SHAPIRO: Liz Ann Sonders is Charles Schwab's chief market strategist. Thank you for giving us your insight.