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U.S. personal income tumbles as jobless benefits expire

Paul Shatz, Heritage Capiltal President & CIO, joins Yahoo Finance's Kristin Myers to discuss expiration of jobless benefits and the stimulous outlook amid COVID-19.

Video Transcript

KRISTIN MYERS: Initial jobless claims for the week ending September 26, 837 versus 850,000 expected. That is compared with a 873,000 for the prior week. I have my dog here, Titan joining us for the jobless claims numbers. Continuing claims for the week ending September 19, 11.767 million. It was 12.2 million expected. For the prior week, it was 12.747 million in that prior week. So we are seeing those unemployment figures come down, however slowly. I do want to remind, however, everyone that still means that roughly 11.8 million people are still unemployed.

But, of course, the big news today is those stimulus. The White House has countered the House Democrats plan with one of their own. The price tag on that $1.6 trillion. So 600 billion less than 2.2 trillion that had been offered by the Democrats, which is a scaled back version from a stimulus package that they passed back in May. Now, it would include a $400 unemployment enhancement. Now, this White House proposal is roughly half the original plan that Democrats had originally proposed and passed back in May, which totaled roughly $3 trillion. Now, talks between both sides are continuing, but this counterproposal is giving hope that a deal could be reached.

And on the coronavirus front, 7.2 million cases in the United States right now. The death count has crossed 207,000. And in New York City, despite that rising positivity rate, it has become the first major city to reopen all public schools for in-person classes. And in the NFL, that game that we were talking about yesterday between the Titans and the Steelers, that has been postponed for a future date to be determined. This is happening now after another player on the Titans and an employee of that franchise tested positive for the virus. And this weekend upcoming, President Trump is planning on building a rally in Wisconsin in the red zone areas of La Crosse and Green Bay.

Let's check now on those market moves. We're joined now by Paul Schatz, President and Chief Investment Officer at Heritage Capital. Paul, thank you so much for joining today. I want to start with those jobless claims that we received. They are declining. We're seeing those continuing claims continue to climb, but personal income also declined, which is pointing, of course, for the need for more stimulus that, you know, Republicans and Democrats are talking about right now. But with that big picture number we're seeing on jobs, do you think that maybe we do not need as big an injection as before, which, of course, is in line with what Republicans are arguing?

PAUL SCHATZ: We certainly need more stimulus, because the have and the have nots in the economy are clearer than ever. So while the stay at home not inter-personal economy is really rocking, we still know that the restaurants, and the dry cleaners, and the arenas, and the travel industry, that's still in literally a depression. And I think people have to be super careful. When you think about that initial claim number of 837, that is if it wasn't for the pandemic, that's an unfathomable number. Yes, it's come down from some seven million early on, but I think it's now starting to level off.

Without stimulus, I fear that number ticks up to a million. Continuing claims, as you said, is coming down under 12 million. That's certainly a positive, but just think about it. These numbers are geometrically higher than anything we've ever seen in the modern era. So yeah, they're improving, but without the Fed, lord only knows where the markets would have been, and without the CARES Act. I'm not convinced we're going to have stimulus before the Election Day. We better, or else those numbers are going to get worse and quick.

KRISTIN MYERS: So what are you expecting tomorrow, jobs Friday? Especially after we got the ADP private payrolls number. That was upbeat. Now, we have these figures out. Are you expecting numbers in line with expectations that's roughly 850,000, or do you think tomorrow's report could be even rosier than expectations?

PAUL SCHATZ: Well, if you look at the last few months, we have typically beaten the numbers. So, I mean, the trend says it'll be better than expected. The trend says unemployment will drop further into single digits. That's way above my pay grade to model how pandemic unemployment's going to be, but for sure, it's gotten a little better. But we're nowhere near normal times. So even though these numbers are getting incrementally better, you look at a chart and you're like, you see, you know, February where we had 200,000 initial claims. And now, the norm is, you know, closer to a million. So tomorrow should be a little better, but I don't think it's cause to celebrate, and I certainly do not think there's any shot that we're going to have a V recovery back to where we were in February.

KRISTIN MYERS: I want to switch now to stimulus. Of course, we have renewed optimism we could be getting some sort of package in the coming days. Democrats and Republicans are talking today, but this counterproposal that we got from the White House is low and roughly half of what Democrats had originally wanted at around three trillion. So if Democrats get that deal, especially considering there has been so much hope over the last couple of days, where do you see markets heading?

PAUL SCHATZ: So first, I truly believe it's not the actual absolute number, how many trillions we're going to printing and create out of fabric. I think it's what is-- the devil's in the details. What's the fine print? What's included in that trillion, 1.6, 2.3, whatever number they arrive at, and I think that that's the real argument. It's not the amount of money. Listen, we've spent the next five katrillion generation's money, and we'll never be able to pay it back conventionally. So let's forget about any party being fiscally conservative. Neither one is. But they each have their base to further energize into the election, and each party has things in there that are nonstarters. That's the problem.

To answer your question about the markets, I truly don't think the stimulus-- they're going to use stimulus as the excuse. What's supposed to happen now is the rally's supposed to peter out today, tomorrow, early next week, and we're supposed to have another decline to new lows in the second, third-ish week of October. That's what the trends say, that's what the data says, at least in our models. We've got one more decline coming, we bottom before the election, and then a better rally begins. They'll use some kind of geopolitical reason why the markets went down, but the truth of the matter is I think whether stimulus passed or not, markets are still due for another pullback.

KRISTIN MYERS: Now yesterday, we were talking with Thomas Hayes, and he said that we are in right now in an information vacuum with questions around the vaccine, the stimulus, the election. I'm wondering what you think is top of mind most for investors, and what do you think will be the next or perhaps the biggest catalyst for the market going forward?

PAUL SCHATZ: And I would, I would definitely go-- I'm in an information overload right now. I feel like every day there's just a cornucopia of information being thrown at us. Remember one thing-- markets discount future economic activity three to six months down the road. That's what's important for investors to take away. What are the catalysts between now and the election?

I mean, to me, as an investor and to other investors, don't make wholesale decisions based on this one geopolitical event in November. Don't try to game who's going to win or how it's going to shake out, because the markets may not, like we saw in '16, the markets may not cooperate with your outcome. So I think between now and then, an individual investor can best be served by ignoring most of the headlines. They're just going to confuse the average person and frankly, the pros as well. If you feel like you've got too much ups and downs in your portfolio, then you should revisit your allocation.

I would find it very hard to advise someone to go all in or all out right now. I think we'll have a decline. I think there'll be a super opportunity as people fret over the election in a couple of weeks into the election, but I don't think there is a single catalyst right now that's going to propel the Dow to 30,000 in the next, you know, month. I think it's one of those times where patience is going to be rewarded.

KRISTIN MYERS: All right, Paul, always great to chat with you. I had so many more questions for you, so we'll have to bring you back soon. Paul Schatz, President--

PAUL SCHATZ: And I'll bring my dog in for a playdate next time.

KRISTIN MYERS: I know, my dog is right here listening into this market conversation to make some investment moves. Paul Schatz, President--

PAUL SCHATZ: And there's my dog.

KRISTIN MYERS: Capital. Aww, so cute.