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Unemployment claims continue to rise as COVID-19 cases surge

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, joined Yahoo Finance Live to discuss the latest unemployment numbers and his outlook for the economy as covid relief programs approach their expiration date.

Video Transcript

SEANA SMITH: We see the Dow under pressure, off nearly 200 points. So falling back below that 30,000 level that it crossed and closed above for the first time yesterday.

Now, for more on this, we want to bring in Rob Haworth. He's a senior investment strategist at US Bank Wealth Management. And, Rob, let's actually start with what Jess was just saying just in terms of those relief funds that are set to expire at the end of the year could potentially have some dire consequences for the economy. How are investors, how are you viewing this risk, potential risk to the market?

ROB HAWORTH: Yeah, no, it is-- we do view it as a meaningful risk. But I have to admit, when we look at markets over the last few days, they're really looking much closer at the long-term play-out of a vaccine and how that comes into play. We're primarily concerned with this cliff as it's happening. And we saw that today when we looked at the jobless claims data, where we saw not only jobless claims tick higher, but we also saw, for the first time in a while, continuing jobless claims tick higher, which tells us that people are going to be under duress as we head into the holiday season.

Not only that, when we look at the October personal income data, yes, we saw wages rise, but we saw transfer benefits decline. And that's that early indication that unemployment claims are running out and people are starting to run out of money. So it makes the extension of these programs, as you mentioned, important to the economy, especially as we get into the new year. For now--

ADAM SHAPIRO: Rob, for the average investor who might stand back and take a look at all this, we know the Fed-- we saw the minutes that they would be willing to increase let's call it QE, but there are steps to keep money easy to get. We know that there's going to be stimulus eventually. But then there's that article in "The Journal" today about the fact that, you know, on the S&P 500, we're trading at greater than 26 times the profit earnings ratio.

If you're an average investor, things are looking really pricey, and, yet, you have no choice but to buy into something that's already expensive. What do you do?

ROB HAWORTH: Well, yeah, the market, broadly, is expensive, but we're starting to see that rotation trade happen. And I think we need to keep in mind that it's really been a tale of really three different segments in the stock market so far this year.

We've seen the innovation names, the tech names, communication services-- call it the work-from-home names-- doing very well. They're certainly priced to a premium, although earnings have been following along there.

We've seen materials and industrials start to recover as businesses have gotten back to work and we've seen manufacturing activity improve.

And then, lastly, we have the bombed-out names, as you talked about earlier-- the airlines, energy companies-- which are really at trough earnings. They had a really rough third quarter of earnings. And I think what investors are really going to have to look at is, those companies really haven't played along as we've seen stocks do well this year, and that could be the trade as we get to reopening. And that's the key. We need vaccinations, inoculations, and a healthier population to get back to be fully reopened to see those names really recover.

SEANA SMITH: So, Rob, does that mean that we're going to kind of see this leadership trade on and off between the growth names and some of those value/cyclical names then until we have a vaccine, until we see a little bit more clarity there?

ROB HAWORTH: Yeah, I mean, we're really thinking about the forward environment until we get to actual vaccinations and inoculations in a couple of segments, right? We're worried about some of the post-election risks. We're worried about the growth in the virus, which has a very damaging and real human toll, especially when we talk about hospitalizations and deaths. And we think that comes in and out of-- in and out of the market's narrative as it thinks about the forward environment.

And then, lastly, as we finally transition towards inauguration and the first 100 days, for us, that's kind of the next phase we're going to be looking at because that's where government policy really comes to the forefront, right? I think there's not a lot of clarity until we get past the electoral college vote on December 14, until we get past the Georgia Senate runoff vote on January 5 as to where control lies.

But, certainly, once we get to inauguration and beyond, we'll have much more clarity about stimulus. We'll have much more clarity about our reaction function to inoculations, and that maybe gives the market confidence for a more stable, go-forward environment once we get past that. But I think there's a lot of uncertainty in the near term, and we will see these rotations, as we've been seeing here over the last few days of it.

ADAM SHAPIRO: A quick question for you. We have seen a lot of people going into small cap. That's going to be sustainable, don't you think, well into the new year, isn't it?

ROB HAWORTH: Well, and the interesting thing is, small cap's done poorly for quite some time. So I think, especially early in this-- early in this trade, small caps have been hit very hard. Small caps are definitely-- small and midsize companies are definitely interesting to us. You see some of the stocks and some of the sectors that hadn't worked so well in a work-from-home environment, they'll probably perk up and do better. We think that is probably a sustainable view, but we're not making that call just yet.

SEANA SMITH: All right. Rob Haworth, always great to have you on the program. Senior investment strategist with US Bank Wealth Management.