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'We're not making any major portfolio decisions around the election': Strategist on current investment approach

Megan Horneman, Verdence Capital Advisors Dir. of Portfolio Strategy, joined The Final Round to discuss her outlook for the market and how she is approaching her investment strategy as the Presidental election comes into focus for investors.

Video Transcript

MYLES UDLAND: All right, welcome back to The Final Round here on Yahoo Finance. Myles Udland with you in New York, where we've been discussing over the last couple of weeks-- and we will discuss for the next five-- the implications with the election, how the markets should be thinking about them, whether some of that risk has already been priced in. For more on all of that, we're joined now by Megan Horneman. She is the director of portfolio strategy at Verdence Capital Advisors. Megan, thanks for joining the program.

So let's just start with that question about politics, the election, where things are out right now, how you're thinking about the interplay between those two. And how much that's dominating the conversation, I guess, that you guys are having with your clients.

MEGAN HORNEMAN: So there's-- obviously, ahead of an election, especially one that's as contentious as this one-- even though every election is contentious-- there's a lot of questions from clients specifically regarding taxes and should they be doing anything at this point. Right now we're not making any major portfolio decisions around the election specifically.

About a month ago we did reduce some of our global equity exposure, but it wasn't just because of the volatility that you historically see around the September and October in an election year. It had more to do with the fundamentals. And that's where there is quite a bit of uncertainty.

Elections are going to come and go, political parties are going to change, but at the end of the day, it's all about the economic fundamentals. So we wanted to come into the end of this year with a bit more cash, an overweight cash position, to be looking to take some opportunities as we saw the volatility pick up at the end of this year.

MYLES UDLAND: So let's talk about some of those fundamentals. And one that you guys flagged-- and we've talked about a lot here on the program-- is what we're seeing in the housing market versus what we're seeing in some of the other indicators. I mean, housing is up and to the right. I think we could say it's a V-shaped recovery, if there was even, really, a slowdown at all in that part of the market.

Meanwhile, we're going to see what the jobs report says, but labor market is still in tough shape. We haven't had more stimulus. So what do you make of the-- or how do you kind of describe the economic lay of the land today?

MEGAN HORNEMAN: So I think that you said it exactly. This is one of the bigger risks. Housing is doing great because of the interest rate environment. The manufacturing side is actually doing very well, because we're getting rid of all that backlog of orders, and this is really showing that pent-up demand that we had coming out of the global lockdown.

But the biggest part of the economy is the consumer. Now, the data we got today was great, where the consumer confidence number was very good. That was better than we had expected, and that was after a couple weeks where it was actually starting to show some weakness. But it's still below pre-pandemic levels. So in order to get a strong consumer, we have to get an improvement in the labor market.

It's very difficult to say that the consumer is going to be at pre-pandemic levels if you still have over one million people filing for ongoing unemployment jobless claims. We'll get some more information this Friday. The one thing is that if you look at the estimates right now, we did see a pretty big decline in the unemployment rate from the peak. But now it's, actually, only supposed to tick modestly lower. So the unemployment situation is definitely something that, underlying, is concerning to us. And we need to see how that pans out with the consumer.

You combine that with the fact that fiscal stimulus is really looking like-- whether post-election, but at least not in the near term. And that's concerning, because there is a significant amount of people that need that fiscal stimulus right now.

MYLES UDLAND: And then, Megan, quickly, before we let you go, you mentioned that you guys want to have-- you're recommending that cash levels come up a little bit. Are you just willing to kind of wait until we get to 2021 to make a decision on that? Is there a catalyst that would kind of encourage you to, maybe, put some of that to work, and are there areas you're kind of eyeing now, that you're looking for a more attractive entry point?

MEGAN HORNEMAN: So really what we want to see is valuations get more attractive. We're not in this-- our clients aren't short term traders. We want to give them the best opportunity from a valuation perspective. And there are parts of the market right now that still look pretty frothy. So that is where we are sitting on that cash, thinking that you could get some pullback in some areas like that, whether it's technology, which has seen a recent correction, but still is up over 20% year to date. Some of the growth names as well.

But right now we'd rather wait and just see how this pans out, the volatility, what that does present with us. Our positioning is slightly overweight in the small and mid-cap space, as well as in the international markets because we do like the international markets. And we're just looking for some more opportunity here within the US, but we're just not going to chase momentum. We'll wait till those valuations look attractive to us.

MYLES UDLAND: All right. Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. Megan, thanks so much for joining the program. We'll talk to you soon.