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Why this economist believes finding the 'new normal' for industries will help investors where to put their money

State Street Global Advisors Senior Economist Simona Mocuta joined Yahoo Finance Live to discuss why Congress certifying Biden’s win of the 2020 election is pushing stocks to new highs.

Video Transcript

[MUSIC PLAYING]

- Just from 50 minutes to go in the trading day, Dow and S&P up for the eighth time in the past 10 trading days, Dow up 250 points right now, building on yesterday's gains despite the riots that we saw down in DC. For more on this and what this means for the economy, we want to bring in Simona Mocuta. She is the senior economist at State Street Global Advisors.

Simona, great to have you on the program. Markets are looking past the unrest on Capitol Hill yesterday, Democrats winning both the Senate seats in Georgia. We also had the deadliest day from the pandemic, all happening within the last couple of days. My question to you is, what does this mean for the economy then going forward?

SIMONA MOCUTA: I think you have to differentiate between the sort of very near term, which probably implies a bit of a soft patch as we enter the first quarter in terms of the employment data, in terms of the service activity.

But as we evolve through the course of the year, I'm quite confident that we are going to see a considerable improvement in activity and a release of the pent up demand that we know is there in terms of consumer spending on services, travel, all the things we couldn't do in 2020 and we are so hopeful to finally do in 2021.

- But when we see predictions of 4.1% GDP growth, we had Mark Zandi on, and he pointed out a lot of this is going to be for, as you just said, services, going to restaurants, that kind of stuff, so not necessarily gains for companies that are tied to equities, gains for the economy, but for an investor, perhaps not so much upside as they might think?

SIMONA MOCUTA: You never know. I think we've all watched the stock market over the last few months with a little bit of a pleasant surprise, right? One thing that is important to keep in mind is you want to-- you're not looking at necessarily quarter to quarter results, but you want to make sure that you go back to a sustained baseline of operational situation.

And I think that's what we hope 2021 will restore clarity on. What is the new normal of demand for different industries, not just services, parts of the broader economy? And which companies are best positioned to take advantage, align, modify their business operation to succeed in this new world? Because there will be long lasting effects from the COVID crisis much longer past the time when will all be vaccinated and free to go back to do what we want to do.

- Simona, given what we've seen going on over the last several weeks, I think the big question is the impact that this is going to have on the jobs market. We're getting that number out before the bell tomorrow. But given the case trends that you were just talking about, the slow vaccine rollout, do you think the employment situation is going to get worse at this point before it gets better?

SIMONA MOCUTA: I actually do. I would not be surprised to see a small negative print in this week's jobs report. And I think the next report could very well be weak, because you are looking at the COVID cases, and you are seeing the numbers escalate. You are seeing the positivity rate very high. We don't yet actually know what the impact of the holiday season will have been.

But we heard already in Massachusetts today that some of the post-Christmas restrictions are being extended. And I would suspect to see similar developments elsewhere in the country. So there inevitably will be some pressure on activity in the near term and service in particular. And given that the bulk of employment is in services, that will weigh on the next couple of reports.

Now whether that will result in an increase in the reported unemployment rate, I'm not so sure, because a lot of the people who may be on layoffs again may still tell us that they are employed, but just away from their jobs.

So we'll have to look at the first quarter as a soft spot, December, January reports, probably the weakest, and then as we move into March, April, the spring period, I would expect to see the labor market job creation really re-accelerate considerably.

- I'm going to try and look for the silver lining on all these clouds. Let's assume that the best optimistic outcome is where we're headed. What sectors might an economist or an investor keep an eye on to reinforce that that indeed is what is happening?

SIMONA MOCUTA: Well, I think the labor market, it's important because it talks to you about the sustainability of income and therefore the sustainability of consumption. And if that consumption is sustainable, businesses will then respond with capital spending and so on.

So you want to see that virtual cycle develop and unfold fully to the fullest extent possible this year and then continue into 2022. So I certainly will be watching the labor market. Of course, policy is important.

One thing I worry about is despite the fact that we've received this new fiscal stimulus package, despite the fact that a Democratic Senate likely suggests additional fiscal injection, over the course of 2021, the economy as a whole will have to consider the prospects of operating autonomously, operating in the absence of continued fiscal support, and making that adjustment as smoothly as possible. It will be important.

So I think the way policy reacts, the way businesses react, it's all a living organism. I mean, that is the beauty of economics. Honestly, you can have the best models, but we really are talking about people, so that cannot be fully modeled.

But baseline expectation that things improve in 2021 I don't think is an extraordinary call to make. We have vaccines now being deployed. And a slow start hopefully will give way to a faster deployment as we progress. And that is the key to turning things around.

- Simona Mocuta, we have to leave it there, State Street Global Advisors Senior Economist. Thanks so much for taking the time.

SIMONA MOCUTA: Thank you.