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Why the U.S. economic recovery may be W-shaped, not V-shaped

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Although we see U.S. markets recovering, many believe the initial market rally had everything to do with the Fed intervention and not earnings. According to a recent Bank of America survey, 78% of respondents think the market is “overvalued”. WealthWise Financial President Loreen Gilbert joins The Final Round panel to discuss why she believes the market’s recovery will be W-shaped.

Video Transcript

SEANA SMITH: Welcome back to "The Final Round" here on Yahoo Finance. Let's get more on the recent market action that we've seen. And for that we have Loreen Gilbert, President of WealthWise Financial. And Loreen, it's great to have you on the show this afternoon.

LOREEN GILBERT: Thank you.

SEANA SMITH: Let's start [INAUDIBLE] one thing stuck out to me, and that was the fact that you referenced the recent Bank of America survey that we've talked about here in Yahoo Finance, showing that 78% of respondents think that the market is overvalued. The market at the levels that it's at today, with the Dow pushing further above 26,000, S&P above 3,100, NASDAQ right around record levels, do these current levels concern you at all?

LOREEN GILBERT: I would say that there are sectors or areas of the market that people need to have caution when it comes to adding new money. And certainly we've seen that tech has been on a tear. And certainly it's the way of the future. Retail investors feel very comfortable investing in tech. So without ignoring technology, I would say to investors, it's time to look at other areas of the market, areas of the market that haven't had the same kind of run-up.

SEANA SMITH: And what are some of those areas, I guess, that you're seeing opportunity to buy at this point?

LOREEN GILBERT: Right. So I would say, look at financials, look at consumer staples. If we look at those areas, certainly consumer staples is a good recessionary play. We know that's a proven sector during times of recession. And especially if we look at-- you were talking earlier about the resurgence of cases and a potential second wave and looking at people staying home longer. That's, once again, where consumer staples could do very well.

SEANA SMITH: And when you take a-- you mentioned the fact that there is some, I guess, uncertainty out there, to say the least, in the market, the rise in the number of cases. We also saw the fact that the initial headlines from Navarro on trade clearly spooked the markets. Is there still a reason to be defensive at this point?

LOREEN GILBERT: I think there is. And just to your point of what you said about Navarro's comments, and then the president tweeting out something different, it brings back the whole conversation of China, and it brings to the forefront the upcoming election.

So even though the coronavirus has been the one thing that we've been talking about, we can't forget that it is an election year. And some of these issues, as far as China and what is going on with the presidency, that's going to be at the forefront.

So I would absolutely say a defensive position makes sense, alongside with some of those growth year names, like in technology. So looking at areas like health care, which has been an area that we liked before coronavirus, and certainly through it and afterwards.

RICK NEWMAN: Hey, Loreen. Rick Newman, here.

LOREEN GILBERT: Hi.

RICK NEWMAN: The forecasts for corporate defaults are pretty grim. S&P just put out a forecast recently saying they think there is gonna be-- there will be more defaults in this cycle than during the Great Recession. That's pretty bad. Why doesn't the stock market care about that?

LOREEN GILBERT: Well, certainly the stock market should care about that. And what I would say about that is, if you look at corporate debt, it's the beware of those, you know, triple-C-rated companies. And if you look, there's a-- there's a correlation between those lower-graded bonds and how the stock is actually doing.

So I would say to investors that this is a market to focus on quality. Certainly, we don't want to fight the Fed. Certainly, the Fed has made lots of statements as far as supporting the bond markets. But at the end of the day, when you're looking at equity holdings, look for quality in those equity holdings.

MYLES UDLAND: And then, Loreen, as you think about the next maybe year or so, have your expectations changed on how things might play out, what this recession might look like, given what we've seen over the last couple of months with-- the stimulus certainly seemed to get consumers out. We may get more of that. The stock market has recovered quite a bit. But the labor market, still very much in dire straits.

LOREEN GILBERT: Right. So I would say we do expect more stimulus. You know, we've just been hearing about that. Potentially more checks in the mail. And I would also look for more tax reform, in a sense, maybe immediate expensing. I know that Congress is discussing that for businesses, because the CapEx has still been anemic, and we're looking for ways to spur that on and-- and build confidence in America.

Again, so I would say, you know, we're not out of the woods. The fact that the Fed indicated that we're going to probably not see a rise in interest rates through the year 2022 tells us that it's still a long road ahead. That's what we're hearing from the Fed.

So yes, the market, in a sense, has gotten ahead of itself in many ways. What that means is, you know, from here, how much more upside is there? That's why I'm saying, once again, to be looking at areas of the market that haven't had the same run-up.