WEBVTT - Contested Election Is Worst Case For Markets: Invesco's Hooper 0:00:01.360 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.200 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEO, market pros and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple Podcasts or wherever you listen to podcasts, 0:00:17.000 --> 0:00:21.160 and on Bloomberg dot com. Well, it is election day 0:00:21.239 --> 0:00:24.400 and investors have their various scenarios for how this could 0:00:24.440 --> 0:00:27.680 play out and how different outcomes could impact the markets. 0:00:27.680 --> 0:00:31.520 We're going to speak with Christina Hooper, chief Global market 0:00:31.560 --> 0:00:35.280 strategists for Investco. They have over one trillion dollars in 0:00:35.320 --> 0:00:39.040 assets under management, so they're in all of the markets. Christina, 0:00:39.080 --> 0:00:40.959 thanks so much for joining us. Again, we always appreciate 0:00:41.240 --> 0:00:44.320 having you on here. What kind of what's your base 0:00:44.400 --> 0:00:48.279 case scenario for when we wake up tomorrow morning? How 0:00:48.320 --> 0:00:51.519 are you thinking that this might play out? Well, I 0:00:51.600 --> 0:00:53.519 have to say, and Paul, it's great to be with you. 0:00:53.600 --> 0:00:55.959 Thank you for having me. I have to say that 0:00:56.120 --> 0:01:00.720 market strategists learn along early in their careers never to 0:01:00.800 --> 0:01:05.479 prognosticate about elections, So I have no base case scenario 0:01:05.600 --> 0:01:08.560 in terms of the election outcome. All I have is 0:01:08.560 --> 0:01:12.560 is if this happens, then we expect this to happen. 0:01:12.959 --> 0:01:15.400 And so if we were to see a Biden sweep, 0:01:15.760 --> 0:01:20.640 we would expect to see UH some probably the largest 0:01:20.680 --> 0:01:25.200 fiscal stimulus package of any potential scenario. Um. But we 0:01:25.240 --> 0:01:30.480 would also expect to see more controls on the spread 0:01:30.520 --> 0:01:33.560 of the virus UH. So we would expect more of 0:01:33.600 --> 0:01:36.880 the cyclical parts of the market to perform well. If 0:01:36.880 --> 0:01:40.000 we were to see a Trump UH win, we would 0:01:40.000 --> 0:01:42.920 assume he would keep the Senate as well, um, and 0:01:43.000 --> 0:01:46.200 we would expect some kind of a relief rally for 0:01:46.280 --> 0:01:50.400 the negative assets associated with Joe Biden. So, for example, 0:01:50.640 --> 0:01:53.720 traditional energy would be one that would probably come under 0:01:53.720 --> 0:01:55.920 pressure if Biden were to win. And then, of course, 0:01:55.960 --> 0:01:58.240 if there is a contested result of some kind, we 0:01:58.240 --> 0:02:02.160 would expect gold and treasuries to perform well, and perhaps 0:02:02.240 --> 0:02:06.680 the Japanese Yet so UM, not prognosticating on the election, 0:02:06.880 --> 0:02:10.480 just have our scenarios laid out for what happens in 0:02:10.520 --> 0:02:13.760 the case of a particular election outcome. I just want 0:02:13.760 --> 0:02:15.639 to point out a headline that costed the Bloomberg. In 0:02:15.639 --> 0:02:18.720 the last few minutes, the US early voting topped one 0:02:18.919 --> 0:02:22.080 hundred million ballots according to the latest data from the 0:02:22.080 --> 0:02:25.240 Elections Project, So that's pretty phenomenal, the first time ever 0:02:25.400 --> 0:02:29.679 that a hundred million ballots have happened early Christina. Is 0:02:29.720 --> 0:02:32.600 there consensus? So there may not be consensus on what 0:02:32.760 --> 0:02:37.160 percentage you know, chances this outcome happens, or what presented 0:02:37.280 --> 0:02:40.480 chance this outcome happens, but is there a consensus on 0:02:40.880 --> 0:02:44.359 how the markets will react in any given scenario. Well, 0:02:44.360 --> 0:02:47.760 I think there's a content consensus that in a contested election, 0:02:48.200 --> 0:02:51.520 that would be a worst case scenario for markets. As 0:02:51.520 --> 0:02:54.640 we know, markets don't like any form of uncertainty, and 0:02:54.680 --> 0:02:59.200 that of course includes and is especially the case in 0:02:59.280 --> 0:03:03.160 presidential elections. So that would be an environment where we'd 0:03:03.240 --> 0:03:06.080 likely see a stock market sell off. In fact, we 0:03:06.120 --> 0:03:09.720 could go back to two thousand sixteen and get a 0:03:09.760 --> 0:03:13.200 little taste of what we might see in with a 0:03:13.200 --> 0:03:17.880 contest election, because recall that night, the conventional wisdom was 0:03:18.200 --> 0:03:22.040 that markets were surprised and disappointed with a Trump win 0:03:22.520 --> 0:03:25.280 um and that's why stock sold off. I would argue 0:03:25.320 --> 0:03:28.600 that in fact what happened was that markets were nervous 0:03:28.600 --> 0:03:32.560 because Hillary Clinton didn't concede on the night of the election. 0:03:32.639 --> 0:03:35.480 She didn't actually give her concessions speech until the next morning, 0:03:35.760 --> 0:03:38.040 so we got a taste of that fear of a 0:03:38.040 --> 0:03:41.920 contested election, and we saw stocks sell off. So that's 0:03:42.040 --> 0:03:44.120 I think what is most likely if we see a 0:03:44.160 --> 0:03:47.760 contested election this time around. You know, there's still so 0:03:47.840 --> 0:03:51.400 much uncertainty I guess around this election at this stage. 0:03:51.400 --> 0:03:54.920 Are you surprised that we're seeing the stock market behave 0:03:55.000 --> 0:03:58.760 the way it is today? Up two and I am surprised, 0:03:59.040 --> 0:04:01.720 And that sets to me that the stock market stock 0:04:01.760 --> 0:04:06.680 market is expecting a decisive victory. Um, it might be disappointed, 0:04:06.680 --> 0:04:08.960 but that's certainly the way it's behaving right now, and 0:04:09.000 --> 0:04:10.640 I'm shocked that there doesn't seem to be a lot 0:04:10.640 --> 0:04:15.920 of hesitation with that. But sometimes the stock market knows better. Christina, 0:04:15.960 --> 0:04:18.320 how long do you wait before you put on a 0:04:18.440 --> 0:04:21.160 trade in the event the outcome is clear? So in 0:04:21.200 --> 0:04:23.800 the event that we know what's going to happen in January, 0:04:25.000 --> 0:04:26.840 do you put one on immediately? Do you do wait 0:04:26.960 --> 0:04:29.880 until January? Well, I had to give the caveat that. 0:04:29.960 --> 0:04:36.120 We always encourage long term investing mindset because most investors 0:04:36.120 --> 0:04:38.680 had a long time horizon, But the reality is that 0:04:38.720 --> 0:04:41.120 if we go back in history, what we often see 0:04:41.200 --> 0:04:46.920 is moved made in advance of an administration coming into office. UM. 0:04:47.240 --> 0:04:49.480 It's really funny, but a lot of the things you 0:04:49.480 --> 0:04:53.080 would expect to see when a president is in office 0:04:53.400 --> 0:04:57.480 doesn't happen. It's anticipated, and there are moves made before 0:04:57.520 --> 0:05:00.360 they come in UM. But in fact the result is 0:05:00.440 --> 0:05:02.440 quite different. And I'll give you a perfect example. There 0:05:02.480 --> 0:05:06.440 was so much nervousness and apprehension around healthcare stocks before 0:05:06.960 --> 0:05:10.719 UH the Obama administration came into office, and in fact 0:05:10.760 --> 0:05:12.840 what we saw was that healthcare was one of the 0:05:12.880 --> 0:05:16.960 top three performing sectors for several years during UH President 0:05:16.960 --> 0:05:19.719 Obama's time in office. Similarly, there was a lot of 0:05:19.760 --> 0:05:25.000 excitement about energy in advance of President Trump coming into office. 0:05:25.360 --> 0:05:28.160 There were a lot of policies that he was promoting 0:05:28.160 --> 0:05:31.520 that would be supportive of of traditional energy, of fossil fuels, 0:05:31.560 --> 0:05:33.840 and in fact, energy over the last several years has 0:05:33.880 --> 0:05:37.080 been the worst performing sector in the SMP five. So 0:05:37.200 --> 0:05:39.880 quite often those moves we see are made in advance. 0:05:40.360 --> 0:05:43.000 It's akin to um, buy on the rumor sell on 0:05:43.040 --> 0:05:46.320 the news. Remind us why healthcare didn't perform so well 0:05:46.400 --> 0:05:49.280 was that the market didn't anticipate that the President would 0:05:49.279 --> 0:05:51.280 be able to get the Affordable Care Act through, or 0:05:51.320 --> 0:05:53.719 that the Affordable Care Act would be bad somehow for 0:05:53.760 --> 0:05:56.760 healthcare stocks. It was concerned that the Affordable Care Act 0:05:56.800 --> 0:05:59.200 would be bad for a lot of healthcare stocks, and 0:05:59.279 --> 0:06:02.080 that's why we saw a lot of even as it 0:06:02.160 --> 0:06:05.920 expanded the base of customers it did. Um, there were 0:06:06.080 --> 0:06:11.960 particular concerns about specific industries, and we could very well 0:06:12.000 --> 0:06:14.479 see that again. And there are concerns today about what 0:06:14.560 --> 0:06:18.840 might happen to pharmaceuticals uh in a in a Biden administration, 0:06:19.120 --> 0:06:21.800 so we might very well see something akin to that 0:06:21.960 --> 0:06:24.440 now as well. Um. But again I have to say 0:06:24.520 --> 0:06:27.880 that quite often these traits are relatively short lived, and 0:06:27.960 --> 0:06:31.920 when a president actually does take office, we can see 0:06:31.920 --> 0:06:36.320 a very different sector performance than we would have expected 0:06:36.320 --> 0:06:39.719 in what would seem intuitive. Such a great reminder, because 0:06:40.080 --> 0:06:42.600 it can be hard sometimes remember exactly what happened four 0:06:42.680 --> 0:06:45.640 years ago, and and and before that and after that. 0:06:45.800 --> 0:06:50.880 Christina Hooper is investcos Chief Global Market Strategists, reminding us 0:06:50.880 --> 0:06:54.279 there that all sorts of sectors have potential moves ahead 0:06:54.279 --> 0:06:58.800 of them. Time now to welcome somebody who knows a 0:06:58.800 --> 0:07:03.040 lot about elections, politics, and this landscape in particular. Wendy 0:07:03.320 --> 0:07:07.320 Schiller joins us. She of Brown University, of course, and 0:07:07.360 --> 0:07:10.880 a friend to the program and to the station, really 0:07:11.000 --> 0:07:14.280 chair of political science again at Brown University. Wendy, what 0:07:14.480 --> 0:07:18.640 is your base case now, Hi, you just get right 0:07:18.760 --> 0:07:22.600 to it. I think here's what I mean. I I 0:07:23.080 --> 0:07:26.680 think we'll we'll know from some congressional races. I think, 0:07:26.760 --> 0:07:30.520 signaling earlier than even the presidential races. We know that 0:07:30.560 --> 0:07:33.000 there's a lot of people who are elected in what 0:07:33.000 --> 0:07:36.640 we call competitive swing districts, like Virginia, for example. We 0:07:36.680 --> 0:07:39.680 have Illinois. We have a couple of races in Texas 0:07:39.800 --> 0:07:42.480 that look really tight and are surprisingly competitive. We have 0:07:42.480 --> 0:07:44.960 a couple of Minnesota. You know, if things start to 0:07:45.000 --> 0:07:49.040 swing in congressional districts sooner for the Democrats, then you 0:07:49.080 --> 0:07:50.840 start to think, okay, maybe Biden will have a very 0:07:50.840 --> 0:07:54.120 good night. But you know, we'll know about Florida, We'll 0:07:54.160 --> 0:07:56.800 know about North Carolina, we'll know about Arizona, and we'll 0:07:56.800 --> 0:08:00.320 know about Georgia probably but before midnight tonight and all 0:08:00.360 --> 0:08:03.840 of those swing for Trump. If Trump looks really healthy 0:08:03.920 --> 0:08:06.000 in those states and looks like he could win, then 0:08:06.040 --> 0:08:09.280 I think things get very very dicey for Biden. So 0:08:09.440 --> 0:08:11.440 that's a big sort of romina. And Biden only has 0:08:11.440 --> 0:08:13.400 to win one of those states, you know, one of 0:08:13.400 --> 0:08:15.840 those four states, or look like he's in the lead, 0:08:16.160 --> 0:08:18.600 in a considerable lead in one of those states for 0:08:18.680 --> 0:08:20.720 him to sort of have a more relaxed night. But 0:08:20.800 --> 0:08:22.560 if he if Trump wins all of them or looks 0:08:22.560 --> 0:08:23.840 like he's going to win all of them, I think 0:08:23.880 --> 0:08:25.960 that that tells us that this sort of blue wave 0:08:26.040 --> 0:08:30.440 we thought might emerge isn't going to emerge the same way. So, Professor, 0:08:30.440 --> 0:08:32.240 how do you think the Senate will shake out? Is 0:08:32.280 --> 0:08:34.480 there in fact, you know, the markets are kind of 0:08:34.520 --> 0:08:37.640 suggesting here today that a blue wave may in fact, 0:08:38.120 --> 0:08:40.120 uh be in the cards. How do you think that 0:08:40.200 --> 0:08:44.320 might go in the Senate? That that that's a great question, Paul, 0:08:44.400 --> 0:08:46.160 because you think about the Senate and you think, you know, 0:08:46.200 --> 0:08:48.480 Mitch McConnell is totally immune this time. You would have 0:08:48.480 --> 0:08:50.520 thought if there's a big blue wave, you know, the 0:08:50.559 --> 0:08:53.680 guy has really been the poster boy for the campaign 0:08:53.679 --> 0:08:56.440 against the Republicans controlling the Senate in Mitch McConnell, and 0:08:56.440 --> 0:08:58.880 he's gonna probably breathe to re election. So I'm a 0:08:58.880 --> 0:09:01.560 little suspicious of that big blue way for the Senate. 0:09:01.840 --> 0:09:03.960 Iowa looks neck and neck. You know, we had a 0:09:03.960 --> 0:09:06.880 recent poll that's very credible that looks like Johnny Earnest 0:09:06.920 --> 0:09:09.040 can pull it out and stay. You know, if cal 0:09:09.120 --> 0:09:13.280 Cunningham can win in North Carolina, that suggests probably that 0:09:13.400 --> 0:09:16.280 the Democrats might get to fifty one if they can 0:09:16.320 --> 0:09:19.280 win Maine as well. They're probably gonna win Arizona, probably 0:09:19.280 --> 0:09:22.240 gonna win Colorado and lose Alabama. So they're looking at 0:09:22.280 --> 0:09:26.360 probably minimally of fifty forty nine Republican or a fifty 0:09:26.400 --> 0:09:30.040 fifty fifty nine Democrat. So I think that's where this's 0:09:30.160 --> 0:09:32.719 you know, we don't know, and I think that's where 0:09:32.760 --> 0:09:35.600 North Carolina becomes so important, even even if we don't 0:09:35.600 --> 0:09:37.959 know Biden Trump. You know, if cal Cunningham looks like 0:09:37.960 --> 0:09:40.480 he's really gonna win that race, that suggests better things 0:09:40.480 --> 0:09:43.439 for the Democrats across the board for the Senate. Say 0:09:43.520 --> 0:09:45.400 some of that again, When do you say Arizona is 0:09:45.440 --> 0:09:47.920 definitely going to go Democrats? In Texas? What do you 0:09:47.920 --> 0:09:51.200 say about Texas? Oh? No, no, So I think Arizona 0:09:51.280 --> 0:09:54.880 from Mark Kelly, I think he's been polling very consistently 0:09:54.920 --> 0:09:57.560 ahead of Martha mc sally. But you can imagine let's 0:09:57.559 --> 0:10:00.120 say people voting for Mark Kelly, a former AST or 0:10:00.120 --> 0:10:03.320 not UM, you know, and not voting for Joe Biden, 0:10:03.480 --> 0:10:05.680 you know, voting for Kelly because they want him over 0:10:05.720 --> 0:10:08.280 Martha McSally, and then voting for Trump in Arizona. So 0:10:08.320 --> 0:10:10.360 you can see the Democrats winning the Senate in Arizona 0:10:10.400 --> 0:10:14.000 but not winning the presidential race. UM. And Texas is 0:10:14.120 --> 0:10:17.360 you know, shocking, right, The turnout in Texas has been 0:10:17.360 --> 0:10:21.359 absolutely shocking, and but it looks like John Cornyn's comfortably 0:10:21.400 --> 0:10:25.600 ahead of Edguard that the challenger there. But I think 0:10:25.600 --> 0:10:28.120 that the issue is that Trump is only basically one 0:10:28.160 --> 0:10:30.760 point ahead in Texas, which is just you know, if 0:10:30.800 --> 0:10:33.640 you think about politics, just stunning. Same with Georgia, and 0:10:33.679 --> 0:10:36.839 Georgia will be interesting because the dude does not get 0:10:37.480 --> 0:10:41.240 or more against as off. Then you've got to runoff 0:10:41.240 --> 0:10:44.800 elections in Georgia in January, and I think that's really 0:10:44.840 --> 0:10:48.000 going to be some interesting voting dynamics. So it's possible 0:10:48.440 --> 0:10:51.400 the Senate Democrats could ultimately end up with a fifty 0:10:51.400 --> 0:10:53.720 one or fifty two majority. But I still think it's 0:10:53.760 --> 0:10:56.320 a bit of a lung shop. So, Professor, if the 0:10:56.320 --> 0:11:01.120 presidential election becomes contested, what is you're kind of base 0:11:01.240 --> 0:11:05.080 case for how it may play out. I think we 0:11:05.080 --> 0:11:08.320 could be faced with an unprecedented historic situation. I think, 0:11:08.559 --> 0:11:11.800 you know, if we have a tie, For example, if 0:11:11.800 --> 0:11:14.800 in the electoral College in December it's actually a tie, 0:11:14.840 --> 0:11:17.839 it goes to the newly elected House, which is expected 0:11:17.840 --> 0:11:22.920 to be more democratic. However, the Republicans still control more 0:11:23.040 --> 0:11:26.600 votes in state delegations than the Democrats, and that probably 0:11:26.640 --> 0:11:29.840 isn't going to change. So you could conceivably have literally 0:11:29.880 --> 0:11:32.840 the House electing or re electing President Trump. But in 0:11:32.880 --> 0:11:36.560 the Senate, if it's nine with the new Senate and 0:11:36.600 --> 0:11:40.320 it's new Democrats, then they may elect Kalma Harris as 0:11:40.400 --> 0:11:43.200 vice president. I mean, it's really quite I mean it's stunning. 0:11:43.320 --> 0:11:45.680 It's a really stunning thing. So I think so many 0:11:45.679 --> 0:11:48.400 things have changed already in whether Trump gets re elected 0:11:48.480 --> 0:11:50.880 or not, as obviously monumental, but even if he gets 0:11:50.920 --> 0:11:53.240 re elected, I think the Democrats have shown they know 0:11:53.240 --> 0:11:55.200 how to mobilize voters, and I think they've shown that 0:11:55.240 --> 0:11:57.680 some of these states have changed a lot in terms 0:11:57.679 --> 0:12:00.880 of demographics, and they are going to be more competitive 0:12:00.880 --> 0:12:04.600 moving forward, which changes the nature of politics going too, 0:12:04.880 --> 0:12:07.120 because we know that politicians look at the next election 0:12:07.200 --> 0:12:09.520 the minute the selection is over, and so when we 0:12:09.520 --> 0:12:11.280 start to think about what the balance of power might 0:12:11.280 --> 0:12:13.560 be in the Senate in the House in two these 0:12:13.600 --> 0:12:16.680 games the Democrats appear to be making among voters in 0:12:16.720 --> 0:12:19.800 these states changes a lot of the dynamics, which will 0:12:19.800 --> 0:12:22.560 probably change some of the policies coming out of Congress. Yeah. 0:12:22.600 --> 0:12:24.720 I mean it's really the African American vote, right, Wendy. 0:12:24.800 --> 0:12:28.120 And how much more of that we'll see. We're already seeing, 0:12:28.280 --> 0:12:31.679 you know, a lot more engagement. Yeah, So, I think 0:12:31.679 --> 0:12:33.960 African American voter has always been key. You know, North 0:12:33.960 --> 0:12:37.680 Carolina and Georgia had about sixty African American turnout in 0:12:38.840 --> 0:12:41.679 it wasn't enough because those numbers were not hit in 0:12:41.679 --> 0:12:45.760 in Wisconsin, Michigan, and Pennsylvania among African American voters, and 0:12:45.800 --> 0:12:47.400 they and you know, they may or may not get there. 0:12:47.400 --> 0:12:49.880 If they get there, I think Biden wins relatively easily. 0:12:50.160 --> 0:12:53.720 But what's interesting is suburban white women of all educational 0:12:53.800 --> 0:12:56.720 levels seem to be really vehemently at the moment against 0:12:56.760 --> 0:12:59.320 Trump and the polls, and it could be that instead 0:12:59.360 --> 0:13:01.920 of the back vote really being key in the Midwest, 0:13:02.120 --> 0:13:04.480 it ends up being white women, which would be really 0:13:04.480 --> 0:13:08.520 an interesting shift. You know, a mirror eighteen when white 0:13:08.520 --> 0:13:11.080 the majority of white women voted for Democratic candidates. But 0:13:11.160 --> 0:13:14.280 it would change the nature of the Democratic coalition if 0:13:14.320 --> 0:13:16.560 that were the deciding factor. So that's what I'm looking for. 0:13:16.600 --> 0:13:19.760 I'm looking for a turnout, particularly in particular counties in 0:13:19.840 --> 0:13:21.880 Michigan where we still have a lot of people are 0:13:21.880 --> 0:13:25.000 going to vote in person, and certainly in Pennsylvania. Wendy 0:13:25.040 --> 0:13:26.920 were really out of time. But I am desperate to 0:13:26.920 --> 0:13:30.120 ask you, given the amount of of of judges at 0:13:30.120 --> 0:13:32.160 the state level made us be level and and and 0:13:32.200 --> 0:13:35.360 obviously federal level that the president has overseen get on 0:13:35.400 --> 0:13:37.360 the court, does that give him an advantage in any 0:13:37.360 --> 0:13:41.360 court cases? It may, although you saw in Texas the 0:13:41.400 --> 0:13:44.040 Texas State Supreme Court refused to throw out a hundred 0:13:44.280 --> 0:13:47.080 seven thousands in ballots and Harris County Democratic County and 0:13:47.360 --> 0:13:50.880 George W. Bush judge just yesterday a federal judge, a 0:13:50.960 --> 0:13:53.720 court judge also refused to throw those ballots out. So 0:13:53.800 --> 0:13:55.400 I don't know that you're going to see the kind 0:13:55.400 --> 0:13:58.080 of rulings that Trump expects to sort of throw out 0:13:58.160 --> 0:14:02.600 hundreds of thousands of ballots that were cast, presumably for Democrats. Wendy, 0:14:02.600 --> 0:14:04.400 thank you so much for joining us. We appreciate we 0:14:04.440 --> 0:14:06.880 know you're busy today on this election day. Wendy Schiller, 0:14:07.320 --> 0:14:10.439 chair of the Political Science department at Brown University, located 0:14:10.440 --> 0:14:14.199 in Providence, Rhode Island, really appreciate you coming on. And Vanni, 0:14:14.280 --> 0:14:17.080 It's gonna be a fascinating day of fascinating evening and 0:14:17.080 --> 0:14:19.760 I wonder what we're gonna be talking about tomorrow, but 0:14:20.080 --> 0:14:25.600 we will see. Well, it is a decidedly risk on 0:14:25.760 --> 0:14:28.640 day today. As Greg Jarrod was just reporting equity markets 0:14:28.680 --> 0:14:32.040 up over two bonds selling off here, let's get a 0:14:32.080 --> 0:14:34.960 sense of, you know what this means in the bigger picture. 0:14:35.040 --> 0:14:37.360 We could do that with our good friend Nick Holas, 0:14:37.400 --> 0:14:40.600 co founder Data Trek Research. Nick, thanks so much for 0:14:40.680 --> 0:14:42.560 joining us here. We had a big sell off in 0:14:43.160 --> 0:14:45.920 the equity markets last week. This week kind of a 0:14:45.960 --> 0:14:48.440 turnaround here in a big move today. What are you 0:14:48.480 --> 0:14:52.120 reading into it? If anything? You know? I think the 0:14:52.160 --> 0:14:55.400 thing we can take away from today and yesterday as well, 0:14:55.520 --> 0:14:57.760 is that the market is looking forward to having the 0:14:57.800 --> 0:15:03.160 election behind us and to focus on fundamentals, which during 0:15:03.200 --> 0:15:06.280 this earning season have been remarkably good, where it really 0:15:06.680 --> 0:15:10.320 record or near record levels for earnings beats and earnings amounts, 0:15:10.360 --> 0:15:13.560 and the profits are coming through. But everybody's a little 0:15:13.560 --> 0:15:16.760 bit cautious about what comes next, and so estimates aren't rising. 0:15:16.800 --> 0:15:19.640 But the baseline that we're having right now in terms 0:15:19.680 --> 0:15:25.400 of earnings is excellent. That said, if the pandemic continues 0:15:25.480 --> 0:15:27.920 to ravage the nation as it is now and we 0:15:27.960 --> 0:15:33.480 don't get widespread vaccine, you know, delivery, let's say until 0:15:33.520 --> 0:15:38.280 sometime next year, can results continue to impress. Yeah, it's 0:15:38.320 --> 0:15:40.880 it's an excellent question. And unfortunately we have to go 0:15:40.920 --> 0:15:43.640 back to the political sphere to answer some of that 0:15:43.720 --> 0:15:46.800 because the missing link in terms of earnings for the 0:15:46.840 --> 0:15:50.040 next couple of quarters is going to be fiscal stimulus. 0:15:50.080 --> 0:15:53.480 Monetary stimulus is less an important factor because it's already 0:15:53.520 --> 0:15:56.280 so accommodated. We really have to focus on whether or 0:15:56.280 --> 0:15:59.040 now we get a another CARES Act, and that is 0:15:59.480 --> 0:16:01.560 in the per view of the belt Away, and I 0:16:01.600 --> 0:16:04.720 think we have to really worry a bit about repeating 0:16:04.760 --> 0:16:07.640 say two thousands and eights, where we had an election outcome, 0:16:08.000 --> 0:16:10.920 but the election outcome created a change of power, which 0:16:11.000 --> 0:16:14.480 delayed the Recovery Act until February of two thousand nine, 0:16:15.080 --> 0:16:17.080 and that's why the market didn't really bought them until 0:16:17.120 --> 0:16:19.960 March of two thousand nine. So I am cautious about 0:16:19.960 --> 0:16:23.320 that particular scenario that we just don't get stimulus until 0:16:23.520 --> 0:16:26.920 DC sees a change of power. Yeah, Nick, the you 0:16:26.920 --> 0:16:29.120 know the other Obviously, the issue out there, arguably the 0:16:29.160 --> 0:16:32.200 biggest issue is the pandemic and the and the numbers 0:16:32.240 --> 0:16:35.000 are just going in the absolute wrong direction, and we're 0:16:35.000 --> 0:16:38.960 seeing European economies shutting down to varying degrees, and so 0:16:39.080 --> 0:16:41.520 people are concerned that, uh, you know, the US is 0:16:41.600 --> 0:16:44.920 just a matter of weeks behind Europe. Here. If that, 0:16:45.120 --> 0:16:47.440 if these numbers were coming across the tape in March 0:16:47.480 --> 0:16:51.480 and April, this market would presumably be down significantly. What 0:16:51.560 --> 0:16:53.480 do you think the market? How do you think the 0:16:53.480 --> 0:16:58.480 market's viewing this second slash third wave globally? You know, 0:16:58.880 --> 0:17:03.960 I think you're absolutely right. The the European situation is bad, 0:17:04.040 --> 0:17:07.239 and it's bad for a bunch of different reasons. The 0:17:07.359 --> 0:17:10.040 US has a little bit of a different situation. You're 0:17:10.119 --> 0:17:14.080 right to cle a. The virus is definitely taking a toll, 0:17:14.720 --> 0:17:17.960 but I think there's hopefully enough awareness to understand that, 0:17:18.119 --> 0:17:20.960 particularly in places like New York. We're all based, you know, 0:17:21.040 --> 0:17:23.320 there is a lot of mitigation efforts still under waste, 0:17:23.320 --> 0:17:25.879 still a lot more work from home. Europe did not 0:17:25.920 --> 0:17:28.320 really embrace work from home the way the US did, 0:17:28.359 --> 0:17:31.080 and so I am hopeful that the US economy can 0:17:31.160 --> 0:17:34.879 continue to move along in conjunction with some stimulus that 0:17:34.960 --> 0:17:38.879 avoids the worst economic outcomes of what's going to happen 0:17:38.920 --> 0:17:41.120 in Europe, which I agree with you are are pretty profound. 0:17:41.760 --> 0:17:44.639 So what's the base case make and what industries would 0:17:44.640 --> 0:17:48.040 you be recommending keeping a close eye on if your 0:17:48.040 --> 0:17:51.720 base case scenario does come to pass. So the base 0:17:51.760 --> 0:17:55.120 case scenario is actually bullish, you know, it does require 0:17:55.160 --> 0:17:58.760 more stimulus, but it is positive. And against that backdrop, 0:17:58.840 --> 0:18:02.119 we like industrials very much. They've had a very good quarter, 0:18:02.480 --> 0:18:04.399 and then we think there's a lot of earnings leverage 0:18:04.400 --> 0:18:08.919 and industrials large camp industrials going into We also like 0:18:09.080 --> 0:18:13.040 small caps over large caps. The one area where cautious 0:18:13.040 --> 0:18:16.280 on its technology Tech has had such a strong year 0:18:16.600 --> 0:18:19.400 that it's coming up against what we call very tough cumps. 0:18:19.800 --> 0:18:22.000 It's very hard to get earnings leverage when you have 0:18:22.119 --> 0:18:25.159 a blowout year and the next year goes back to normal. 0:18:25.280 --> 0:18:28.400 So we don't like technology right now, but do like cixicles, 0:18:28.440 --> 0:18:31.160 like industrials and small caps. We'd also stay away from 0:18:31.240 --> 0:18:34.800 financials because of the very low rate environment. A ten 0:18:34.880 --> 0:18:36.960 year yield that goes back to one percent just isn't 0:18:37.000 --> 0:18:39.359 good enough to generate a lot of marginal earnings for 0:18:39.440 --> 0:18:42.600 the financial sector. So it's interesting, Nick, You know, I 0:18:42.600 --> 0:18:45.960 think a lot of people are kind of trying to 0:18:46.040 --> 0:18:49.359 figure out when they do that rotation, and you know, 0:18:49.480 --> 0:18:51.720 out of those big tech growth names that have worked 0:18:51.760 --> 0:18:55.200 so well for so long, arguably since the financial crisis, 0:18:55.760 --> 0:18:58.919 but appears that the market is in fact already beginning 0:18:58.920 --> 0:19:02.399 that rotation. Is that what you're saying, yes, absolutely right, 0:19:02.440 --> 0:19:04.840 That is that that's exactly what we're seeing, and it's 0:19:04.880 --> 0:19:06.640 for all the right reasons. It might be a little 0:19:06.640 --> 0:19:09.960 bit counterintuitive to see companies report blow at earnings and 0:19:10.000 --> 0:19:12.159 the market turned their back on them, but at the 0:19:12.200 --> 0:19:14.720 same time you have to look forward, how does tech 0:19:14.800 --> 0:19:17.920 generate the same kind of earnings comps and earnings leverage? 0:19:18.040 --> 0:19:21.280 Next year that it did this year. If things, as 0:19:21.320 --> 0:19:23.919 we all hope, begin to go back to normal, you know, 0:19:24.000 --> 0:19:28.520 you had absolutely tremendous demand for MacBooks and iPads. iPhones 0:19:28.640 --> 0:19:30.520 might take some of the slack up in Q four 0:19:30.600 --> 0:19:33.320 for Apple, But what are you looking for next year? 0:19:33.440 --> 0:19:36.600 How are you gonna replicate through the upgrade cycle that 0:19:36.600 --> 0:19:41.760 we got in I don't think you can and make 0:19:41.880 --> 0:19:45.159 just you know, very quick answer. Does any of this 0:19:45.240 --> 0:19:47.520 depend on who's the next president or of what color 0:19:47.600 --> 0:19:51.480 the next Congress is? You know it does to some degree. 0:19:51.480 --> 0:19:54.520 I would tell you that obly enough, markets don't like 0:19:54.600 --> 0:19:57.479 gridlock as much as the cliche seems to say. Market 0:19:57.520 --> 0:20:00.080 does better since World War Two, when either them of 0:20:00.119 --> 0:20:03.760 Crats or Republicans hold the White House and converse, a 0:20:03.880 --> 0:20:07.840 split decision isn't necessarily a great outcome. Yeah, that's so 0:20:07.920 --> 0:20:10.359 interesting because we hear that quite a lot. That the 0:20:10.359 --> 0:20:13.879 opposite that is Nicholas, thank you. Nicholas is co founder 0:20:13.960 --> 0:20:17.760 of Data check Research, our Data Track Research. As I 0:20:17.760 --> 0:20:20.840 should say, we all know that Data Track Research. Nicolas 0:20:20.920 --> 0:20:23.280 co founder of that, and of course Paul, you know 0:20:23.359 --> 0:20:25.320 that's we hear that quite a bit. You know, good, 0:20:25.400 --> 0:20:27.439 good markets like good luck. Markets like good luck, but 0:20:27.600 --> 0:20:29.399 you know you have to wonder why that is or 0:20:29.480 --> 0:20:32.080 what the origin for that sort of Yeah. I love 0:20:32.119 --> 0:20:34.520 having Nick on. He really puts things, I think very 0:20:34.600 --> 0:20:37.280 clearly here and he is clearly in that rotation camp 0:20:37.280 --> 0:20:41.240 in the cyclicals. Well, it is time to have a 0:20:41.240 --> 0:20:43.159 look at the bond market because there again we are 0:20:43.200 --> 0:20:46.959 seeing a few basis points in moves. It would appear 0:20:47.000 --> 0:20:49.800 to be a risk on move. What will ask the expert? 0:20:49.840 --> 0:20:54.040 Iro Jersey is chief interest rate strategist for Bloomberg Intelligence, 0:20:54.119 --> 0:20:56.480 and he joins us now I wrote, what is the 0:20:56.480 --> 0:20:59.359 bond market saying to you today? Yeah, it is a 0:20:59.480 --> 0:21:03.400 risk on of like you mentioned, Vonnie, I think importantly, Um, 0:21:03.800 --> 0:21:07.919 I think the bond markets giving us to two important signals. Firstly, 0:21:08.040 --> 0:21:10.239 is if we close where we are right now at 0:21:10.240 --> 0:21:12.919 around eighty eight basis points on the tenure yield, we 0:21:12.960 --> 0:21:17.200 are now targeting the um the June yield high, so 0:21:17.760 --> 0:21:21.320 somewhere near nineties basis points. So so we're looking at 0:21:21.359 --> 0:21:23.199