State Street Global Advisors Deputy Global CIO Lori Heinel speaks with Yahoo Finance’s Alexis Christoforous and Brian Sozzi about the latest moves on Wall Street.
Video Transcript
ALEXIS CHRISTOFOROUS: Let’s welcome in Lori Heinel now, deputy global CIO at State Street Global Advisors. Good morning, Lori. Before we get to the unemployment report, which usually on a day like this is our headline. This morning is quite different.
Tell us what the impact of this positive test result from the president and first lady has on the overall market. I mean, I understand it affects sentiment. But beyond that, what’s the impact?
LORI HEINEL: Well, look, we were already faced with an extraordinary election here in the US. Some of my colleagues have referred to it as an emerging markets election with a reserve currency. So there were already a lot of twists and turns. But I think one of the things that’s going to be critical is this is likely to limit the president’s ability to be out in front of his phase two campaign. So that may have implications for turnout.
It also could create some challenges, especially if his situation deteriorates, which, of course, we’re not– we’re hoping that doesn’t happen. But to the degree that his health becomes in question, that raises another set of issues. And then, obviously, things like the debates, which were planned to happen, it would give some undecided voters an opportunity to evaluate both of the candidates side by side, those are in question. So it just adds another wrinkle to what was already a pretty incredible series of events.
BRIAN SOZZI: Lori, you always seem to come on with us when there’s some crazy news. Markets [INAUDIBLE] so this is really becoming a theme.
LORI HEINEL: No, I don’t want that brand.
BRIAN SOZZI: Fair enough, fair enough. Listen, certainly you’re seeing the markets in risk-off mode here to kick off the day, and rightfully so. Are you make any changes to your portfolio off this news?
LORI HEINEL: Well, we’re not really day traders in that way. So we’re not reacting to what’s been going on. And clearly, we’ve been very calculated in the places that we are taking risks. So, for example, we’ve been overweight to credit because we believe that rates are going to be anchored at very, very low levels for a protracted period of time.
But I think the other thing that’s important here is it’s not just about the president’s situation, but also the stimulus package. And again, I think last time I was on, we talked about the imminence of another round of stimulus. And that was some weeks ago.
And here we are. We still don’t have clarity around whether there will be a package. Obviously, there was a package put forward, voted on, but there’s a long way to go for it to be translated into actuality. So I think the other piece of this is that markets are also reacting to what does this mean potentially for the ability to have another stimulus before the election?
ALEXIS CHRISTOFOROUS: Yeah, I mean, do you think that this now creates new urgency, the fact that we added so fewer jobs than excepted? 661,000, the Street was looking for something like 850,000.
LORI HEINEL: Yeah, I mean, certainly the report was very mixed, and maybe a little soft. And there were certain areas of weakness, like state and local governments, for example, which have been in the line of sights for a stimulus package anyway. So this recent employment report will give additional ammunition, certainly to the Democrats, to try to push for that kind of element to the stimulus package.
So I think both parties– or we think both parties would like to get some new stimulus package, especially so that as they go back to the last of the campaigns, to their constituencies, they can take back a win, so to speak. But the textures and contours are still a little bit in question. But our core base case remains that we’ll see some sort of a package, hopefully before the elections.
ALEXIS CHRISTOFOROUS: Lori, early on, and we have had economist Beth Ann Bovino on. And she noted that we might be slipping back into recession this quarter. Do you agree with that? And do you think a recession is priced into this market?
LORI HEINEL: So first of all, we don’t see slipping back into recession unless you have another very draconian kind of a lockdown. The big threat, clearly, is loss of income and impending layoffs. So we saw, again, a little bit of softness in income recently. But we believe that consumers still have adequate savings to draw upon. We believe that confidence has been improving, as we saw that in the numbers.
Even if there are layoffs announced, the timeline between them actually getting enacted probably does not threaten us immediately. But look, these are all big ifs, because if we do see massive resurgences or you start to see some sort of change in sentiment, then you could easily see us going the other way, at least from a consumer standpoint. But, again, there are bright lights. Manufacturing is the strongest that it’s been in months. So there are lots of bright spots that would suggest to us that we’re unlikely to slip into recession territory.
ALEXIS CHRISTOFOROUS: Yeah, one of those bright spots has been housing, right? I mean, the housing-related stocks have been doing well. We’re seeing strong housing numbers.
But, I mean, it’s so dependent on consumer sentiment and consumer spending. And as you see all of these layoffs now build– I mean, we were talking earlier in the show about how all those job announcements, job layoffs that were announced this week are not even reflected in today’s report. So are you concerned that as those begin to mount, and as we’re now seeing, more of these layoffs are becoming– going from temporary to permanent, is that going to now affect the housing market?
LORI HEINEL: Well, there are a number of things that are definitely headwinds, right? So as you note, there are concerns about layoffs. And how long it takes for them to transpire, how deep they become remains to be seen.
Again, the potential for fiscal stimulus was another salve, right, the ability to provide some income to help the most impacted workers get through this period of time. But there are also structural supports. I mean, low interest rates continue to be a boon to affordability.
There are mobility factors, so large constituents of potential home buyers looking for more space because they are going to be stuck at home, transmission from spending on other things, like travel, that they might have spent money on that today they can spend towards housing. So we think that it’s unlikely to unravel. But, as you say, there are a number of headwinds that we’re worried about. And the longer that the pandemic goes on, the more that these emergency measures, like fiscal and monetary stimulus, are the things propping up the economy, the more dangerous it is.
BRIAN SOZZI: All right, we’ll leave it there. Lori Heinel, deputy global CIO at State Street Global Advisors. Hopefully next time come back, the market’s ripping higher by 1,000 points on the Dow, Lori.
LORI HEINEL: Let’s hope so. Thank you.
BRIAN SOZZI: All right.
