Analysts have been 'way too fast and way too severe in cutting earnings estimates': Strategist

Anik Sen, Global Head of Equities at PineBridge Investments joins Yahoo Finance's Kristin Myers to break down the latest market action as tech stocks recover earlier losses.

Video Transcript

KRISTIN MYERS: I want to go to our next guest now, Anik Sen. He joins us from global head-- he's the Global Head of Equities at PineBridge Investments. I want to chat with you about what we are seeing. I was reading your note, and you mentioned that you see great volatility over the next few weeks. I'm wondering what positions investors should be considering to reduce some of the risk to that volatility?

ANIK SEN: Well, yes, I guess that note was written before the US elections. You know, we, obviously, were concerned that the outcome could have been somewhat unpredictable. We did think that, you know, the opinion polls were somewhat wide of the mark. I mean, they have been for-- for Brexit. They had been in the previous elections. And, indeed, you know, we came into these elections with our portfolios being very balanced, fearing that there could be some, you know, heightened volatility around the elections.

KRISTIN MYERS: So, speaking of the elections, they, of course, are-- well, they're now over somewhat. We still, of course, have many lawsuits being filed by the Trump campaign. Do you see any room for some volatility, election-based volatility, around those lawsuits?

ANIK SEN: Well, never say never. I guess, you know, from a market standpoint, you know, what I'm looking for is, you know, the consensus view right now to prevail, which is that, you know, we get a divided Congress and, you know, President Biden in the White House. You know, I think, if that is the outcome, it would be a very positive outcome for equities.

KRISTIN MYERS: I'm wondering how-- and I was just mentioning tech, that sector doing very well today, of course, having some losses yesterday and had been underperforming for the month of October. How should investors be approaching tech going forward? You know, we had Lamar Villere yesterday saying that investors should be cautious about those big tech names, the Facebook, the Amazons, going forward. Is now the time, as you see it, to really trim exposure there? Or do you still see some room for growth in those big names?

ANIK SEN: Well, one of the things that we've been, I guess, writing about and advising investors about is that this market has been a very narrowly driven market, you know, all year. In fact, when you look at the number of stocks that are in positive territory, it's a minority. It's only about 40%.

And that ratio is, in fact, increasing. So it's a very narrowly driven stock-- the stock market, particularly, through the tech sector. And valuations there are definitely now expecting a lot of good things to happen in the future. So expectations are generally high.

And, within our teams, you know, we have been harvesting gains, and we have been recycling some of those gains in other sectors, particularly, because we see that the fundamentals across the board in corporate America is unusually positive right now and are coming up through the depths of the recession back in April, May of this year. So, you know, we think that 2021 is going to be a very equity-positive environment. And, with that broadening of market, you know, participation by more companies, we see a lot of opportunities, in fact, not just narrowly in the tech sector, but in the wider equity market.

KRISTIN MYERS: So, speaking about that opportunity, you know, we saw a lot of different sectors reacting, of course, very differently on the vaccine news, the stay-at-home plays, of course, taking a huge beating, while some other sectors, like travel, for example, of course, really doing well on the back of that news.

Moving forward-- and I know that you are quite bullish in the 2021 outlook. Moving forward, if you do recycle some of those gains that you made from tech, and you want to place it for work-- to work in this market, where do you see either certain stocks or certain sectors outperforming next year?

ANIK SEN: Well, both, you know, stocks and sectors, you know, this is a-- this is a marketplace where I think most CEOs and CFOs have been, you know, unfortunately, for not just for this coronavirus period in 2020, but even, you know, from 2018 and 2019-- you know, first, 2018 was largely due to concerns about a hard landing in China. 2019 was really all about the trade war. And then 2020 has been all about, you know, the lockdown.

And I think, you know, there's so much pent up demand. And there has been so much uncertainty for three years now that any release of that valve, you know, where animal spirits are allowed to come back in, a little bit more certainty in terms of planning for companies, this is sorely needed right now. And, with that, what you see is that analysts, this time around, particularly, you know, post the coronavirus troughs in the market, have been way too fast and way too severe in cutting earnings estimates.

So what we see today in 2021 is-- is a removal of some of that uncertainty, potentially quite a bit of that uncertainty, as well as earnings upgrades generally coming through after those very sharp earnings reductions that were put in by sell-side analysts. And then, finally, I think, in terms of the vaccine development, you know, we have Pfizer, as your previous guest mentioned, but, you know, there are three or four other major companies, drug companies, that are yet to produce their phase III trial.

So I'm kind of optimistic that, you know, we will see those mass vaccination programs around the world, potentially, by the first half of next year, but I think, obviously, the stock markets, equity markets will anticipate, you know, that happening. And so I think there are broad-based opportunities across, you know, a large range of sectors from financials to industrials to materials and so on. The reality is that, you know, there is a big gap right now in valuations in terms of stock market participation and some of that closing of that gap, which is what is needed right now.

KRISTIN MYERS: Anik, I know you're mentioning the vaccine, of course, taking a lot of the strength out of the biggest headwind that we've been seeing, which, of course, is coronavirus. I'm wondering your approach, then, to stimulus. They keep saying that stimulus talks are going to be restarting somewhat soon. How do you think that the market and the economy, at least in the near term, is going to be approaching that, given the vaccine news?

ANIK SEN: Well, the student this is very much needed, obviously, because, you know, the mass vaccination of, you know, large groups of populations around the world isn't going to happen, you know, in the next few months. It's going to take a while before we see that get completed. So-- but, for the time being, you know, there are many swaths of the economy, which are still, you know, shut. And so, you know, we need that stimulus package. We need it fairly, fairly soon. And so I think that, you know, the markets are anticipating some of that stimulus package to come in the foreseeable future.

KRISTIN MYERS: All right.

ANIK SEN: It's very much needed.

KRISTIN MYERS: Absolutely. All right, Anik Sen, Global Head of Equities at PineBridge Investments, thank you so much for joining us.

ANIK SEN: Thank you for having me, Kristin.