Biggest risk to markets is volatility: Expert

Keith Fitz-Gerald, Fitz-Gerald Group Chief Investment Officer, joins Yahoo Finance's Kristin Myers to discuss the latest market action, as coronavirus cases continue to spike.

Video Transcript

KRISTIN MYERS: I want to dig into this just a little bit more now with Keith Fitz-Gerald. He's the chief investment officer of the Fitz-Gerald Group. So Keith, we were just hearing Brian break down some of those details. I was watching you nod along in agreement, at least in regards to the Fed coming out with some pretty strong words-- at least strong for the Fed.

Treasury Secretary Mnuchin pretty much said, you know, we don't really need to extend these lending programs. He says the markets will be fine. They'll be stable. The economic data is pretty good. What's your reaction here?

KEITH FITZ-GERALD: Well, I tell you what. I think that Secretary Mnuchin is operating in territory he may not fully understand. We cannot pass a budget. We can't balance a checkbook. We can't even elect a leader of this country without consternation.

So to take a program away from the Fed, which normally, I think, is out to lunch and out of control anyway, this is one of those rare instances where I side with the Fed. The Fed would be prudent to have those things there. Traders know it, investors know it. I think psychologically, Secretary Mnuchin has made a bad error here. And my fear is that it comes back to bite the markets.

KRISTIN MYERS: So to that point, I'm wondering what you think the reaction from the markets is going to be in the near term. And just to set the scene for everyone, right, we have these lending programs. They're going to be expiring at the end of December. We have coronavirus cases surging throughout the country. We don't have a vaccine yet. We don't have a stimulus yet.

And we still have, on some level, an election that is being currently contested. I know that we like to talk about the markets in the longer term. Everyone comes here and says, listen, I have a longer term view, I have a longer term view. But I'm wondering from you, Keith, what is the near-term view, given all of these headwinds, all of this chaos out there right now?

KEITH FITZ-GERALD: Well, I tell you, that is-- that's an excellent question, number one. Number two, that is a long but hardly distinguished list of factors that could negatively give us a nasty end to the year. I think an abundance of caution is relevant. I think that investors should use any kind of pullback we get as an opportunity to focus on companies that are going to make a difference 3, 5, 10 years from now.

So I still view the markets optimistically. But I think volatility, the risk here is that volatility accelerates because of the role of computerization, because of all the big money that is going to chase the slightest nuance out of either the Fed or the Treasury Secretary.

KRISTIN MYERS: Is there at all a chance that investors are going to be able to make some-- a bit of a comeback into the end of the year, especially given the pullbacks that we had seen in September and October?

KEITH FITZ-GERALD: Well, I tell you what. I believe so. I think that, you know, you've got great companies out there who are succeeding in spite of all that's going on. Companies are going to be critical to growth. They're putting this country back to work. Some of my favorites, for example, are Palantir, Microsoft, Apple.

At the other end of the spectrum, I'm looking for JP Morgan, I'm looking for Visa, I'm looking for Pfizer-- all of which I own, by the way-- full disclosure. But it's a barbell approach to me. You've got to swing the pendulum back and forth between what we have to have and what we're going to need to have to stay out.

KRISTIN MYERS: So I'm glad you mentioned that because I want to dig into some of these picks. Looking at Pfizer right now, up over 1 and 1/2 of a percentage point right now, I'm wondering what the upside, at least for Pfizer, is beyond that vaccine once it does get rolled out.

KEITH FITZ-GERALD: You know, I've thought long and hard about that. I don't have a specific number, but I do have the expectation because they have a long-- a big, broad portfolio of oncology drugs, for example. They are much more than just a vaccine. They've gotten on a lot of people's radar because of the vaccine. But to me, I chose this company early on because of everything else, plus the vaccines-- like getting a full meal deal. You get fries with that sandwich, you know?

KRISTIN MYERS: So I want to pick up on some of the other picks in a moment. But since you mentioned the vaccine, I do want to ask you about this. You know, we had Pfizer asking for an emergency use authorization, which means they might be getting that vaccine as early as next month. It seems as if we have had some boost to the market every time we've had a new vaccine news. And then the markets have really taken a bit of a pause.

I'm wondering how much of a boost or what they antici-- or excuse me, what their reaction is going to be from the markets once we actually do have those rollouts of this vaccine coming through, even though those rollouts are admittedly going to be facing a lot of hurdles.

KEITH FITZ-GERALD: Well, my expectation is that the markets are going to go sharply higher. Now there's going to be a sort of sell the news, buy the rumor phenomenon at work. And there's going to be a lot of profit taking, so it's not going to be a straight line hire. But again, the markets are a future-looking organization, a future-looking organism, for lack of a better term.

So knowing that's the case, I think that, again, we're going to be sharply higher into 2021. I think that it could be a year for the record books. The biggest risk that most investors have, frankly, is being trapped on the sidelines or not having enough of the securities they're going to want to own five years from now.

KRISTIN MYERS: So let's go back to the other piece of that barbell. You were mentioning some tech names-- Microsoft and Apple. And we have been talking a lot about tech because we have been seeing a rotation out of that sector, folks trimming some of their exposure, at least to those big tech names, the Zooms, the Amazon, Facebook, et cetera.

I'm wondering for you, is the upside there really just in the near term? And how much pressure do you think they're going to be coming under next year once the vaccine is being rolled out and folks are starting to anticipate being able to go back to work, go back to the office, see their friends again, and take the mask off?

KEITH FITZ-GERALD: I think that's a great question. I think that companies like Apple and Microsoft won't come under very much pressure at all because they're growing in spite of all this. On the other hand, companies like Zoom, for example, which I don't own, companies like Peloton, which I don't own, I think are a tremendous risk. Because the moment those things roll out and everybody does return, those stocks, which are darlings today, could be a disaster tomorrow.

KRISTIN MYERS: So I want to ask you now about the jobless claims figures that we had yesterday. They were a little bit disappointing and actually reversed a trend. They came in higher than expectations. I just want to kind of go back to the economy and some of your expectations here. I know that we have the vaccine kind of floating in the background of everything here.

But what are you anticipating if you think that there could perhaps be a reversal, which would be negative, in some of the economic data that we have been getting, which is showing that the recovery is continuing, but it is a little bit sluggish, but if you think that we can actually start to see some negative trends coming through as the virus continues to run rampant throughout the country.

KEITH FITZ-GERALD: Well, if we look at history, you know, if we look at history to our guide, we are going to have an ebb and a flow. It's not just going to be simply snap, and we're done with this thing. Economic data, particularly if it's government data, it can be more cooked in the Christmas goose, frankly. So you've got to take it with a big grain of salt.

I think you've got to look for the ebbs and flows. It's natural that we're going to get some retracement. People are still concerned. It makes me madder than you-know-what that our Congress cannot get their act together. America's hurting. This isn't a political issue. This is a get-everybody-back-to-work issue. So the question is, how do we do it? I think we're going to have some ebb and flow. It doesn't bother me one bit because long term, there's one thing you don't do, and that's bet against this country.