CIO on Pelosi and Mnuchin's 'pure optical theater' regarding the CARES Act

As discussions between House Speaker Pelosi and Treasury Secretary Mnuchin continue, Morgan Stanley's Wealth Management CIO Lisa Shalett joins The Final Round to share stimulus progress and how headlines are driving markets.

Video Transcript

SEANA SMITH: For a little bit more about today's market action, and also what we've seen play out over the last month, what we could expect to hear going forward, we want to bring in Lisa Shalett. She's the chief investment officer at Morgan Stanley Wealth Management. And Lisa, we last spoke to you just around a month ago. So since then, we still don't have a stimulus deal, COVID cases continuing to climb. We had this growing uncertainty around the election for all the reasons that we have been going through over the last couple of minutes. So just what's your assessment of where we are and what adjustments have you made since we last spoke to you?

LISA SHALETT: Well, we haven't made a lot of adjustments in our portfolio construction I think really since the high that was hit on September 2. We've been somewhat cautious talking about the fact that we felt strongly that markets were probably going to be range bound at least until we had a much clearer sense of where we were with the CARES 2 Act and where we were with the election. And we're still four to five weeks away from that.

From where we sit, the events of the last week actually reduce, not increase, I think a lot of what's going on with Mnuchin and Pelosi right now is pure theater. I think if you think about the events of the last week, they actually put all of the focus on Mitch McConnell really having to use all his ammo to get his Supreme Court justice confirmed. And he's going to have to navigate that potentially having lost a few days here and there, because of the senators being out for COVID.

So I don't see him shifting his priorities or shifting his focus. And I think all the rest of this in terms of CARES is pure, is pure optical theater. I don't think we're going to get anything. And so our view is, markets are churning here and lurching from headline to headline, and we're going to stay pretty much where we are until we really have clarity on stimulus and on politics.

AKIKO FUJITA: And Lisa, on that note, I want to get back to those two political headlines that Andy alluded to. On the one hand, the worst case scenario right now, it seems avoided in terms of the president and the coronavirus. And then you've got these polls that came out over the weekend that only reaffirms Joe Biden's lead. I mean, is that what the market is reacting to today? Is it the assumption of a little more clarity when we've been talking so much about how messy things are going to be on the other end of this election? And if that's the case, is the market a little too quick to jump on this and to process it? Because we really don't know with just less than 30 days to go.

LISA SHALETT: Yeah, no, absolutely. Look, I think one thing that's clear, is that regardless of what you think about the president's health, there's no doubt that he is going to be campaigning in this last 30 days at a different level, at a different pace, at a different intensity than maybe what his original plans were 30 days or even seven days ago. And that kind of stuff matters.

As the polls widen, the only thing that that's telling you, is that the odds of this being an election that doesn't get decided for weeks or months perhaps comes off the table. And I think that last week and the week, the last week in September was really dominated by that, where people were less concerned about who wins and this idea that somehow our democracy was going to be so challenged that we weren't going to know the results of a presidential election unless it went to court.

So I don't think investors want this to go to court, regardless of whether the winner has a blue shirt or a red shirt at the end of the day. And I think that with widening polls, that possibility gets taken off the table. And so a little bit of risk premium comes out. I think it's a bridge too far for people to start saying, well, isn't Biden going to go and tax corporations and tax capital gains and isn't that horrendous for the market. I think it's way too soon for people to actually be discounting those outcomes.

RICK NEWMAN: Hey, Lisa, Rick Newman here. I wonder if you can make the case that the market had actually beginning to look past the election? Even with regard to that big stimulus bill you mentioned before, which if it doesn't come before the election, probably will come in some form after the election.

LISA SHALETT: Yeah, so look, we talk to our clients about this all the time. As you think about 2021, the market has a lot going for it irrespective of Washington. We have a lot of stimulus still already in the pipeline. It's highly likely that if you believe in science, that science is going to have some kind of response to COVID-19 and that the recession will end in calendar 2021.

And we have the likelihood that only do you continue to have a very accommodative Fed, but regardless of who wins, that you will have additional fiscal stimulus. One fiscal stimulus bill might be spent on one set of priorities and one might be spent on another set of priorities, but you're probably going to get it. So if I close my eyes and I told you you were going to have an accommodative Fed, huge fiscal stimulus and you're coming out of a recession, what do you do? You buy stocks.

And so I agree with you. I think that long-term investors get the joke and understand that elections happen every four years, and that by and large, it's policy, not politics that determines where we go from here. And that ultimately, it's just how does policy affect the business cycle. And at this point, those policies are likely to all be very, very, very pro cyclical.