Liz Ann Sonders on markets: "It doesn't feel like we're past the worst"

Charles Schwab Senior Vice President and Chief Investment Strategist Liz Ann Sonders joins Yahoo FInance’s Seana Smith to discuss the market outlook amid the coronavirus, as jobless claims jump to a record-breaking 6.648 million.

Video Transcript

SEANA SMITH: Welcome to live market coverage on Yahoo Finance. I'm Seana Smith. We have stocks moving higher this afternoon, led by a massive jump in oil. Now, crude is the big story of the day. It's driving most of the action that we are seeing on the street this afternoon. We have President Trump coming out this morning, tweeting that he expects Saudi Arabia and Russia to scale back production through-- though it's still down pretty significantly over the past month, just over 40%.

Now the move higher today coming despite that big jump in jobless claims that we got, weekly jobless claims skyrocketing to a stunning 6.6 million. And that is a new record by far.

For more on today's market action, I want to bring in Liz Ann Sonders, chief investment strategist for Charles Schwab. And Liz Ann, we knew this number, the jobless claims number, was going to be bad. Maybe not as bad as it was, that 6.6 million figure. It's an unprecedented shock, really. What do you think this tells us about where we stand at this point? Because there is a question out there just in terms of how many of this is furloughed workers versus actual jobs lost.

LIZ ANN SONDERS: And we don't fully know the details yet. We also know that there were a lot of systems at the state level that were really clogged up. So unfortunately, that may mean that the actual numbers are higher than this. If you combine last week's with this week's, you're talking about 10 million.

What we know in terms of the furloughed workers is that a lot of the adjustments made to unemployment insurance allow for payments to those furloughed workers. So that helps to explain why the numbers are so large.

But if you start to do some extrapolation in terms of what it means for job growth, and you look at what percentage of payrolls exist in the most affected area, whether it's leisure and hospitality, whether it's travel, whether it's retail, we may be looking at-- not probably the March jobs report tomorrow, because that only goes through March 12, but I've seen numbers as high as maybe a loss of 10 million payroll jobs, and a pretty quick jump to double-digit percent in terms of the unemployment rate, by virtue of what we can glean from these claims numbers.

SEANA SMITH: Liz Ann, What about the continuing claims number? Because I was reading through your recent notes, and you were noting that it still remains below the financial crisis level. But how long do you expect that to be the case?

LIZ ANN SONDERS: I think probably as early as next week, those continuing claims could jump to a level above the financial crisis. And that would be the key thing to watch, because then you get a sense on a cumulative basis of who is still in that situation of being unemployed and receiving the unemployment insurance.

So we'll start to be able to see the true numbers in the four-week average, which is a common way to look at it when you've got volatility on a week-to-week basis. And then, again, the continuing claims, I think, are particularly important. Plus the fact that, as I mentioned, I think the March jobs report won't give a big tell. I think we're going to have to wait for the April report in terms of the actual impact on payrolls.

SEANA SMITH: Liz Ann, how long-- I mean, this is a hard question to answer, I know, because it's very tough to project right now in terms of when we are going to see the coronavirus peak. But from what you're gathering from what the data is telling you, do you think we have hit a market bottom, or do you still think we have a ways to go below the recent lows that we saw?

LIZ ANN SONDERS: Well, the honest answer is I have no idea. Even if you look at a normal bear market, or even within the confines of historical bear markets, those that have come in a very, very condensed period of time, like the crash of '87, the more extreme bear markets, say, like the Great Depression era, early 1930s-- most instances, you don't get a V bottom. You don't get a crescendo low, and then you bounce off of that. You tend to have retests, and in some cases, multiple retests.

So I really don't know. It doesn't feel like we're past the worst. I think the virus will dictate the terms of that. But even in a normal environment, you're more likely to go through additional bouts of volatility, retests of the low, possibly moving down below the low, before you finally find that footing. But we're really just rewriting the playbook, so using history is such a marginal guide in this environment.

SEANA SMITH: Yeah, Liz Ann, you say that you're rewriting the playbook here. Are typical valuation metrics, at least at this point, less relevant in a market like this, just because of the circumstances that we are currently under at this point?

LIZ ANN SONDERS: I think they're highly irrelevant right now. Yes, you could do backward-looking P/E analysis. You could do trailing 12 month-earnings or do a Shiller cyclically adjusted P/E But backward-looking earnings are irrelevant in this environment. Forward earnings are always more important from a valuation perspective, but the rub right now is that guidance is being just fully withdrawn by most of the companies that are being impacted by this. They're not guiding down. They're just withdrawing guidance. So analysts are just flying blind here.

That's why I think in first-quarter earnings season, less important will be what companies report for the first quarter, because two of the three months were not bad in terms of the economic backdrop. Only March was particularly bad, but the guidance if they can even provide it looking forward. So you've got this plunging E in earnings estimates with no sense of whether there's any relevance to where the number is right now.

But I also think valuation-- I say this all the time, even in a more normal environment. We think of valuation in traditional P/E terms as this quantifiable, fundamental indicator, because you can quantify the P, you can typically quantify the E. But the reality is, valuation is as much a sentiment indicator as it is some quantifiable fundamental indicator.

The environment suggests whether or not investors are going to pay nosebleed valuations for companies, like was the case to some degree in January and early February, certainly the case i periods like 1999 and 2000. And there are other times where, because sentiment is washed out, investors don't want to pay anything in P/E terms. So we have to think about the sentiment side to valuation as well.

SEANA SMITH: Liz Ann, I want to hear your thoughts in terms of what's been going on in the oil markets. We have this huge surge today on the heels of that tweet from President Trump that I read in the open. And as it stands right now, oil prices are up just around 16%. They skyrocketed up as much as 30% earlier this afternoon.

But I want to talk about how it relates to the credit market, because the credit market is obviously very sensitive to any move in oil because of the large portion of the high-yield bonds in the US that are issued by companies involved in the energy space in some way, one way or another. But what are your thoughts in terms of what's been going on in the credit markets? And is the move to the upside like this in oil-- does that help ease some of the anxiety out there?

LIZ ANN SONDERS: I think it helps to ease some of the anxiety, because to your point, not only was there a fairly high percentage of energy within the junk category of the credit markets, but in the lowest rated tranches of investment grade.

And that was separate carnage. It was almost like this double whammy that we got with what happened with Russia and Saudi Arabia and the OPEC meeting, the crash in oil prices and the pressure that caused on the energy industry, how that fed into the credit markets. And that was sort of separate from, but on top of the impact of the virus. So it was this very unfortunate double whammy in terms of the timing of this.

I think combined with-- if this is a sustainable move higher in oil, and not just a one-off plus what the Fed has done, the alphabet soup of facilities that they have put in place in order to help to try to stabilize the credit markets, I think on the margin, it helps. But we don't anticipate spreads moving back down to anything resembling healthy territory. And we've been telling investors that-- only the most risk-tolerant investors do you want to kind of play around in the lower-rated areas of the credit markets.

SEANA SMITH: Liz Ann, it's interesting, that rally that we saw last week. Many investors and market watchers were saying that it was kind of a duo of what we saw on the fiscal side, but also the stimulus side. And I was reading in a recent note of yours-- you were talking about the fiscal stimulus, and you were saying that at this stage. It's really a rescue or a triage mission. Do you think it's unlikely to actually-- I'm talking about the fiscal stimulus here at this point. Do you think it's actually unlikely to generate significant growth at this point?

LIZ ANN SONDERS: I don't think it will-- it may stem the weakness that we are inevitably going to see. Trying to pinpoint the hit to GDP in the second quarter is difficult if you look at economists' estimates. And I keep a running tab on this and put it in Twitter every once in a while. The range is from anywhere from negative 10% to negative 40%. That's quarter-over-quarter on an annualized basis, which is an unbelievably huge hit. The ability to have any confidence in that data, we have no idea. But the hit is going to be absolutely massive.

I think the fiscal relief package-- and I was pleased to see it called a relief package, not a stimulus measure-- might cushion the blow, but it truly is that. It's triage. It's like after a natural disaster. The first intervention on the part of the government is typically the rescue mission. And I view this as more of the rescue mission.

Even if, when money was put in the hands of small businesses or individuals and consumers, that they had the impetus to want to go out and spend it and put it back in the economy, we've got the shutdown of the supply side of the economy too. So I think it just stems the losses. I think anything resembling true stimulus probably would be another package down the road, and likely not to have any benefit until we start opening back up the economy. Now, it is just a safety net. It's not really stimulus.

SEANA SMITH: Liz Ann Sonders, chief investment strategist for Charles Schwab, thanks so much for taking the time this afternoon.