Global Market Strategist on ‘long drawn out’ recovery

Brian Levitt, Invesco Global Market Strategist, joins The Final Round to discuss President Trump's recent announcement regarding the relationship between the U.S. and China and how that is impacting markets.

Video Transcript

MYLES UDLAND: I don't know if you were surprised is the right word, but certainly the China relationship has now become a major market mover just in the last week. And we were joking the other day on the show that it almost feels comfortable, familiar to be talking about US-China relations as kind of the marginal driver of stock prices on a day-to-day basis.

BRIAN LEVITT: Yeah, I mean, I suspect it's nice to focus attention away any chance we can from the coronavirus. Although I suspect that this market is going to continue to be trading on, you know, how we're doing in getting cases to plateau or compress in certain parts of the country and what reopening is looking like in certain parts of the country that are going ahead.

But look, the reality of what's going on with China is we-- you know, we've all been left as strategists, economists, business leaders to contemplate what the rules of the game are going to be. And so, you know, the idea around, you know, these types of conflicts is ultimately they'll create less efficient outcomes. But we can navigate that so long as a period of uncertainty doesn't persist.

I mean, that's really what 2018 was was just a period of uncertainty that led markets to go lower. And look, you know, whether it's, you know, a next step on a trade war or, you know, elimination of a special status for Hong Kong, I mean, ultimately businesses need to know what the rules are and figure out how they can navigate within those rules.

MYLES UDLAND: All right, so let's go back then to the uncertainty just here in the US that we've dealt with in the last couple of months. The S&P right now trading back above 3,000. We have seen a significant retracement of those losses that we had in the beginning of March. And I guess in your view-- a two-part question. Do you think that-- is this sustainable? How does this rally kind of smell to you? I guess would be the way to say it. And on the other side of that, what do you think is the driver of equities over the second half of the year? I mean, is it economic data, or is it really just going to be about how low, I guess, we keep coronavirus case counts as things start to reopen?

BRIAN LEVITT: Well, look, this was a unique situation in that we went from all or nothing with regards to economic activity, and so we priced in a very disastrous economic outcome quickly. Could it have gotten worse? Yes, but policymakers responded in a meaningful way.

And then from there what this market has largely been trading on is modest improvements. Now maybe improvements isn't even the right word but things getting worse at a less significant rate. And so, you know, markets don't typically trade on good or bad. There's nothing good about what we're going through right now, but they tend to trade on whether things are getting better or worse.

And so, you know, since the market's bottomed in March 23, you've seen cases plateau in the states. You've seen jobless claims peak and start to slow. And so the markets are reflecting these things. Again, it's not good. The levels aren't good, but the rate-- the change in the rate of change is improving, and, you know, as a result, the markets have responded in kind.

SEANA SMITH: Hey, Brian, I have a question just about the rotation that we've seen recently, the shift to cyclicals and to value. Just I'm curious what your take is just about the timing of this and whether or not you're seeing any investment opportunity in some of those just now.

BRIAN LEVITT: Yeah, I mean, look, it's actually been better breadth in the market rather than a full shift from, you know, value to growth or late cyclicals to early cyclicals. You actually have 95% of the S&P 500 companies trading above their 50-day moving average, so that's pretty good breadth that we've gotten to.

You know, look, if there's a light switch that we're going to flip and all of a sudden we're going to reopen and we're going to start to re-engage and we're going to get a V-shaped recovery, then by all means investors are going to want to buy early cyclicals, value-oriented parts of the market. I mean, whether it's hotels or airlines or energy or banks, these types of things that are going to do better with improvements in activity.

If you're like me, you're probably thinking that it's going to be sort of a stop, start, stall, fits and starts, you know, put your toe in the water, slowly figuring out how we're going to ultimately do this-- cases emerging in certain areas as we do this. And so I don't envision it as a V-shaped recovery. I envision it as a long, drawn-out recovery, which to me likely continues to favor those companies that can generate revenue growth in this type of an environment, a slow-growth environment.

And, quite frankly, I think that persists far beyond this. I think that we emerge from this similar to how we emerged from '09 but even more so in that we're in a very slow-growth world and policy remains accommodative for a very, very long time as we try to get back to full employment. And in that environment, I suspect the companies on the cutting edge of the structural growth changes in society will be the winners.

Yeah, you'll have a brief bout of early cyclical value oriented. That's what happens. But ultimately I think the winners are going to be the true growth companies.

MYLES UDLAND: All right, Brian Levitt, global market strategist at Invesco, always great to get your thoughts. Thanks so much for joining us today. Have a great weekend.

BRIAN LEVITT: Thank you.