Major indices open in the red after Trump warns on coronavirus deaths

Quincy Krosby, Prudential Financial Chief Market Strategist, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss the latest market action.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, we want to welcome Quincy Krosby. She is the Chief Market Strategist at Prudential Financial. We've also got Brian Sozzi with us along with Jared Blikre. Good morning to you all.

Quincy, we haven't talked, really, since we've all been working from home. Good to see you, and thanks so much for being with us. What are you looking for in terms of a bottom for this market? because we had about four up days in a row. Some were saying we may have turned the corner here. What are some of the signs you're looking for before you make a statement such as that?

QUINCY KROSBY: Well, first of all, we want to see if the market has truly discounted all of the, quote, unquote, "bad news," whether it's from the duration of the downturn, whether it is regarding earnings season and the guidance that we hear. And also what I'm looking forward, not to belittle the number of cases that we have because we want to see that ease, but I'm looking at the credit markets, Alexis. I need to see the stress in the credit markets ease, particularly in the high yield.

We had a successful KFC, Kentucky Fried Chicken placement. We are looking at Carnival trying to place. That area needs to calm down. The stress needs to ease. Oil prices-- higher oil prices are hurting that as well as a good portion of high yield comes from the energy patch. So the credit markets typically lead and ease things once the stress and the yields come in.

Also, I'm looking at the VIX. It started to come down yesterday below 60. I'm looking at it now. It is climbing a bit higher. We don't want to see it move above 60. At these stages with the VIX moving higher, there is a direct positive correlation with the equity market. We want that to start moving in the opposite direction.

BRIAN SOZZI: You know, Quincy, when you hear the president suggest that the coronavirus cases in the next two weeks could be pretty ugly, do you think we are now headed back-- and this could be the first session in that-- where we have those thousand-point swings again like we had for the most of March?

QUINCY KROSBY: Well, I think so, and I think that's what we're setting up for. I mean, yesterday we could have excused some of the balancing from pension funds. We could excuse it again today from the president's comment. That really shifted things. There's kind of a dire warning in that.

But again-- again, I think we are going to have some bumpy days. And therefore the question again becomes for us, has the equity market truly discounted the bad news, the dismal news that we expected in March when this began? If the answer is no, we are headed for another bottom.

ALEXIS CHRISTOFOROUS: Everybody, I just want to bring your attention to the numbers here. We've got the Dow off about 4%. We're just two minutes into the trading day. A loss there of nearly 900 points. The S&P down about 3 and 3/4%, and the NASDAQ off 2 and 3/4%.

Quincy, you know, the Fed has done so much here-- central banks really around the world to pump liquidity into this market. Do you think that the liquidity crisis has actually passed and right now we have to focus on perhaps a solvency crisis as a lot of these companies, especially the small and mid-sized companies, try to pay their bills, and many of them will not be successful in doing that?

QUINCY KROSBY: Well, exactly, and that's part of what the Fed has been trying to do is to make sure that there's cash everywhere in every nook and cranny of the credit markets. Take a look at REITs, for example. Normally when the equity market is selling off dramatically, utilities, staples, REITs, gold become the safe haven. Notice that REITs are not in that category now. There is pressure on the REITs as to whether or not they are going to be paid by their customers, when they're going to open up, how many layoffs do they have? can they raise money in the market? That's a question that is facing the market right now.

And the longer this goes and the duration of the downturn is going to be crucial for the market in terms of solvency. We know that the government-- everyone expects now we're going to see a bolstering of the relief package. Somewhere down the road, a relief package is going to be augmented because you have to have the consumer and small and mid-sized business owners come out of this cushion and the ability to start moving and bringing people back on board as soon as this is over. That's the only way that the economy can have a decent recovery coming out of it. So there you go, and I do think the Fed needs watching to see whether or not we move and transition into stress into solvency.

BRIAN SOZZI: Quincy, isn't the market just, let's say, uninvestable for longer-term investors until we get that fourth relief package from the government, until they take a stand here and said, you know what? We're going to throw the book at this and we're going to get growth going back on the right path.

QUINCY KROSBY: Well, I do believe that the-- regardless of any divisions with the Democrats and Republicans, more money is coming. Whether it's an infrastructure project, whatever it is, more money is coming. It's an election year, and the president has to have the small- and mid-sized-business owner behind him. He has to have the US consumer coming out of this feeling optimistic.

ALEXIS CHRISTOFOROUS: I want to get to Brian for a minute because, Brian, I know you have some news on the big retailers, Macy's in particular, also JCPenney. Fitch is out with some news regarding them. What's up?

BRIAN SOZZI: That's correct, Alexis. Fitch dropping all the old hammer on some beaten-up department stores. And I'll start with JCPenney because they came out with news yesterday that they are furloughing their workers, 90,000 workers. Disastrous release from them yesterday. But Fitch downgrading its long-term issue or default ratings.

But out of all these jargon, one thing I mocked in here from this press release-- they are suggesting that JCPenney could have heightened liquidity concerns. And I wrote a story on Yahoo Finance yesterday on JCPenney on those liquidity concerns. I suggest everybody go ahead and read it. But also, JCPenney is not alone. Fitch also dropped the hammer on Macy's, downgrading their long-term outlook-- the long-term rating, also putting Macy's outlook negative.

What this means for these struggling department stores-- raising capital, when they will have to do so-- and it's likely they will have to do so because they have tapped their credit lines-- will cost a heck of a lot more. Not good news for them.

ALEXIS CHRISTOFOROUS: All right, I want to get over to Jared Blikre who has some news on what the Treasury Secretary Steven Mnuchin is saying in an interview, and it looks like he's saying that there's going to be a Main Street lending facility coming soon. Is he giving any details, Jared?

JARED BLIKRE: We don't have any details yet, but we do know basically what this was supposed to encompass. You know, the Fed got a lot of criticism in the global financial crisis for basically bailing out the banks and not helping Main Street. This is an attempt to overcome that.

We are-- it will be quite interesting to see what the details of this are because the Fed has never really engaged in anything of this sort, but we know the Fed is going through unprecedented actions right now. Only yesterday it expanded its dollar liquidity swaps. It's basically going to offer them to foreign central banks in exchange for Treasurys that it holds or that these central banks hold with the Federal Reserve.

And all of this is just to make dollars available to the world because the US dollar is a reserve currency and basically to kind of shore up our financial system and provide liquidity during this-- during this crisis, Alexis.

ALEXIS CHRISTOFOROUS: Quincy, what's your response to what Jared was just telling us? You know, I mean, we keep saying how the Fed has basically thrown the kitchen sink at this thing. What about its latest moves?

QUINCY KROSBY: Well, it's clear-- and we saw this-- we saw this over the last couple of weeks. The Fed is moving into the fiscal arena. They are responsible for monetary, but we've seen, as they move towards Main Street, as they move towards the small- and mid-sized-business owners, as they move towards the housing market more than they normally do with just regular purchases of mortgage-backed securities, they are moving towards helping the overall and underpin the economy.

Again, this normally is where the government comes in, but the Fed has moved in that direction, and it is-- look, the criticism has already started on the Fed's balance sheet. The criticism has started on whether or not the deficit is going to climb too much, but the idea now is they are all in. The government is all in. The Fed is all in hoping to cushion this economy to get us out as quickly as possible, as solvent as possible.

ALEXIS CHRISTOFOROUS: I don't know if anybody is really thinking about the deficit right now, right? We're just trying to get these businesses out of this and climb out of this as unscathed as possible.

Brian Sozzi has got a look at some trending tickers this morning. What is trending on our site?

BRIAN SOZZI: Yeah, Alexis, hopping on my trusty iPod. And for those people who are worried about that we will go ahead and retest those lows, I'm looking at the bank stocks. The bank stocks have been leading us down for months here, and we're seeing a lot of these names come under severe pressure. HSBC, JPMorgan under pressure this morning. And if you're worried-- and even Wells Fargo, which has been beaten up for about a year, also under pressure, down 5%. So if you're concerned that this rally, this short-term rally is over, just lock into the banks because the banks have been leading us during this major sell-off.

ALEXIS CHRISTOFOROUS: All right. Thanks a lot for the update. Quincy Krosby, Jared Blikre, Brian Sozzi--