Markets are ‘forward looking’ in second half of 2021: CIO on recovery

Cresset Capital Chief Investment Officer Jack Ablin joins Yahoo Finance Live to discuss how markets are faring during the COVID-19 pandemic and break down what investors can look forward to in 2021.

Video Transcript

MYLES UDLAND: And for more on this conversation let's bring in Jack Ablin. He is over at Cresset Capital, the chief investment officer there. And Jack, let's begin with something you bring up in your note, which is investor sentiment has really gotten, I guess, hot, overworked, however you want to call it, in the last couple of months. I mean, everything has come up positive on the vaccine front. Stocks are flying left and right, up 10% every day. How concerned are you about this environment as we head into 2021, a year that, I think for humanity is likely to be a lot better, but for financial markets, may present a few challenges?

JACK ABLIN: Yeah. Thanks, Myles. Yeah, I think it is a concern, at least for the near term. The market is certainly forward-looking. We understand that. And everyone's focused on the second half of next year, which will certainly be great. But between now and then, we're still facing a pandemic. Our third wave that started in October is now three times worse than the waves that we endured in March and in June, and we're starting to see some of the fallout from that.

In fact, a number of-- the entire increase in initial jobless claims this morning was from pandemic-related unemployment. So clearly, there are going to be some issues. And then when you have expectations, sentiments so high and expectations so high-- we have to keep in mind that the market is simply a reflection of reality versus expectations. And when expectations are very high, the possibility of disappointment is high also.

JULIE HYMAN: Well, Jack, it's Julie here. It's good to see you. Let's talk about an area where expectations appear to be very high, and that's in the IPO market. And let's not even get into SPAC and all of the activity we've seen there. DoorDash, Airbnb, C3 yesterday, .ai, is another one that was bid up. What do you make of all of this enthusiasm, specifically for the IPOs and some of these hot SPACs as well?

JACK ABLIN: Yeah. I mean, I think it's still-- you know, it is leveraging on this investor enthusiasm. Keep in mind that most of the move that we saw earlier this year to the upside was fueled by retail investors. And then once the vaccines were announced a little more than a month ago, institutional investors piled in.

So when you do look at cash on institutional portfolios, they were pretty high going into that November run-up. So I do think that investment bankers are certainly watching Yahoo Finance, and they're watching a lot of the headlines. And they're saying, jeez, with the market up 12% in November, now is a pretty good time to bring private companies into the public market.

BRIAN SOZZI: Jack, do you think a 2021 will be the year of disappointment for investors? And we were just talking about Disney. The stock's up 80% from the March lows. The company has just lost nearly $3 billion in its last fiscal year. It seems completely detached from any forward-looking reality that might form on the bottom line for this company over the next 12 to 18 months.

JACK ABLIN: Yeah. You know, I don't know if it's going to be hugely disappointing, because I do think we will get business back to normal at least in the second half of the year. But it's astounding to me that if you compare Amazon to Royal Caribbean Cruise Lines, at least from March, Royal Caribbean Cruise Lines has doubled the return of Amazon over that time period.

So clearly, the market is looking forward and looking forward to life returning to normal. But have we really discounted the best-case scenario? That's quite possible, and we're going to find out in the first half of next year.

MYLES UDLAND: Jack, I just want to finish up with something that you just referenced, which I think is maybe an under-discussed story, which is the role retail has played in the 2020 market. It kind of came out of nowhere. All of a sudden, everyone wanted a brokerage account. Everyone was playing the market. We haven't seen that in quite some time. Do you think that this is a new trend, or is it like all retail fads, something that's likely to fade in the years ahead?

JACK ABLIN: Well, I think, Myles, a lot of it really depends on how they're doing. The fact is that retail investors certainly got in early, and they've benefited. So I think that-- and maybe the skeptical side of me said, well, no sports were on, so I couldn't get on sports, so let's bet on stocks. But the fact is that those bets have worked out.

So my sense is we will see retail investors in the market as long as they keep making money. There's no reason for them to get out. If we see a big pullback, that could shake some of them loose. But generally, they're going to keep at it until it doesn't work anymore.

MYLES UDLAND: You know, Jack, I always loved that thesis on the sports betting because sports came back on, and then everyone realized that they kept losing at the same rate. And so the stock market was maybe-- maybe that was more fun in the first place, you know? Vegas always has that extra half-point that never seems to come through on a Sunday afternoon. All right.

JACK ABLIN: That's it.

MYLES UDLAND: Yeah. They're pros. There's a reason they're the house, and we're just a bunch of Joe Publics.

All right. Jack Ablin is the chief investment officer at Cresset Capital. Jack, always great to get your thoughts. Talk soon.

JACK ABLIN: Thanks.