Markets volatile after economy sheds jobs in March

Alicia Levine, BNY Mellon Chief Strategist, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Jared Blikre to discuss the latest market action.

Video Transcript

ALEXIS CHRISTOFOROUS: It has been choppy trading all morning long for stock futures. Right now, though, the opening bell at the New York Stock Exchange on the heels of that worse-than-expected March unemployment report.

[BELL RINGING]

Trading now underway at the New York Stock Exchange and the NASDAQ on this Friday, a Friday in which we learned that the unemployment rate jumped from 3 and 1/2% to 4.4% in the month of March. More-than-expected jobs were shed by US employers, 701,000, but that doesn't even begin to tell the overall labor market story.

For more on this, let's head over to Alicia Levine. She is BNY Mellon's chief strategist. We also have with us Brian Sozzi and Jared Blikre. Alicia, good to see you again. Just first off, I know this report was worse than expected. But really, how could we have expected anything better than this when you think about the fact that we've, in essence, intentionally shut down the US economy?

ALICIA LEVINE: Look, the jobs report really is-- is almost irrelevant at this point because the data stopped March 12, and that was really the date that we started going lockdown all over the country. It's an indication. It's the leading edge of what's happening to the labor force here in the country on a daily basis.

And, you know, I wake up very sober every morning because every day brings new indications of what is happening to our economy, and it's-- it's almost unmeasurable. I mean, the kinds of jobless claims that we saw yesterday, for instance, over 6 million, really are historically so high that it's very hard to put it in historical context or framework with which to analyze the damage that is happening to the country right now.

BRIAN SOZZI: Alicia, do you think we are headed for somewhat of a "bad news is good news" for the market? It's so weird to even ask that. But look, the market theoretically should be down even more when you lose over 700,000 jobs in one month, with the worst yet to come.

ALICIA LEVINE: I think that the market is braced for a lot of bad news. I-- I don't think the market is braced for a longer duration of the shutdown to the US economy in that I think, more or less, the market's pricing in a two-month shutdown. And the size of the fiscal stimulus really speaks to that because that's essentially meant to tide over individuals and businesses for eight weeks. I mean, think about what the legislation was. It's eight weeks.

So what the market's not prepared for is, does this last longer than two months, or is there a second wave? So to some extent, yes, because the bad data that we're getting is-- has been priced in already, which was, you know, the 34% drop from peak to trough thus far.

ALEXIS CHRISTOFOROUS: So Alicia, what do you think the next catalyst for this market's going to be, either up or down? Is it going to be a fourth stimulus package? Is it going to be a flattening of the curve? What's going to be the next thing that's going to move this market in a meaningful way, up or down?

ALICIA LEVINE: Look, the real thing here is science, and we've-- we've talked about this on previous shows. You know, it started with science. It's going to end with science.

The reason that the economic projections are really all over the place is because in the end, economists and market strategists are not scientists and not epidemiologists. And that's really going to determine the course of the hit to the economy.

So I think that the real catalyst here is any indication. There are 70 drug trials underway of various molecules, whether novel molecules or-- or drugs that we already have on the market. If there's any indication of any efficacy at all, that will put a floor under the market because it gives you a sense that there's a light at the end of the tunnel.

I think absent that, you're going to have, like, a slow trickle of bad news that's eventually going to bring the market lower. Do I think there are going to be more 10% down days? Probably not. I think the violent move has already happened. But it doesn't mean that there aren't risks to the downside, even from here.

ALEXIS CHRISTOFOROUS: All right. Jared Blikre, you're taking a look at how the market is reacting, and Brian said it. You know, you would think the market would sell off much more dramatically than it is given the kind of unemployment report we got. But maybe, to Alicia's point, a lot of this has already been baked in.

JARED BLIKRE: Yeah, I think so. And we're really going to get some numbers on a weekly basis from jobless claims. I think that's going to be one of the bigger determining factors going forward. I do-- I am watching some markets here, in particular crude oil because that is up another 8% today after being up 25% yesterday. That was the biggest gain on record for WTI.

Now, there is supposed to be a virtual meeting Monday for OPEC plus, which would presumably include Russia. And Saudi Arabia wants Donald Trump to come to the table, too, and for the US to deliver cuts. And if you think about this, this is just historic because when Russia started going along with OPEC a few years ago, I thought that was interesting. Now the US may be going along as well.

But all in all, 10, maybe even 15, million barrels of cuts here is really not going to raise the price more than $30 a barrel, maybe $35 at the very most. In the end, it's going to be the market that really produces the cuts because a lot of these shale players are just going to shut down. Alexis?

ALEXIS CHRISTOFOROUS: All right.

BRIAN SOZZI: I'll take a--

ALEXIS CHRISTOFOROUS: Go ahead, Brian.

BRIAN SOZZI: Yeah. No, Alicia, you know, a very important point you made on the second wave, potentially, of infections. We're already starting to see that, I think, a little bit out of China. Is that priced into the market if it happens in the US?

ALICIA LEVINE: I don't think the second wave has been priced into the market yet. It's actually really interesting because Hong Kong's starting to see it as well. There are certain regions in China that are starting to shut down to prevent a spread, and I think that is going to be a negative shock to our market because it shows us the path forward, really, absent any kind of treatment for this, that we, too, are at risk for a second wave.

And I think that if you think about what-- what the hit means to earnings and to the economy, you know, we can take a rapid downdraft and a recovery. I don't think that the market at these levels will be able to price in, you know, a second wave so easily because the market really is pricing in some recovery at the end of the third and the fourth quarter.

BRIAN SOZZI: Then-- then where do you hide out?

ALICIA LEVINE: Great question. Look, when the market takes everything down, it takes everything down. The first thing I'd say is this-- don't fight the Fed. Right? Go where the Fed's going.

So the first thing is, if you're in credit, move out of high yield into AAA investment grade because the Fed is going to support the investment-grade market. I think that's very clear. So you want to be where the Fed is, and I would say the same on your equities.

So we know that when balance sheets are at risk, it's not just the credit that suffers. But of course, it's the equities because equity is the bottom of the capital structure. That's where impairments get taken first, which means large cap over small cap, US over overseas companies. And I'd look to health care as the new leader here going forward, actually for the next few years, on a relative basis because health care is part of the answer here.

ALEXIS CHRISTOFOROUS: What are clients telling you right now? I mean, are they saying, look, I don't even want to be part of this, cash me out, I need to be sitting on some-- on some cash right now?

ALICIA LEVINE: So we have-- we have some clients who are actually very excited about this because they see this as a great entry point, as long as they have horizons that are longer than 5 to 10 years. But when you have people closer to retirement, there's definitely more of a pause here. I mean, these are people who lived through 2000 and 2008 and 2009, and the horizon may not be the same.

What we tell clients is the following. If you have longer than a two to three time horizon, it's OK to start edging in here, understanding that there's risk to the downside even still, but that if you do your allocations wisely, you should come out of this OK over the long term. But this really is a long-term game. Traders like it also, but that's not [INAUDIBLE].

ALEXIS CHRISTOFOROUS: Right, right. What about outside of US equities-- I mean, for those people who you say are getting a little excited about this market? Where-- where are they seeing an opportunity? Is it emerging markets right now? Are they sticking with the safer, sort of bond market investments?

ALICIA LEVINE: Look, I think-- I think the emerging markets are going to be the leading edge of a collapse here in-- in certain equities and-- and overseas. I think, you know, the-- the capacity for emerging markets to deal with the health care crisis in addition to the financial crisis that it's going to generate-- I think it's really questionable. It's a case-by-case basis. You can't make blanket assumptions.

You know, if you're doing allocations, come to the US. We have the financial system. We have the monetary system. And ultimately, we have the pillars in place of a dynamic economy to recover from this once it happens, once the hit happens.

ALEXIS CHRISTOFOROUS: All right. Alicia Levine of BNY Mellon, chief strategist, thanks so much for being with us. We appreciate it.

ALICIA LEVINE: Thanks, everybody. Be well.