We anticipate a U-Shaped to Swoosh-Shaped recovery: Strategist

Wells Fargo Asset Management Multi-Asset Strategist Brian Jacobsen joins Yahoo Finance’s Seana Smith to discuss the market rally amid optimism over Moderna's coronavirus vaccine data.

Video Transcript

SEANA SMITH: I want to bring in Brian Jacobsen of Wells Fargo Asset Management, Multi-Asset Strategist there. And, Brian, thanks so much for calling into the show today.

Let's start with those results that we got out from Moderna. A huge reaction that we're seeing in the markets today. Just big picture here, what does this do? What does this type of news do for sentiment at this point?

BRIAN JACOBSEN: Yeah, thanks for having me. I think that it is really important for sentiment. So one of the things that a lot of economists have been struggling with is, you know, is this kind of a "Field of Dreams" kind of moment for the economy, right, where if you reopen the economy, will consumers actually re-engage? So if you build it, will they come? kind of idea. And I think that's one of the things that we've seen in some of the areas, the countries and different states where they've relaxed some of the restrictions where the businesses are willing to open, but are employees or consumers both willing to really kind of go back to reengaging with their economic activity?

The market reaction today, if you look at the top-five movers in the S&P 500 to the upside, across the board it's, you know, cruise lines, airlines, anything travel related, and I think that's been one of the big unknowns is how long will it take for consumers and employees to have confidence to really kind of get back to normal life?

SEANA SMITH: Well, yeah, and, Brian, going off of that, it is interesting-- speaking of consumer behavior, Piper Sandler, they were out with a survey today, and they found that 55% of consumers don't expect a return to normal spending behavior for more than six months after COVID-19 concerns fade. So just big picture in that respect, I guess, how big of a threat is that potentially to this recovery?

BRIAN JACOBSEN: Well, in a way, I think that a lot of that is somewhat priced in as far as, you know, over the six-month horizon. It will take time for people to build that confidence. But then again, it's also important to remember that you have to look at what people do as opposed to just what they say. The surveys and that can obviously say that, you know, few people don't expect to go back to normal, but then when actually it comes time to go back to normal, maybe it will be a lot faster than what the surveys actually suggest. You know, we kind of as humans really stink at trying to predict how we will feel or how we will act in the future when the circumstances have changed.

So in our models, we anticipate that this is going to be, you know, kind of more of a U-shaped, almost swoosh-shaped recovery where it will be very slow probably on the industrial and manufacturing side first, and then the consumer side will begin to pick up.

And a lot of that is just informed by the experience in China. You look at their industrial production numbers. You saw some massive gains for last month. But on the consumer side with retail sales, there were gains, but they were much, much more tepid.

SEANA SMITH: Yeah, and, Brian, going off that, if you're expecting some sort of, I guess, swoosh-like recovery then, what is the best way to play this? What is your US-recovery playbook at least consist of at this point?

BRIAN JACOBSEN: The way that we're positioning portfolios is to try to anticipate that there will be a rebound, but really it's the technology companies. That's where we have a bias in our portfolio. So it's a little bit more towards tech, a little bit more towards the large cap. And, you know, in 9 out of the last 10 recoveries from market corrections, small-cap stocks have led the way. But in this environment, it seems to us that it's, you know, what did really well last year kind of going in on the way-- it will likely do well coming out just because of the changes in consumer behaviors, the global reach of the large caps relative to small caps, and that's why we have a bias there.

We also have a bias more towards the US over non-US, and a lot of that is just because we think that US companies are a lot more adaptable than probably, say, their European or Japanese counterparts. So it's not necessarily a bet on US growth being faster than overall global growth. It's just more about which companies are the most resilient and most adaptable, and that's where we're finding more of them, in the tech space and then the large-cap US space.

SEANA SMITH: Brian, when you to look at the reaction in the markets today, we're up 900 points just on the fact that we had these positive results from Moderna. But we were talking to Dr. Krumholz earlier in the show, and he was saying that this is just a baby step. When you take that into account, do you have any fear that we are getting a little bit too ahead of ourselves when we take a look at the market action today?

BRIAN JACOBSEN: Yeah, looking at the market action, we anticipate that we will have these one-day very large gains and then maybe kind of some retracement in subsequent days but, generally speaking, on an upward trend.

And while it is a baby step, we've had a lot of baby steps. And when you add them up, that actually adds up to quite a bit of progress. And we think that, you know, you look across states, they are beginning to show signs of coming back to life. We are going to obviously be monitoring whether or not the various ways in which states are relaxing restrictions on activity, if that is resulting in a rebound in cases of coronavirus. So that is something that might spook the markets. But generally speaking, we do think that this was an important baby step.

Another important step too is just the support that the Federal Reserve has been pledging. Even before the announcement from Moderna, the futures were up, and maybe some of that was because Chair Powell had effectively said that they aren't out of bullets yet, that they still have plenty of tools in the toolbox that they can use to help support the economy.

SEANA SMITH: All right, Brian Jacobsen of Wells Fargo Asset Management, thanks so much for calling in today.

BRIAN JACOBSEN: Thank you.