Americans falling off 'income cliff' as they lose unemployment benefits: J.P. Morgan Strategist

Samantha Azzarello, J.P. Morgan Asset Management Global Market Strategist, discusses the domestic and global economic landscape with the Yahoo Finance panel.

Video Transcript

JULIE HYMAN: Let's talk about the effect, or lack thereof, on the markets of all of this. Samantha Azzarello is joining us now. She is JPMorgan Asset Management global market strategist. She is joining us from New York. Samantha, as I alluded to, the markets do not seem terribly concerned, even though the two sides look further apart than ever. Going into this, it seemed to be pretty vitally important that stimulus checks and a full stimulus package continue. Why aren't investors more concerned?

SAMANTHA AZZARELLO: I mean, it's an interesting question. I would say the market right now has a little bit of ADD, right? In terms of what it's focusing on, what it's weighting, in terms of importance and priority. I mean, we know, first and foremost, it's a COVID vaccine, right? That is obviously what the market's looking for. We were stuck in a trading range until it looked like there was some progress on the vaccine front.

But Julie, to bring it back to your point, we're going to have to deal with this sooner rather than later. And by this, I mean the stimulus. And whether we're talking about $1 trillion or $3 trillion, these are big amounts of money. And frankly, this is a fiscal deficit that's not sustainable. And then more to the point right now, we know many consumers are falling off an income cliff with the removal of the extra unemployment benefits. So that's going to impact the consumer right now and moving into the fall if we don't get more of a package.

ADAM SHAPIRO: So for an investor, you've pointed out that trying to track and understand consumer behavior and doing that in a real-time scenario is very difficult. What mistakes are investors perhaps making, or what successes are they having in trying to understand consumer behavior in selecting their choices for investing?

SAMANTHA AZZARELLO: So Adam, it's a good point because we use data that comes from the government that's arguably slow and sticky but reliable, right? So I'm thinking of quarterly GDP data and what not, even, you know, the weekly unemployment claims. We're using a lot of high-frequency data, and I can say that there's a lot happening on the high-frequency data front, whether we're looking at OpenTable and what's happening there with reservations. Or we're looking at TSA, flight data.

We're trying to get a better, more real-time pulse on the consumer. It's difficult, right? It's ebbing and flowing, and I don't recent consumer sentiment, that we got monthly, is enough.

So I would say to be a good investor right now, you really have to be looking forward, right? Looking forward to the future and think, what trends are going to stay in place? What trends are going to be amplified? And that's the type of thing that we want to invest in right here, right now to pay dividends likely in the future. I think investing for this summer and this fall, it's very difficult because things are shifting so much.

JARED BLIKRE: Jared Blikre here. You mentioned one cliff, that would be the pandemic unemployment assistance cliff. But there is also an eviction cliff. I'm wondering if you have any real-time, high-frequency data with respect to real estate or the rental market, anything that could give you the pulse of how close people are on the edge of potential default and eviction.

SAMANTHA AZZARELLO: So fantastic question. The last I had checked, rental payments were basically in line with where they were this time last year. So in that sense, it's normally around 80%. We track that data, and normally, around 80% of people pay their rent on time. That's started to dip. But to your point, we haven't seen that cliff yet, and it's a huge issue.

And when we're talking about the unemployment, right? We're really talking about those who were already at the lower end of the socioeconomic spectrum. They were already having a hard time. And the job data, while we had a decent report last month, we know it's slowed down. I mean, jobs and rehiring, it's slowed down.

And that means for a lot of lower-income workers, they're in a very precarious position, and we will likely see a cliff. It's going to impact landlords. It's going to impact basically all of the basic spending. And that's why we do need a plan, right? Coming from Congress to fix the unemployment claims, at least for another period of time.

JULIE HYMAN: Samantha, we know that government plans with regard to coronavirus and also development of vaccines is vitally important to investors right now. Since you're a global strategist, you're looking at plans around the globe, and you're saying, well, if other countries have better plans than the US, maybe they're better places to invest as well. So where are you looking to put money right now?

SAMANTHA AZZARELLO: I want to bring up Europe, right? Europe's, you know, this thing that investors have not favored over the last five or even 10 years. But we look at their schema, and basically, because they were able to put in place such that consumers-- workers, I should say-- are tied to their employers, right? Which is a very different system than what happened here, companies did not shed their workers. The unemployment rate has stayed relatively lower than it has in terms of how much it's jumped in the US.

So we're looking to Europe in terms of its healthcare system and the way its unemployment benefits have been set up to say, we want to take a second look at Europe. Because we also think they're going to eat the first out of this-- simple data, but just looking at their caseload, right? And they have it under control, right? Europe has crushed its COVID curve. So we're looking international right now. We're slight overweight, I would say, Europe and then emerging-market Asia over the US, given the COVID outlook.

ADAM SHAPIRO: OK, so Europe and emerging-market Asia, but does that-- to the exclusion of China? We had the earnings from Marriott, for instance, which said that hotel occupancy is roughly 60% in China, and it would have been 70% year over year. So they're almost back to where they used to be in China. What do you think?

SAMANTHA AZZARELLO: I mean, that's right. So China hit their bottom in January. Europe and the US, we've hit our bottom in April. So China's, arguably, you know, farther along in the process. They were able to get COVID completely-- well, maybe not completely, but very well under control. And we look at industrial production and manufacturing, that's come back even quicker in China than for, say, the consumer.

So if we're looking to Asia, we want to be tilted to anything more digital, with respect to the consumer, and then manufacturing and production. But there are signs of life at the end of the tunnel, and I would look to China as an example of what we could look like in terms of getting COVID cases under control and then how the economy really can bounce back. The reason the US is having trouble, right? Our recovery is happening in fits and starts because we have not handled COVID.

JULIE HYMAN: Samantha Azzarello, thank you so much, JPMorgan Asset Management global market strategist, appreciate it.