April was the economic bottom: Strategist

Belpointe Chief Strategist David Nelson joins Yahoo Finance’s On The Move panel to assess the outlook for economy and touch on the market rally broadening.

Video Transcript

JULIE HYMAN: Let's get back to the markets now. Our next guest, in his latest note, talked about how the markets are like someone-- people rushing from one side of the boat to another. Thus far, this year, as we have seen, a big seesaw in markets. That is David Nelson, Wellpoint Asset Management Chief Market Strategist.

David, it's good to see you. In recent days, we've seen a little bit of a broadening out of what people are buying and what has been participating in this rally. Are we finally kind of finding, to continue with your metaphor, a bit of a fulcrum here, a bit of a balance in the market between those extremes?

DAVID NELSON: I'm not sure we're seeing it yet. Reversion to the mean is a pretty powerful force, and we're seeing it play out in real time. We've been hiding out. And a lot of investors have, for most of the year, in large cap secular growth, and for good reason. These are companies with fortress-like balance sheets, even with revenue models that could sustain the current pandemic, and in some cases, like Netflix and others, actually accelerate, and even do better in that mindset.

But once you start to see a little bit of economic activity-- and I think, Julie, we can say, at least now, looking backwards, April was the economic bottom. I think we can point to that. We were at a virtual standstill. Anything has to be better than where we were. And as you get economic activity, there's this natural gravitation to what I would call deeper cyclical names. And that points you to industrials, financials, and some of the others.

ADAM SHAPIRO: Hey, David. It's Adam. It's good to see you. You've got a great background there, by the way.

What are the flows showing us? I mean, there's this fear of missing out that people always talk about. So follow the flow, and you get a sense of what people might be fearing or doing.

DAVID NELSON: I think a lot of people who, you know, cashed out at the March 23 bottom, they're probably rethinking it at this point. And if you were one of those people, then you're going to have to find a way to come back in slowly. And you can't put it all in right now. You've probably going to have to find a way to scale back in.

I find it particularly difficult right now. Even yesterday, I know for myself, my portfolio was flat in a market that was up pretty strongly. I had-- half my stocks were up about 7%. Half my stocks were down about 7%. And a lot of those large cap growth names that kept me in the game were really damaging me, and they were damaging me today. And in light of your previous guest, the doctor who spoke brilliantly, it's interesting that, today, health care is one of the worst performers out there, and they're part of the solution.

JULIE HYMAN: David, we also just heard the doctor talking about how the CDC has been politicized. The markets have been politicized as well. And a lot of the market commentary has become so. As someone who's managing money, how do you divorce your political views about what's going on in the broader economy from your investment decisions? I mean, it's not been easy over the past several years. But it seems like it just keeps getting more and more difficult.

DAVID NELSON: It does. And almost everything in our life today is politicized. For myself, it's about numbers. And I follow the money. I might think a media outlet has a left-leaning bent. Am I going to avoid that? If it has a right-leaning bent, am I going to avoid that? Are they making money? Follow the revenue and earnings stream.

Now, that isn't playing out, actually, in the market right at this moment. Markets aren't really following the earnings stream. They're kind of diving into some of these names that are actually some of the most challenged.

In particular, I would point to financials. We're at the beginning of a default cycle right now. And commercial real estate is going to be really challenged. A lot of companies that actually figured out, you know what, we don't need that office building. We can work with some of our workers at home. They've tried it, and they've actually succeeded in doing that. So for some of these banks, I would question how far they've run in the recent days.

RICK NEWMAN: Hey, David. Rick Newman here. So first, is that a Fender Telecaster behind you? And are you going to play it for us next time?

DAVID NELSON: I'm not playing for you. That's a Stratocaster that's sitting behind us. It's not a vintage Stratocaster, but it gets the job done.

RICK NEWMAN: OK, so to get back to the point, so it sounds like you're saying you don't anticipate there will be another dip to buy. Am I getting that right? You missed out?

DAVID NELSON: There may be another dip. But I don't know if I can time that. We've probably come further than I would have thought. I think we can-- at this point, we're probably going to look back and say, yeah, that was the bottom.

The question is how much can we sustain? We're looking across the valley. In fact, some people are galloping across the valley.

And I look out to 2021 because that's all I can do, Rick. The earnings for this year are pretty much toast. So 2021, I'm looking at about $168. And that's down from about 220. But if I can make that $168 in S&P 500 earnings, then where stocks are right now are probably valid. But I would say probably the best we can do between now and the end of the year, the very best, would maybe be reachieve the highs that we were at back in February.

JULIE HYMAN: David Nelson, it's always good to see you and your musical equipment behind you. David Nelson, Wellpoint Asset Management Chief Market Strategist. Be well, David, and thank you.

DAVID NELSON: Thanks so much, Julie.