Markets lower after retail sales plunged in April

Yahoo Finance's Brian Sozzi and Alexis Christoforous discuss the latest market action with Invesco Chief Market Strategist Kristina Hooper.

Video Transcript

ALEXIS CHRISTOPHOROUS: What is your take right now on the retail sector?

KRISTINA HOOPER: Well, I don't think we should be surprised by this. This is the kind of thing that happens when you almost entirely shut down an economy. So what typically happens in a very deep recession over the course of many months has really been compacted into a very, very short time frame, and so there is this dramatic drop. We saw it in the PMIs where the service sector was more greatly impacted than manufacturing.

So I think this is part of the same narrative we've been seeing, and I don't think we should be rattled by it. This is what happens when you have a lockdown. What we need to look for is the fiscal stimulus coming, and of course, the efficacy of the reopenings.

BRIAN SOZZI: Kristina, just judging by what you saw off the retail sales data, retail is under a lot of pressure. Do you think a new round of stimulus checks solves the situation here, another $1,200 in the hands of consumers? That gets them out there spending?

KRISTINA HOOPER: It doesn't solve the situation, but it helps the situation. And of course, the reopenings that are done carefully, cautiously so as to prevent another surge in infections-- I think all those pieces come together to help improve the situation. But as we saw from the Fed data, and that we've seen for years and years, many households-- between 40% to 50%, depending upon the Fed survey over the last five years-- do not have enough to cover a $400 emergency expense.

And so $1,200 actually makes a big difference for a significant portion of households. And those happen to be, unfortunately, the same ones that have been hit by this crisis the most. And so every little bit counts. I think we need to have more fiscal stimulus, and of course, also, thoughtful, careful reopenings of the economy.

ALEXIS CHRISTOPHOROUS: Kristina, do you think we should even be calling it stimulus? Because when I think stimulus, I think this is money that we want to be pumped back into the economy. But as you just laid out, a lot of people are going to have to take that $1,200 or whatever the stimulus check is and put it right towards bills. So when do we move beyond that portion and actually have people getting money in their pockets from the government to go out and spend? Because right now, it seems like a lot of that is really an effort to make this not a deeper recession, or perhaps depression, than it already as.

KRISTINA HOOPER: Well, as Jay Powell said the other day in his comments, it's critical to have adequate fiscal stimulus so that the economy is better poised for a faster recovery, a more robust recovery. So that money might be going to pay bills, but that means it's that much easier for the next check to go into spending in the economy. So I think it's absolutely critical. A lot of developed nations have provided monthly stimulus payments, and that may be something that the US wants to consider for the duration of this crisis.

BRIAN SOZZI: Kristina, what do you make of the market action this week? Actually, for the past week, stocks have come under pressure here. You've seen financials continue to sell off.

KRISTINA HOOPER: So this is a situation where we're seeing some consolidation, some concerns feeding into markets after what has been a pretty significant rally since late in March. We have to recognize that on a day-to-day basis, stocks are going to be moved by news flow around health statistics and health policy as well as fiscal policy and monetary policy.

We got some bad news this week from Dr. Fauci, and markets were clearly rattled by what Jay Powell said. That's what happens with news flow. Keep in mind, as Benjamin Graham said, in the short run, the stock market is a voting machine. It is, in the long run, a weighing machine.

ALEXIS CHRISTOPHOROUS: Let me get your take on chip stocks. I'm looking at AMD and Intel, just two that I'm looking at this morning. They are lower right now, down about 2% each. We have the Trump administration now saying that all of a sudden now, Huawei is back on its radar. It's going to move to block semiconductor shipments to that Chinese chip company. What do you think this is going to mean for US chip makers?

KRISTINA HOOPER: Well, it could be a positive for US chip makers, but I think we have to take a step back and look at the bigger picture, and actually, what I think is the greatest risk to stocks this year, which is a heightening of US-China tensions, in particular the reignition of a tariff war. We just got out of the woods with the US-China trade agreement in January. But the reality is that tariff war weighed heavily on stocks. That could easily come back to the fore. So that's really what I'm focused on. And again, I think that could be a greater risk to stocks this year than the pandemic.

BRIAN SOZZI: Kristina, even greater than a risk of a second wave of infections later this year?

KRISTINA HOOPER: Well, our hope and our expectation, our base case, is that the US is far better prepared to control a second wave if it comes this fall. We should have more in the way of testing. We should have more in the way of stockpiles for PPE. And of course, we've been forewarned that this is likely to happen, so it will be getting priced into stocks. So I do believe, yeah, that another tariff war between the US and China could be an even bigger problem for stocks.

ALEXIS CHRISTOPHOROUS: Krisinta, having said that, what's your feeling on tech in the short term? We spoke with Cisco's CFO yesterday. They had a really solid quarter despite the pandemic. Are there pockets within tech that you actually see opportunity right now, even if tensions with China escalate?

KRISTINA HOOPER: I'm actually very positive on the tech sector. And this is a long-term view. But I'm also positive on tech in the short run. There's a lot of opportunity there.

Keep in mind that while this pandemic has negatively impacted so many different industries of the economy, much of tech has benefited from it in terms of the greater reliance we have on software, on the cloud to really get business done. So in so many different areas of technology, there's greater usage. More purchases of tech I expect to happen going forward. Companies are going to be spending more of every capex dollar on tech going forward than they have in the past because they recognize that this is absolutely critical to running a business in difficult times like this.

ALEXIS CHRISTOPHOROUS: All right. Kristina Hooper, Invesco's Chief Global Market Strategist, always good to see you. Thanks for stopping by.

KRISTINA HOOPER: Great to see you too. Thank you.