Markets volatile as retail sales disappoint

Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with George Ball, CEO of Sanders Morris Harris, about the latest market moves.

Video Transcript

BRIAN SOZZI: What is the rude awakening for this market? It continues to go up. We're seeing a little bit of sell-off today, but there is no stimulus plan.

GEORGE BALL: The market right now is hoping for the some summer lull, and that's what's happening. The market is, you know, wafting gently up with the summer solace-- I guess we're past the summer solace-- and waiting for stimulus, something that we all know is going to come. What's happening, Brian-- and it shouldn't happen-- is that people are waiting for an external event or an exogenous event to take the market out of this trading range. And we've got the rare bull market with the VIX over 20-- 22, I think-- right now. And the really smart investor or trader should be taking action now to get ready for what's going to happen after Labor Day. It's very hard to put sails up on a boat when you're in the middle of a hurricane, I'm told.

BRIAN SOZZI: George, what's-- you know, what's fair value for this market with no stimulus plan?

GEORGE BALL: The fair value is probably 2,500 to 2,800. And so if you're an investor, Brian, clearly, the logic of a 3,300 S&P becoming 4,000 before it becomes 2,500 is difficult. Right now, the market's awash in liquidity. That's the reason for the current strength in the market. It's liquidity, liquidity, liquidity. And when that runs out, when that can has been kicked as far down the road as it can be kicked or needs to be kicked, then prices all probably adjust more closely to what you're calling fair value.

ALEXIS CHRISTOFOROUS: You know, George, Goldman Sachs is calling for S&P 500 to reach 3,600 by the end of this year. That's just-- that's a few hundred points away. We know it's right on the cusp of that new record high. Do you-- are you bullish there? And if so, what's going to be the catalyst that gets the S&P 500 to that level?

GEORGE BALL: Well, first, I'll point out that analysts and strategists are right nearly 40% of the time. So Goldman being bullish-- I think two of its competitors came out with some rather bearish forecasts even today day-- means very little. The flip of the coin might be better.

The catalyst for a higher market, a 3,600 market, is liquidity, number one, and then perhaps a belief that the post-COVID recovery will be more complete than most of the thoughtful prognosticators are saying. We'll be-- we'll have a vaccine by the first quarter of next year. It will be widely available by mid-year next year. But is people's behavior going to return to the pre-COVID type of consumption investment patterns? That's doubtful.

BRIAN SOZZI: George, I've become to know you as always keeping it real, and I can't seem to get an answer-- a straight answer out of anyone. Is a ticket of Biden and Harris good or bad for the stock market and why?

GEORGE BALL: It's as good as it could possibly be. There are many people who think that a-- that the lower the tax rates, the better for the economy overall. And I'm more or less in that camp. So Trump winning would probably be better because he's a lower tax person. If you look at the possibilities on the Democratic side, a Biden tax plan, as written today, is as benign for after-tax corporate earnings and prospects as any that you might hope.

If you sort of lump together the pollsters look at time lag and you look at polling error, there's a 71% chance that Biden's going to be the next president, as of today. So Biden is probably not bad for the stock market per se, particularly compared to the alternatives. Trump, at least in tax policy, would be a-- it would be better for corporate earnings, whatever his other peccadilloes may be.

ALEXIS CHRISTOFOROUS: George, has this market already priced in a Trump win, do you think?

GEORGE BALL: I think the market has priced out a Trump win. I think it's very unlikely. [? Punners ?] are usually right. They're putting over two-to-one odds on there being a Democratic president. What the market is unsure of, I think, is whether or not the Democrats will take the Senate. Because if you have one party controlling all three branches, then the likelihood of any capitalistic, progressive tax and business and regulatory framework becomes very strong.

BRIAN SOZZI: But George, isn't it also equally as important who Biden, theoretically, would put in his cabinet? If he comes in and he builds out his cabinet with all these really far-left-leaning progressives, what would that mean to the market?

GEORGE BALL: I hate the word catastrophic, Brian, because catastrophic-- it's three syllables. It's hard to say in the morning hours. But it would be very, very difficult for the market to go up if you had a Secretary of Treasury Warren and, you know, AOC as head of the Commerce Department.