It's not surprising that consumers are spending: Wealth Consulting Group CEO

The Wealth Consulting Group CEO Jimmy Lee joins Yahoo Finance’s Akiko Fujita to break down the unexpected boost in September’s retail sales report.

Video Transcript

AKIKO FUJITA: Let's kick things off this hour, though, with Jimmy Lee. He is the Group CEO of the Wealth Consulting Group, and he joins us today to walk us through the market moves. And Jimmy, it's always good to talk to you.

You know, we saw the retail sales numbers. That's certainly helping improve investor sentiment right now. But what do you make of the market move so far, especially coming on the back of those declines we saw for, for three straight days?

JIMMY LEE: Good afternoon, Akiko. And I think that the declines that we saw after such a big run-up in stocks, you know, since the lows in March, are not something that many investors, like myself, were surprised with. So, a little bit of a pullback from those highs, I think, was expected.

And now that we're rallying a little bit with some good economic data, as you suggested, earlier today with the retail numbers, consumers are such a big part of the US economy, 2/3 or more, in that the fact that consumers are spending and retail is good is a great sign for the economy.

So I think while I'm optimistic and bullish about stocks and setting new highs, maybe in the near future, I think investors should be expecting more volatility as we lead up to the election year.

AKIKO FUJITA: What's your read, though, when you look at the big uptick we saw in those retail sales numbers in September in terms of the momentum that we have with the economic recovery right now?

JIMMY LEE: Yeah, as you know, I'm very bullish on the American consumer. And I'm very optimistic that once we do get a vaccine-- and I believe that we'll get a vaccine maybe a little sooner than a lot of the pessimists believe.

But when we do get a vaccine, I think that Americans are going to spend a lot. And we're already seeing it in a lot of sectors, such as housing. And today, we saw strong across the board, a little bit of a pullback in electronics and appliances.

But I think consumers are very strong here in the US. This comes off the heels of record savings numbers after the pandemic started. So there's money in the banks. And consumers are spending. And it's not surprising to me.

AKIKO FUJITA: Let's talk about the earnings picture. It seems to be sort of overshadowed by so much that has been happening in Washington. But particularly as it relates to financials, because we got some big numbers there this week that seems to point to some improvement when you look at something like the loan loss provisions going down.

We're seeing financials now up about 3/10 of a percent as a sector. I mean, when you look at the numbers we got out in that sector, was there anything that surprised you?

JIMMY LEE: You know, I think for many people, you know, how strong the consumer has been with as many people that are unemployed is a little bit surprising. But I've been a little bit bullish on that side. And I think that people should own financials, even with interest rates being so low and probably going to stay low for the time being.

And while that puts a lot of pressure on financials, banks, insurers, I think that, you know, consumers are going to borrow more. And on the other side of that equation is, you have a lot of home sales numbers in that sector doing very well because of interest rates staying so low, and people can afford, you know, bigger houses that cost more because the payments are lower because interest rates are low.

And so I think you have a balancing effect there. And I think that you're going to see borrowing activity increase. And as you've seen, commercial banks that do the lending, their loan loss reserves have not been as bad as potentially expected. And so those are all good signs for the economy.

AKIKO FUJITA: What about some of the more beaten down stocks? We saw United Airlines and Delta report this week. Certainly this is an area that has really struggled as a result of travelers just pulling back their plans. But is there an opportunity here, just given how far they have dropped, for investors to potentially get in on the lows?

JIMMY LEE: Yeah, I agree with that sentiment. I actually think that, obviously, airlines needs some support right now. And we're at a time in the economy where, without another stimulus package hopefully soon, either pre or hopefully very soon after the election, I think certain industries like airlines are going to continue to have had to lay off more people.

But I've been traveling a little bit for work and other reasons. And the airports are much busier than before. I think people are not as scared to travel as they were in the summer. And so I think that the industry will pick up. And along with, you know, the airline industry, there's also travel, leisure. I think there are sectors like that that have a lot of opportunity for upside for investors.

And as I've been saying for a while on your show here, having a balance between the value sectors and the most beaten up sectors due to the coronavirus pandemic, I think investors need to have enough money there, along with their growth stocks and their technology stocks.

AKIKO FUJITA: You've got, on the one hand, companies are reporting their earnings. And then yet, you've also got this big uncertainty around politics, whether it is the stimulus bill right now or the outcome of the election.

How are you advising your clients right now about how to weigh these options or the risks right now? Do you stick to fundamentals and look at these companies and sort of put all the noise aside from the election, or is that risk, at the end of the day, still outweighing the fundamentals?

JIMMY LEE: I think it's the former. I think you need to stick to the fundamentals. Statistics show since 1977, according to FactSet, that stocks perform best under a split Congress. In fact, they perform the worst when you have the White House and Congress united.

And so there's a good chance that even if there's a change in the White House, the Republicans keep the Senate. But in any regard, I think that post-election, you're going to see some more stimulus. And I think the American consumer is going to spend. And I think in the long run, you have to put politics aside.

And while there is a proposition of taxes going higher under a Democrat-controlled Senate or House and Senate and the White House, that even during those times, if you look at the early years of the Obama presidency, you know, stocks did OK.

And so I think investors need to calm down a bit, look at the fundamentals, look at earnings, and weigh certain sectors that might do better depending on what the political climate might be. So those are all things that we're looking at and positioning our clients ahead of.

AKIKO FUJITA: Having said that, Jimmy, we're still looking at the stimulus. And I'm curious how big of a catalyst you think that's going to be. And I feel like this is a conversation that we have had multiple times over the last several months.

At the end of the day, is it enough to get some kind of deal? Or are investors still really looking at a full package here, instead of what the Republicans have called this targeted approach-- a relief for airlines, a little more money for testing? What exactly is going to be the catalyst that pushes the market higher?

JIMMY LEE: Well, I think it's going to be the people that are still unemployed. And I think the politicians are under a lot of pressure to create more stimulus. And I think we will get one. The size of the stimulus, I'm not sure.

I know that the Senate Republicans are trying to lower that number to the point where they think it's fiscally responsible, and I don't like that either. But there are a lot of people unemployed that my home state, Nevada, where we have a lot of hotels and restaurants, there's so many thousands of people that are unemployed, can't put food on the table. So we need some help here.

And we're really close, in my opinion, to a vaccine that I think will allow, you know, politicians to open up their states. And so depending on where you live, you either live in a state where it's pretty open and like it used to be or not and very closed still. And so I think some of that, I'm hopeful that will end after the election here in November. But I think we do need a stimulus.

And I think the politicians-- hopefully, we can have confidence in that they can come together and create a package that'll be a nice bridge to when we get to-- until we get a vaccine, and the economy really opens back up. But when the economy does open up, I do believe that consumers will spend. And I think the economy is going to recover pretty nicely.

AKIKO FUJITA: Yeah, well, let's hope that the next time we talk, Jimmy, there will be some kind of stimulus to talk about. Hopefully, there is a deal in place by then. Jimmy Lee, always good to talk to you. He is the CEO of the Wealth Consulting Group.

JIMMY LEE: Can't wait. Thank you.

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