The private sector and individual investors are stepping up in terms of values-based investing: CIO

Kara Murphy, Goldman Sachs Personal Financial Management CIO joins the On the Move panel to discuss today’s market action and the latest economic data numbers coming out of China.

Video Transcript

JULIE HYMAN: Let's start with what's going on in the market today and some of the recent trends that we have seen in the market. I want to bring in Kara Murphy. She is Goldman Sachs Personal Financial Management CIO, and she's joining us from Dallas. Kara, we are watching the market go up once again after some rockiness that we saw over the prior couple of weeks. One of the things that could be lifting it today, we got some economic data out of China that showed consumer spending rose for the first time this year.

One of the continuing narratives here in the United States has been sort of a disconnect between the markets and the economy. Does something like what we're seeing out of China give us a little hope that the rally that we have mostly seen in the US over the past several months is sort of an accurate predicting mechanism for where the economy is going? Oh, Kara, I just need you unmute your microphone. I'm sorry.

KARA MURPHY: Sorry about that. You would think I wouldn't know how to do this by now after six months of being on video.

JULIE HYMAN: No worries.

KARA MURPHY: So I think watching China data has been really, really important if for only because they were among the first to go to feel the effects of COVID and to go into lockdown. So we've been paying very close attention to how the economy has responded as people have started to go back to work. So as you mentioned, we saw industrial production, a nice acceleration from last month, previous month numbers, also getting better.

But we're seeing that better economy being confirmed in other areas as well. So for instance, people are moving around more. They're taking the subway. They're going out to dinner. Steel demand is up. And what we've seen is that the US recovery in some other developed markets have had a similar characteristic of this fairly quick rebound once people started getting back to work again.

ADAM SHAPIRO: Do you think that there's any kind of threat to those of us from the more traditional, perhaps conservative value investor types? When we see like the headlines today, the WTO ruling against the United States with the China tariffs. All of this just adds more angst to what's coming down the pike.

KARA MURPHY: Yeah, so it's been incredibly interesting to see this massive divergence between value stocks and growth stocks. And in fact, growth stocks have been outperforming for 10 years, which is in direct contradiction to what we saw in history prior to that 10 years. But that has really accelerated heading into this COVID environment.

But it makes sense when you think about it, and that think about those companies that have really benefited from locked down. Cloud computing, video conferencing, online retail, these are companies that were really best positioned to take advantage of this. And then when you think about the companies that were not well positioned, so take financials for instance, which is a really large part of the value world. Flat yield curve, slowing loan demand, potential higher credit losses. So, you know, the divergence that we've seen between these two groups of stocks is among the largest that we've seen since the tech bubble in 2000, but there are some fundamental underpinnings to that divergence.

DAN ROBERTS: Kara, Dan Roberts here. When we talk about a China rebound, what do you expect to see with Chinese tech, because the tough talk in terms of the US and China on these tech companies, even though you would think at first that that just affects these companies operations in the US, it is certainly going to have an impact for months and years to come on some of the biggest Chinese tech names like Alibaba and Tencent. And of course, people are expecting that even if it's a say Joe Biden presidency next up, that that's not likely to change or reverse. So what do you expect for that, and could that be an overhang overall on the Chinese economy?

KARA MURPHY: Yeah, and it's interesting, because that's an area where we start to see the intersection not just of these very unique economic circumstances, but also politics, right? And so this has gotten a lot of focus on the national stage, and I think it can be expected that, you know, a Biden presidency would be more conciliatory and more welcome to sort of finding a path forward. But what we're seeing also is that a lot of these companies are able to be creative and find a politically palatable way to go about their business. And I think everybody also recognizes that these companies are real drivers of innovation and economic growth, so we don't want that really clamp down and then risk the whole economic recovery.

- Kara, I'm here in California. Of course, it's top of mind for Californians, but also in general, you know, reacting to that CFTC report on climate change and the risk that it does pose on the financial system. Can you speak to how you're thinking about it? How you're advising clients, because we know that this has sort of been in the background for decades, right? But the sort of, as you point out, the political imperative and the need for leadership never has felt more dire. How are you sort of thinking it through as a financial analyst?

KARA MURPHY: It's been really interesting over the last couple of years where I feel like the political sphere has kind of pulled back on us we're taking the reins on climate change. What we've seen is that the private sector is really stepping up. And specifically, in terms of individual investors, this idea of values based investing, having your dollar of work for not just your portfolio but for climate change, those sorts of things. We've seen a lot more interest from clients in those, and we've seen a lot of innovation among different investment vehicles to be able to deliver those types of, you know, dual-based goals.

JULIE HYMAN: Kara, I do want to ask about something you put in your note to us, which said that the super forecaster probability of a mass distributed vaccine by the first quarter next year is up to nearly 70%. What if that doesn't happen? What is the downside risk for the market, and are you counseling clients to protect against potential downside risk right now?

KARA MURPHY: Yeah, so this is a really interesting metric. It's important to keep in mind that a very short time ago, that expectation was down to, it was only 40%, chances of a vaccine by the end of Q1 2021. So yes, like those expectations have really climbed, but the market was also still really healthy even at a 40%.

And so what I would say is that you never want to sort of bet on a very specific timeline for that vaccine coming out. But what we have seen in the meantime is that businesses and individuals have continued to be very, very innovative in how to do business despite this environment, right? We're all here in a very different environment than we might have been.

So we definitely want to be able to see a vaccine as soon as possible. We want to see people get back to, you know, their more normal lives. And it could weigh on the market if that takes a lot longer than currently expected, but I don't think that we have an enormous amount of downside in the market if those super forecasters are not correct in their timing.

JULIE HYMAN: OK, Kara Murphy, great to talk to you. Goldman Sachs Personal Financial Management CIO. Appreciate it.

KARA MURPHY: Thank you.