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Economic data does not show 'full picture of the damage' from COVID-19: Strategist

Another 2.123 million Americans filed for unemployment benefits in the week ending May 23. Commonwealth CIO Brad McMillan joins Yahoo Finance’s On The Move to weigh in on the latest jobless claims as well as discuss the outlook for the U.S. economy.

Video Transcript

- Brad, I did want to ask you, because you've pointed out, despite these initial claims for unemployment and 40 million people being unemployed, that the big worry about a second wave potentially impacting this economy does not seem to be really in the works. Why do you say that?

BRAD MCMILLAN: Well, when you look at the reopening process, certainly, we've had formal reopening-- people going back to work, states opening up in the past week or so-- but even before that, we saw a lot of people coming out. And what you would expect to see-- there's a one to two-week away, and we haven't seen new cases spike. In fact, new cases continue to be fairly low. So we're not seeing any signs yet that there's going to be a big second wave. That's a very big positive for people going back to work.

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- Should it continue to be positive for the markets? Because as we've seen in the jobless claims numbers, for example, yes, we're seeing a trend down, we're seeing people come back into the workforce, but if you include, for example, those who are now receiving that pandemic assistance, the people who weren't eligible before for unemployment and now are, the numbers go higher to about 3.1 million. You include folks who are taking advantage of PPP-- so are we really getting a full picture of the economic damage here in those unemployment numbers?

BRAD MCMILLAN: I think you're right. We're not getting a full picture of the current damage, and it very likely is worse than what we're seeing in the numbers. But that's certainly been the case, but the question is, is it getting better or worse, and how much? And the more interesting number here to me is not the weekly number. And that's going down, as you say, but it's still not complete.

But still it suggests that things are not as bad as they were. The more interesting number is the continuing claims number. And that's actually starting to indicate that hundreds of thousands, maybe millions of people are being called back to work. So yes, we have all these initial claims, but we also have people moving out of the pool of people who are collecting benefits, and that suggests that the return to work is well under way.

BRIAN CHEUNG: Hey, Brad. It's Brian Cheung here. So from an investment standpoint, it seems like [? the ?] [? thesis ?] is actually almost kind of funny, because everyone was saying, well, you wanted to try to time the dip then-- and that was back a few weeks ago, but it was so rapid that you may have already missed the boat.

So if you're looking right now, the S&P over 3,000, is it too late to be buying in? Where do you try to find value if you're trying to put money in the market right now?

BRAD MCMILLAN: I don't necessarily think it's too late to be buying in, but certainly, the stock market is pricing in a V-shaped recovery. And if you want proof of that, just look at the diagram of the price [? of ?] [? the ?] [? market. ?] That's a classic [INAUDIBLE]. So the market is saying that, yes, everything's going to be OK and we're going to continue to recover fast.

That actually says that markets may be a little bit too optimistic here, so we're probably going to see some volatility, but a recovery does look likely. As for opportunities, I would say homebuilders, for the [? big ?] [? place, ?] and consumer discretionary. As we get that recovery, we're going to see people spending and we're going to see people moving out into homes, rather than apartments.

JULIA LA ROCHE: Brad, it's Julia La Roche. I want to dig a bit more into this because I'm sensing some optimism from you. And we kind of had this tug of war between the optimists and the pessimists out there, but thinking about the risk side of things, you mentioned some of the things that you have been looking at as positive catalysts. What is on your radar that you're going to be paying attention to that could ultimately impact your thesis here?

BRAD MCMILLAN: I'm watching the new cases rate very closely. As I've said, right now, we don't see new cases trending up, but we're still early in the process. If new cases start to trend up, that could put everything into reverse. That's something we need to watch. From a consumer spending perspective, yes, we've seen some things bounce back much faster than expected, but whether that continues is very much up in the air.

I'm going to be watching consumer confidence. And finally, I'm going to be looking at those continuing claims numbers to see how people are moving back to work. Right now, we've got a lot of hope and a lot of good early indicators. We don't know if they're going to continue.

- So let's clarify what you say about a V-shaped recovery [? and ?] that you say it looks more likely, and yet you think the market is still due for some volatility. That 40 million people who are unemployed-- assuming that half go back to work, that's still 20 million that won't be spending. How do you get a V-shaped recovery out of that?

BRAD MCMILLAN: Well, again, if you make the assumption that half of those people aren't going back to work, then I agree, we have a problem. And that's what we have to see-- how many of those people go back to work. If you assume that things are going to be bad, yes, things are going to be bad.

But what I think the data tells us, while there's certainly the possibility things are going to be bad, there's also an increasing possibility that things are actually going to be pretty good. I'm not saying we're there yet. I don't think we are there yet, but it's a much bigger possibility than it was a week or two ago because the reopening has gone so smoothly.

- Brad McMillan is the CIO at Commonwealth. Thank you for being here.