'The good news is the rally is broadening': Oppenheimer's John Stoltzfus

John Stoltzfus, Chief Investment Strategist and Managing Director at Oppenheimer Asset Management, joined Yahoo Finance's The Final Round to discuss his outlook for the market and reopening optimism.

Video Transcript

MYLES UDLAND: We're joined now by John Stoltzfus. He's the Chief Investment Strategist at Oppenheimer Asset Management. And John, I just want to start with what you make-- like what do you say about a day like today? We've got the market now continuing to grind higher. The Dow is up 2%.

You look at what's happening in the banks, and you see this continued rotation. I mean, what to you is driving this market right now? And what are you telling clients that, I'm sure, are asking you to make sense of this rally that we continue to see pretty much move without many interruptions here?

JOHN STOLTZFUS: Well, Myles, I've got to say that when we look at this week, we were reminded very much of the rally that started in March of '09 on March 9 of '09. This one started on March 23rd when the market hit its bottom this year. And what we're seeing is the market is looking ahead, oh, three months, six months, 12 months out while consensus analytics is really looking closer to second quarter earnings season.

And I think in terms of the news that's been generated from the street level, really, is one that talks about the problems that we have right now, some that appear to be insurmountable in the near-term. But the market is looking ahead, and it sees the flattening of the curve in terms of COVID-19. It sees businesses and states reopening, notwithstanding the protests, which orderly protests, I think, have been just fine.

The disorder that has come from the looting, that's a whole other story that may delay some opening, slow the process. And some of the marches with lax social distancing, as well as some people not using masks could be a problem. Because we could have a flashback with the COVID-19 that could slow things, but the market's looking ahead.

Its goal is beyond, and what it is seeing is, generally speaking, we're a heck of a lot better off than we were in January when we didn't know what was going to hit us, better off than we were in February, better off than March. And we're beyond the ultimate negative projections, and that's what's reflected. The good news is the rally is broadening. It's small. It's midcaps, and its value is beginning the last two weeks-- as of the close last Friday when we looked at the prior two weeks, value was outperforming growth. Something hasn't happened with that kind of consistency in quite a while.

MYLES UDLAND: You know, John, last week, we talked to Sam Stovall, and he said that he hasn't seen a period in his career like this, where investors have looked quite so far into the future. I mean, we're talking about-- you know, you read a research note. There's many strategists and analysts talking about 2022 earnings at this point, and we're not into the second half of 2020. Have you ever seen a period like this in your career when investors and mass are so willing to look not just a couple quarters, but sometimes, further than a year out to justify today's valuations?

JOHN STOLTZFUS: Well, Myles, I've got to say that when I look at this situation, I've been in this business for 37 years now. It's completely unprecedented. We've never seen a significant portion of the largest economy in the world shuttered, as well as other economies around the world shuttered and what that would look like coming out.

So I think it almost calls for an unprecedented methodology of analysis looking forward. I would say this. When we go back to 2009 and the recovery from what had been the worst crisis since the Depression at that time, when we looked at that, we've got to say that we were bullish very early on and quoted by the press.

So we would really say that we were as early as January 20th of that year, we were looking for the potential for equities to rally by the end of the first quarter of '09. But through that whole year, because we were bullish, we remembered. There was a dearth of people who were bullish along with us. Everybody was waiting for a second shoe to fall, a third shoe, whatever have you, a fourth shoe, a double w.

We think in this one, we've likely got the process of a V shaped recovery and equities occurring with likely a U shaped recovery following in terms of the economy coming back. And the differential there is it's just going to take a little bit longer to get the economy to regain traction. We've got to resolve some of these issues, at least, near term, and then longer term are much more important, the sociological issues that are problematic.

And then related to COVID-19, we've still got to find with all the good news in terms of progress being made, we've got to find a vaccine. And we've also got to find drugs of greater efficacy to help people who fall to this illness, so there's plenty of risks remaining. But the market right now, I think, has recognized that the bottom it hit on March 23 projected much too negatively in the future.

And a lot of what we have is the effects of technology, whether it's in health care, whether it's technology that helps e-commerce, if it helps us do this call with you right now, the ability to communicate on a global basis to find out what's going on, on the street immediately and in living color. Sometimes, regrettably in living color, but you know, all of this means things can happen faster. And the bad cycles and the good can be very quickly discounted.

We do expect that with markets having moved as high as they have so far-- not still back to where they were. They're down around 12% to as much as 15%, 16% in some markets from their peak. We would have to think on any catalyst that the short sellers, short term traders, and nervous investors see to take profits without FOMO, they'll take them, if they can find a catalyst. But right now, we have been in the midst of a significant recovery rally here with most of the rally having occurred from March 23rd to, I'd say, by the end of April. Most of the real move had been done.

SEANA SMITH: Well, John--

JOHN STOLTZFUS: If you had left the market or were thinking about it, you would have missed most of the real action.

SEANA SMITH: John, going off of that, you said, we're seeing a V shape recovery underway in equities, more of U shaped in the economy. And there are still some risks, and you mentioned the fact that traders may be looking for opportunities to take some money off of the table. What do you think would be that catalyst? I mean, what are they looking for specifically? And then, also, what do you say to the people who say that this massive rally that we've had from the March that you we're talking about. That's all because of fed stimulus, and also, fiscal policy.

JOHN STOLTZFUS: I would say, by the way, fiscal stimulus most certainly plays a part. But the reality is, if we hadn't had a monetary policy, the extremely accommodative downright magnanimous. And if we hadn't had the rescue package from both sides of the aisle, as well as the administration, the alternative might have been an extended very deep recession that could have even become a depression.

And I think what the market is seeing is a real commitment moving forward towards a recovery process. We are not post-COVID. So that's the big risk here, what could cause that moment to take profits without FOMO, a spike in COVID. It could be an extremely disappointing earnings season.

We already, today, the ADP numbers showed that the loss of jobs, according to ADP, was only about 1/3 of what was expected. If we get that from the non-farm payroll numbers, something similar on Friday, the market could rally further. If we don't get that, and it looks more like the expectations that the surveys of economists have got to happen, then you could see perhaps a pullback as Friday, maybe next week.

But we don't think it's a pullback that damages this move, where the market is showing us where it wants to go. It wants to move towards an economic recovery and a recovery of revenues and earnings. Not only stateside, but even globally because of parallel efforts by other central banks around the world, who thanks to the crisis of 2008, and Ben Bernanke, and his successor Janet Yellen, there's a model of how to do this. And now, Jerome Powell in his own methodology is traveling forth with that kind of a message with extreme clarity and transparency. You know, this is not the era of Alan Greenspan. Thank goodness.

MYLES UDLAND: All right, we'll have to leave it there. John Stoltzfus with Oppenheimer Asset Management, always great to get your thoughts. We'll talk to you soon.

JOHN STOLTZFUS: Thanks for having me.