Megan Horneman, Director of Portfolio Strategy at Verdence Capital Advisors, joined Yahoo Finance Live to discuss today's market action and her market outlook heading into 2021.
- But something else we want to talk about is how do you prepare your portfolio, how do you strategize when the good times seem to be on a roll? Let's talk about that with Megan Horneman. She's director of portfolio strategy at Verdence Capital Advisors. It's good to have you here. And I guess the reason I set that up with portfolio is we get excited when we talk about the Dow or the S&P or even a particular stock-- Tesla. But you have to look at the big picture. So what is it that a lot of us might be missing because you're looking at the big picture?
MEGAN HORNEMAN: Yeah, so our clients typically have a longer term time horizon, so we're really trying to look out the next 18 to 24 months, and really, where is the value there. We know that there is quite a few things from the uncertainty side that have been taken off the table. The election's over, we have the transition of power. It looks like we have some very viable vaccines on the way next year. So we need to look beyond, OK, where's the value now?
Right now, the market is running on the euphoria around the vaccine. It's running on the euphoria of the election being over. And it's running on the euphoria of the possibility of gridlock in Congress. So right now, we're very comfortable with an overweight cash position. We want to have money to put to work in areas that have been expensive. And even though we've seen some rotation in the US market towards the value side, the growth side still is quite expensive.
So what we're also doing right now is looking outside of the US. We'd like the developed international markets. They've lagged for several years, the US, and they stand to benefit from fiscal stimulus monetary stimulus, and the fact that they've been a little above-- beyond us in regards to where we are in the pandemic. They're about four or five weeks ahead of us. We've started to see some of their numbers get better. So we've been adding some money to that international market.
- Megan, going back to what you were saying-- that you wouldn't be opposed to having some cash on the sidelines right now, waiting for some of those expensive plays to come back a little bit-- are you talking about the big tech names, the big names that are leading the pandemic trade here over the last couple of months?
MEGAN HORNEMAN: So the big tech names are just one of the area. The entire growth sector has been very expensive to us. And we do think with the vaccine coming into the market that you will have opportunity to get into some of that entire growth sector. So it's not just tech, those tech names. They'd have to really come back quite a bit for us to find them attractive for the long term.
- What about real estate? I mean, REITs might be a little bit dangerous at this point because so much of the value in buying buildings and houses seems to be skyrocketing, especially in the places people are escaping from big cities?
MEGAN HORNEMAN: Right. So the REITs space, you have to be very selective. I agree with you there. You have to really know what you're doing. You have to have the due diligence on the public REITs space. So what we would rather do is invest in the private markets. In the private markets, you have less volatility. If you have the dedicated due diligence staff to really look at the private investments, there's quite a bit of opportunity in that market right now.
- Megan, when you take a look, I know, you take a longer term horizon when it comes to your investors. But today, for example, we had Dow crossing above 30,000, yet we had consumer confidence falling in the month of November. When you see that kind of disconnect starting to kind of bubble above the surface here, because the consumer has been very resilient over the past couple of months, how are you looking at that reading compared to where the market's trading?
MEGAN HORNEMAN: So in situations like this where you have that disconnect, this is why we like cash. But keep in mind it's not surprising that you're seeing this euphoria in the market. Equity markets always tend to overshoot and undershoot. So they're overshooting right now on the optimism about a vaccine and the possibility for fiscal stimulus next year. But we do think that you're going to be in for a tough time before it gets better.
We all know there's light at the end of the tunnel. But over the next few months, we're going to be in for dealing with the economic data that is going to struggle because of the new restrictions, the new lockdowns, the surge in cases. So we have to be prepared for that, and then also have the flexibility and the liquidity so that if the market decides to take a breather and pull back a bit, we have opportunity there.
- I liked what you said earlier that you like cash. Does that signal to some investors that even if some will buy on the dip that is essentially coming after this rally today, that maybe they should hold onto the cash till well into next year?
MEGAN HORNEMAN: I would look at market opportunities. You know, I think right now, the market could very well be in for at least a 5% correction. And I think this could happen over the next few-- next few months, especially because I do think that some of the economic data, like we've started to see specifically on the consumer side, will disappoint markets. And that will be an opportunity that you can put some of that money to work.
- It's always good to have somebody who has the big picture perspective, share that with us. Megan Horneman is director of portfolio strategy at Verdence Capital Advisors. Have a wonderful Thanksgiving.
MEGAN HORNEMAN: Thank you. Happy Thanksgiving.