Markets mixed with stimulus, earnings in focus

Eric Freedman, CIO at U.S. Bank Wealth Management, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss what's moving the markets Monday morning.

Video Transcript

BRIAN SOZZI: All right, let's dive back into the markets with Eric Freedman, Chief Investment Officer at US Bank Wealth Management. Eric, good to-- good to speak with you this morning. I was reading over your notes, and one thing caught my attention, among many. You have cut your exposure to us large cap tech stocks. Why did you make that move?

ERIC FREEDMAN: Yeah, thanks so much for having us on. Really, it was a matter of taking profits. And clearly, technology remains a great story. We think it's a great story before, during, and after the current pandemic. But things have just gotten to a point where we thought it was-- it was smart to rotate into other opportunities. So we've had it on really before, as I said, the pandemic. But once we see the ascent that's-- that's just materialized over the last couple of weeks especially, we just think it's time to, again, not totally cut the-- the position, but at least trim and-- and move onto other things.

ALEXIS CHRISTOFOROUS: Eric, are you among the investors who are betting on volatility heading into the election and beyond, those who are believing that we could have a very messy election and are preparing for a-- a volatile time of it for the stock market, at least through the end of the year?

ERIC FREEDMAN: Yeah, Alexis, we think you have to be prepared for some eventualities we maybe have not seen before. And-- and when you have stories over the weekend about the postmaster getting letters and-- and various considerations about this upcoming election, we have to brace ourselves, again, not-- we don't think it's going to necessarily be-- be messy. We actually would probably use the opportunity, if we did see some sustained weakness, to get more aggressive and probably buy global equities.

But we also have to recognize that there are lots of things ahead of us that just can't be easily predicted. So we're not anticipating a really messy election, but we do expect the rhetoric to pick up quite materially next couple of weeks. And mechanics of an election are-- are issues. It's happening in New Zealand. It's happening across Europe. So these are things we have to certainly pay attention to. It's a really-- really good point.

ALEXIS CHRISTOFOROUS: When you say, Eric, buying up global equities, where outside the US are you putting money to work right now?

ERIC FREEDMAN: We've really emphasized more emerging market exposure overdeveloped international. So not that-- that we think anybody can gain a great edge on what's happening in China today or tomorrow, but we do think that more commodity-centric real asset type of countries are worth looking at. We still think the demographic challenges that existed before the pandemic in places like Europe and Japan are going to be even further accentuated post the pandemic.

So we've structurally been overweight domestic. We've been more market weight emerging markets. We're just not really that excited about the opportunities in Europe quite yet or Japan. So we really would still primarily emphasize US. Second place for us would be EM, and then really a-- a distant third would be the developed international side.

BRIAN SOZZI: Eric, hit us with five catalysts for the market.

ERIC FREEDMAN: Yeah, there's really, you know, five-- five key things coming up. Back to school, which, in our house, literally started this morning. My-- my poor seventh grader turned-- turned 13 today on the--

BRIAN SOZZI: Congrats.

ERIC FREEDMAN: --on the first day of school, so I'm not sure how much of a present that is for him. But number one, we will be back to school and just seeing what that looks like across not just America, but across the world. Can families return to a-- a school environment safely? Can people get back to work? Only about a third of the jobs in this country can be done remotely, so that has material implications, of course, for the economy.

Number two would be ongoing negotiations between House and Senate Democrats and Republicans about stimulus. Number three would be the Fed meeting September 15-16, which is a material one. Happy to get into that if there's interest. And then, of course, we have election. And then ultimately-- I know it is a great segment before I got on about the vaccine and what that may look like. So those are five big meaty news items that have to be-- have to be considered in a current investment landscape.

ALEXIS CHRISTOFOROUS: What about the fact that you've got a bunch of Wall Street firms now raising their price target on the S&P 500 given all the outside factors, right? We've got uncertainty surrounding the election, uncertainty surrounding the pandemic and a vaccine, negative earnings. Should Wall Street firms be doing this right now?

ERIC FREEDMAN: Alexis, it's a little bit of catch-up from some firms that-- that have missed the move up. And-- and again, I don't say that with-- with any ounce of-- of what's called schadenfreude. But-- but the bottom line is that it is-- this is an environment where when negative real interest rates have gotten to the levels that they've gotten, people have to catch up.

And so it is an environment where a lot of investors are looking through 2020 and into 2021 to justify current price targets. But when you look at, again, global yields just continuously plummeting, that's an environment where you think the discount value that people put on earnings just goes up. So it does seem like there's a lot of uncertainty.

Again, those catalysts I just mentioned, those aren't easy things to ascertain. But we do think that bottom line is that as interest rates keep heading lower, that makes cash flows more valuable, that makes stocks more attractive. So it can't go on perpetually. But for now, we think there's still an opportunity to be involved in global equities.

BRIAN SOZZI: Eric, I have about 30 seconds left. What would cause you to-- to trim your long exposure into the election?

ERIC FREEDMAN: I think number one would be the Fed meeting. That would be-- we're expecting the Fed to really tilt dovish. Number two would be challenges with back to school. And again, we-- we certainly-- it feels trite talking about dollars and cents in front of a health pandemic, but that-- those are really two catalysts that we think would be almost forebearers of what may happen with the election.

BRIAN SOZZI: All right, let's leave it there. Eric Freedman, Chief Investment Officer at US Bank Wealth Management, good to see you. And happy birthday to your son.

ERIC FREEDMAN: Thanks so much. Take care.