Strategist on stimulus: ‘the market has already priced’ it in

Megan Horneman, a Director of Portfolio Strategy at Verdence Capital Advisors, joins The Final Round to discuss what her thoughts on the market and how it will price in worries of stimulus and the November election.

Video Transcript

SEANA SMITH: Megan, let's just start with the stimulus deal. What kind of reaction do you think we're going to see in the market if, in fact, we do get something before election day?

MEGAN HORNEMAN: So I think we've seen a lot of the reaction in the market. And what you've seen in the past couple weeks is the market rallying in anticipation of a deal getting done, regardless of the timing, whether it's before or after the election.

And this may be one of those situations where it's buy on the rumor and sell on the news. And then the market takes a bit-- some profits. It takes a breather going into the end of this year. But I think that the market has already priced in the fact that we will get something done. It's just the timing of it that is a little less certain.

SEANA SMITH: So Megan, what has your outlook been for markets here for the rest of this quarter? Because if all the stimulus talk is already priced into the market, where are you looking for a catalyst here to get us back to those new highs?

MEGAN HORNEMAN: So we actually kind of sit on the other side of the spectrum there. We think we're in for a bit of volatility into the end of this year because of the fact that the market has priced in a lot of the good news. The market's been rallying on the fact that economic growth has been better than some anticipated. We got some good news from the consumer last week from confidence and also on spending.

And then, like I said, there's been a lot of positive momentum on the fiscal stimulus, where, at one point, we thought it was dead in the water. So we think that there's more chance that you could get at least a modest pullback at the end of-- by the end of this year.

SEANA SMITH: So Megan, with that in mind, what are you telling your clients to do at this point?

MEGAN HORNEMAN: So what we're doing right now is we have a little bit of an overweight in cash position. We're looking for opportunities to enter the market. But we don't see any reason to be fast on that or be aggressive on that, especially ahead of the election. And we're not necessarily worried about elections. They happen in every time of an investor's long-term investment cycle.

But we do think that you just could see some volatility around that election. We think you could see some volatility as we navigate through some surges in coronavirus cases. We also think you could see volatility as we look into try and, really, what kind of repair we're doing here in the US labor market, which we think is the most important thing to keep the economic recovery going.

JEN ROGERS: In a recent note, you noted that MSCI AC World Index had fallen for the first time in three weeks. And I wanted to ask you about, globally, what you're thinking, especially given the COVID-19 numbers in Europe and also in the US, the election risk in the US and the data that we've been getting out of China on their economy. Do you think in 2021 you will be looking outside of the US more?

MEGAN HORNEMAN: So we have been looking outside of the US. International equities, specifically the developed markets, have been such a laggard for multiple years now, compared to the US. So we have been looking outside the US for some time. We have a modest overweight in international.

And if we continue to see weakness in some of these European markets, we'll assess that area as a potential maybe to put some cash to work. Because we do think that long run, from a valuation perspective, they look more attractive than the US and some of the emerging market economies now, too.

SEANA SMITH: All right, Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, great to have you back on the show. We'll talk to you soon.

MEGAN HORNEMAN: Thanks. Talk to you soon.