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Aggressive fiscal policy wanted: Hogan

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National Securities chief market strategist Art Hogan tells Reuters' Fred Katayama how huge President-elect Joe Biden's pandemic relief package must be to satisfy investors who have driven up stocks in anticipation of hefty fiscal stimulus measures.

Video Transcript

FRED KATAYAMA: The DOW and S&P 500 hitting record highs Thursday afternoon ahead of President-elect Joe Biden's highly anticipated speech on the pandemic relief package. For more on that and some market views, let's turn to chief market strategist Art Hogan of National Securities. Welcome back, Art.

ART HOGAN: Thank you so much for having me.

FRED KATAYAMA: And Art, before we get to that, jobless claims today came out rising to nearly one million. Yet the markets seem to be shrugging that off. Why so? Are we in a bad news good news scenario?

ART HOGAN: Well, to a certain extent, I think this is a market that is really looking forward. And I think whether it's insurgency on the Capitol last Wednesday, or drama around impeachment, or certainly weaker economic data, I think all of that is being looked through to a point where we have better economic activity in 2021 than we would have had in 2020. Certainly looking for more fiscal policies stimulus from the administration, and certainly a feeling that the logjams around getting vaccines everybody is incrementally getting better.

So all of those things point to a better looking road ahead than the road that's behind us. We certainly know that the data from December and January is going to be worse than what we saw in October and November. The virus is getting worse. Economic activity is affected by that. So it's important for us to remember that the first quarter of this year is going to be worse than the first quarter of last year in terms of economic growth. But it's also important to know that the back half of this year is going to be significantly better than we've seen in about a decade.

FRED KATAYAMA: All right. I'll get to the stimulus in a second. But Fed Chair Jay Powell just out saying that now is not the time to discuss any changes in bond purchases, especially with the economy still far away from its inflation goal. So what does this mean for equity investors?

ART HOGAN: Well, I would tell you this. That was a shot across the bout. There was a parade of Fed speakers that was out this week. So we actually-- we had about six Fed speakers this week. And that's very typical of the timing that we have right now. So in each [AUDIO OUT] on monetary policy. And there was two that just yesterday happened to say that if the economy picks up, we may start to think about tapering our bond purchases.

And the US tenure actually reacted to that a little bit. I think what Jay Powell is trying to tell us is we are not going to change monetary policy anytime soon. Does that mean we're not going to have a tapering of the monthly purchases of bonds that are increasing the size of the balance sheet? Probably not in 2021. Now will they start talking about that in 2022? I think that's probably the case.

But I think what Jay Powell is trying to tell us is, we have very aggressive monetary policy, and we will for a period of time. He certainly is going to let inflation run hotter than the 2% target for a period of time. He wants to be very clear that the monetary policy is based on getting about half of the people who lost their jobs because of the pandemic back to work before they make any changes.

FRED KATAYAMA: And Art, as for President-elect Biden's pandemic package, what is Wall Street looking for? I've heard reports about possibly $1 and 1/2 trillion. Is there something in terms of the size that is needed to satiate investors in content?

ART HOGAN: Yeah. I would tell you this right now. I think you hit it right on the head with the $1 and 1/2 trillion. We need to see something North of that. But I think that's consensus. And anything South of consensus would be disappointing. And then I think this is a market that's planning on at least $1 and 1/2 trillion of additional fiscal policy stimulus. I think it's important. There's a lot of households and a lot of small and medium businesses that still need help to get to the other side of this pandemic.

We need to build a bridge. And that bridge is built by aggressive monetary and aggressive fiscal policy. And the president's very keen on getting that message out there. So I think that's the one thing you'll be hearing about.

The other things that you'll hear about and likely are going to be market moving are things about infrastructure spending. And this is something that I think garners some bipartisan support. So I think when you think about the industrials and material stocks that have done well so far this year, they continue to do well because that's going to be something [AUDIO OUT] in the first 100 days as they say of new presidents. And I think that's the other piece of that that we likely would hear will be about clean technology, alternative energy. And all of those sectors have done well since the election. I think they'll continue to do well in 2021.

FRED KATAYAMA: All right. So $1 and 1/2 trillion and infrastructure spending and clean energy. Then finally, earnings season kicks off tomorrow with the big banks reporting. How dismal is it going to be?

ART HOGAN: Well, I'll tell you this. It's interesting. You and I have talked for a long time. There's been twice in the 20 years that we've known each other that estimates for a quarterly earnings have gone higher coming into the earnings. They always come down. So the estimates come after the year, we'll look at the first quarter. And then when we get close to earnings season and analysts pull down their estimates.

They've gone higher for the third quarter and now for the fourth quarter. Estimates are rising. Why is that? Because the economy actually did better than we estimated a year ago when we thought about what the fourth quarter might look like. So that's good news. The only other the time that happened was when we had a massive change in the corporate tax structure. And just it was hard to catch up with how much of that top line growth was going to drop down to the bottom line. So I think in general we'll have an earnings season that will be better than expected.

FRED KATAYAMA: Well, thank you, Art for hitting on this plethora of topics. Appreciate it.

ART HOGAN: Thank you.

FRED KATAYAMA: Our thanks to Art Hogan of National Securities. I'm Fred Katayama in New York. This is Reuters.