'We have already tested the lows' of the market, says JMP Securities President

JMP Securities President Mark Lehmann joins The Final Round to discuss how the COVID-19 outbreak continues to impact the financial markets.

Video Transcript

JEN ROGERS: I want to bring in JMP Securities president Mark Lehman right now to talk a little bit about what we're seeing in the markets. But kind of get ahead of what's happening today. And I know we don't know the timeline for what's going to happen with COVID-19. We don't know how long this is going to last. But on the other side of that, as you're looking for opportunity, what are the sectors that you think are the best plays to be contemplating putting money to work in?

MARK LEHMAN: Yeah, once this hysteria, as well as the fear that this is not going to end, passes-- and it will pass-- I think investors are going to, I think, pay most attention to the health care and tech sectors, kind of the growthiest parts of our economy. As we start to come out of this, I think you're going to see, as I've been saying to friends and colleagues, innovation hasn't stopped because COVID hit the shores of the United States.

And I think we're seeing lots of things happening on the health care side, of which I think we'll benefit from on the COVID side as well as other disease indications, obviously. And on the tech side, we're learning that even with these unbelievable, unprecedented times, most of us, if we're in a high tech, capable part of the economy, we're working. Albeit with a little bit of a difference in how we're working, but we're still working.

And that tells you a lot about what our economy and what drives the economy. Unfortunately, for some of the consumer focused and some of the entertainment and some of the other things that are doing much worse, that's probably slower to come back. And I'd be focused on the tech and health care.

MYLES UDLAND: Mark, do you think that the market is going to be way ahead of the real economy in the sense that investors-- I mean, it kind of almost feels like investors now are growing uncomfortable with the situation on the ground. But I think for most Americans out there, reality is only starting to set in that this is going to be one, two, maybe three months of essentially an economic freeze, which, for a lot of folks, means they're not going to be working or having an income.

MARK LEHMAN: Listen, the market always anticipates-- the market started to correct about five weeks ago in anticipation when the numbers, frankly, were not bad five weeks ago. And obviously, whether it's New York or some of the other clusters that we're starting to see, the numbers will accelerate, and we're getting some better track on when we think those disease peak numbers are going to come out of different geographies.

I think the market will anticipate when things will come out on the other side. And I'm not predicting anytime soon that we're going to see droves of people going back to work. The question to ask, I think, investors and people who want to see when we're going to get back to normal, which is when will most people feel comfortable being in a room of 10 people, 100 people, 1,000 people, or 10,000 people. So we're talking about a workspace for 10, a restaurant for 100, an airport for 1,000, and maybe a concert or a sporting event for 10,000.

To me, those are relevant questions that should be asked. And then we ask, what is the run rate for the subsequent 12 months of the S&P? And put a multiple on that, and put a market multiple on that and see what you feel comfortable with. My guess is we've already tested the lows. The government's going to throw everything they can at this to make sure that that spigot stays on.

And again, the highs are something we don't even want to contemplate. I like the VIX going down here. It tells me that even if the market's down abruptly like it is a little bit at the close of this quarter today, the VIX index has stabilized a little bit, albeit at a record high level.

That makes me feel positive that we're getting closer to where investors are feeling more comfortable that the past is the worst of the market. And then going forward, we're to have this quiet grind higher. And I think that's what we're going to see.

JEN ROGERS: Hey, Mark, usually when we get to talk to you, we talk about IPOs. You're out there in San Francisco, a big tech center. When do you think we're going to be seeing some IPOs come out?

MARK LEHMAN: I think you'll see some on the health care side sooner rather than later. Because those dollars that are put into the health care world are really for some innovation in the ecology world or other disease areas that, frankly, the COVID outbreak is not as important, as long as they can enroll their patients. We were prepared at JMP to have about a dozen of our tech deals in our backlog, which is a big backlog for our firm. Last year, we were on companies that were benefiting like Peloton and Zoom. But this year, we're ready to have about a dozen IPOs.

I wouldn't expect any activity there until the fall. I would think-- and many people said you better get your IPO done before the election because there won't be any. I don't think that is true. I think you're going to see some Labor Day on. There's some great companies that are going to go public. The other question we have, of course, is we kept hearing about this direct listing. Boy, I haven't heard that in a long time, and I don't expect that anytime soon.

JEN ROGERS: JMP Securities President Mark Lehman, great to get a chance to talk with you. Thanks so much.