We need to drive ‘extensive relief for small businesses’: strategist

Amanda Agati, PNC Chief Investment Strategist, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi, Sibile Marcellus and Ines Ferre to discuss how the markets are doing amid the coronavirus outbreak.

Video Transcript

ALEXIS CHRISTOFOROUS: We have got Amanda Agati joining us again. She is PNC's chief investment strategist. And, Amanda, in the previous segment, you were talking about the desperate need for fiscal policy here to go hand-in-hand with the aggressive monetary policy that we've seen from the Fed. Congress has yet to pass this more than trillion dollar stimulus package, but what specifically would you like to see in that package that perhaps can bring confidence back to American workers and back to Wall Street?

AMANDA AGATI: Well, it's a great question. It's the zillion dollar question or a couple trillion dollar question. And it's a really tough one to answer. At the end of the day, in my view, the only thing that matters is driving extensive relief for small businesses. There's a lot of issues that are still up in the air in terms of the package that's being debated now, a lot of talk around buybacks and what that means for federal relief aid, transparency around lending facilities, SNAP funding. I mean, the list goes on and on, so this is not an easy one to solve.

It doesn't hinge on one or two particular issues. But at the end of the day, the only way we're going to bridge this gap successfully is to drive the relief where we need it the most, and that's absolutely small businesses. That's where we're seeing the outsized impact of the pain so far. With 25% of the population now on stay at home orders, it works out to be close to a third of the US economy. We just have to go after this and fast. The clock is definitely ticking.

SIBILE MARCELLUS: Amanda, Sibile here. So can you give us a sense of how much damage is being done to markets right now with trading, with it being halted numerous times, hitting the limit down when it comes to the futures? I mean, how much is that impacting investor confidence right now?

AMANDA AGATI: Well, I think we're absolutely in a crisis of confidence, but I don't think it's necessarily specific to what's happening in the normal course of functioning as it relates to the market or circuit breakers. They're in there to do what they have been doing, and it seems as if, at least on the equity side of things, the markets are functioning in a somewhat orderly manner. The challenge is that this is a crisis of confidence. It's not about just a virus. It's much bigger than that.

It's are we getting the transparency and clarity out of world leaders? Are we getting transparency out of public health officials? Are we getting the transparency and clarity we need out of the Fed? I think they've taken some steps in that direction. But we certainly don't have transparency and clarity out of fiscal policy yet, and so this is less about the inner workings of the market necessarily and a much bigger issue.

On the fixed income side, it's a different story. So we've talked before about the plumbing related issues there, and I think the Fed is doing everything that they can to stabilize that. But that, in my opinion, is not where investors' minds are at. This is really unprecedented. We haven't seen this before. We're shutting down the world's largest economy here for a very short period of time, and so it all comes back to a crisis of confidence in my opinion, not market functioning.

BRIAN SOZZI: Now, well said, Amanda. I'm just looking at Apple here in our trading ticker page. Down 3%, so if you're looking for confidence in these markets, look at Apple because it's just not there yet. But we were talking to Brian Levitt earlier on at Invesco, and if I did my math correct, he said downside risk to the S&P, another 10% is possible. Do you agree with that, or do you think it's more?

AMANDA AGATI: Do I agree with the 10% down from here?

BRIAN SOZZI: Yeah.

AMANDA AGATI: I certainly think it's possible. As I said in kind of the earlier segment, I think the market is going to continue to chop around until we get real meaningful clarity on the fiscal side of things and also a cresting in virus cases, and so it's very hard to model. Try as we might, it's very hard to model the evolution of a virus and what that might ultimately mean for economic and earnings growth.

So, yeah, I don't think the bottom is necessarily in yet. But, really, as those earnings grow so goes the market. That's [INAUDIBLE] we continue to just pound the table on. We've seen earnings growth [? come ?] [? to ?] pretty meaningfully, but on the S&P 500, it's still in positive territory. So, you know, it'd be interesting to see what happens, not so much with Q1 results, but guidance for Q2. We think that will be very pivotable in terms of kind of a market finding bottom here.

INES FERRE: Amanda, you mentioned that, really, time is sort of the essence here when we're talking about small businesses and the damage that it could-- that these businesses will be impacted by and also the stimulus package. How will the recovery look like if this is done relatively quickly versus if this drags on?

AMANDA AGATI: Well, the key is to do it swiftly. I mean, if we can get ourselves starting to get back to work as we have seen China start to do in a matter of six to eight weeks or so, I think we can work our way through this. I think we can effectively bridge that gap. But if people don't take this staying at home, sheltering in place guidance seriously, we're just going to prolong the pain in terms of an economic and earnings growth downturn.

And so we have to move swiftly, not only on the policy front, but taking guidance seriously so that we can flatten this curve. And I think if we are back at it or even slowly starting to get back at it over the next few weeks-- we use China's scenario as kind of what we expect to see here in the US-- I think we can effectively bridge that gap. This is not a permanent destruction of demand. This is slowing down and shutting down the world's largest economy.

It's not like we've had a natural disaster here per se. The infrastructure is all in place. We just need to be able to slow down and then efficiently bring it back online. And so, yes, we think Q2 is going to be pretty painful in terms of declines around economic and earnings growth. But we do think if we follow all those steps I laid out before that we can start to see, you know, forward progress made again into the second half.

ALEXIS CHRISTOFOROUS: Amanda, we just have a short time left, but if you can give us a quick response on emerging markets. You said earlier, you think there might be opportunities there amidst all this carnage. Interesting that you would say that given the run we have seen on the US dollar.

We know a strong dollar is really the enemy of emerging markets. We have lots of corporations and even individuals hoarding US dollars right now. Make the case for emerging markets.

AMANDA AGATI: Well, there's a number of factors. It's not-- I mean, obviously the dollar is a headwind, and it probably sounds totally insane to go to one of the riskier asset classes in a fairly significant market correction. But we've already seen the wave of the virus and the impacts kind of move efficiently through the emerging markets, and so we think that that has kind of passed by them and that they're in better shape, really, than the rest of the developed world in terms of how this plays out going forward.

They've actually had very positive technical developments out of the emerging markets index. So we think that that's driving some decent underlying support from a technicals perspective. And then certainly when you look at valuations, emerging markets are very attractive, even though valuations continue to come down pretty meaningfully in the developed markets.

We think that, you know, emerging markets from a valuation standpoint are kind of bouncing along the bottom. They call it 12 times a forward price to earnings ratio. That's really, really attractive, particularly when it looks as if earnings growth for the emerging markets is the most attractive asset class and equities to the tune of 12% or 13% earnings growth. We think that's a pretty solid number, whereas we think there's a little bit more downside in the developed world yet to come.

ALEXIS CHRISTOFOROUS: All right. Amanda Agati, PNC chief investment strategist, our thanks to you as always. We'll be seeing you, I'm sure, in the days and weeks to come.