Economy is filtering through a 'colossal demand shock' right now: strategist

Invesco Investment Strategist Tim Horsburgh joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the markets are reacting to the coronavirus outbreak.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to welcome Tim Horsburgh now, Invesco Investment Strategist. Tim, always good to see you. Thanks for being with us. We're coming off this nice three day relief rally. And we have stock futures lower right now, but that relief rally was really on the back of fiscal and monetary policy, and some may have even been secretly hoping, you know, maybe we actually hit bottom, and we're going to start to rebuild in some meaningful way. Why isn't that happening?

TIM HORSBURGH: Well, Alexis, I think when we look at what the underlying fundamentals of the US economy are right now, I think that the jobless report that we got yesterday was really indicative of more to come, which is almost 1% of all of the United States got laid off within the past two weeks. So when we think about where the relief rally came from, I think a lot of that was optimism on stimulus, but it's not to say that we'd necessarily turn the economic corner.

BRIAN SOZZI: Hey, Tim. One-- Brian here. One theme I'm starting to see emerge is that, yeah, that-- the $2 trillion stimulus plan, that was all fine and good, but what is next? So at this point, do you just sell and because there's a risk we don't get another stimulus plan maybe until the end of the year?

TIM HORSBURGH: Yeah, well, I think when you look at what the stimulus plan is designed to really remedy, it's this colossal demand shock that's filtering through the economy right now where people aren't flying, they're not going on vacations, they're not eating out at restaurants. All those things are going down almost to zero in certain cases. So I think that the idea that the stimulus can plug that gap, at least for a couple of months, is really what it was designed to do. Now, if we get further into this, let's say, another six to eight weeks down the road, and it looks like that's not going to be enough, then I certainly think you could see some more stimulus, maybe even before the end of the year, sort of a phase four, phase five type of deal in order to help kind of continue that demand plug to-- to help bridge the gap till we can get back to work.

ALEXIS CHRISTOFOROUS: Tim, how are you navigating this for yourself, for your clients? Are you just sitting on cash right now? Are you actively trading, and if so, what are you doing?

TIM HORSBURGH: Yeah, well, I think when we're looking at what these 30% plus downdrafts have meant historically. If we're looking at 1987, we're looking at 2008. So much of that was being selective when you get down to those washed out levels, and really buying some of those positions that you'd wanted to get into for, in this case, the past couple of years.

So I think it's about looking at our case, in our case right now, saying, look, there are selective opportunities, especially higher quality, both on the investment grade credit side and also on the equity side, that we're trying to selectively add to, and say, we don't think we're necessarily at the bottom, and it's all in quite yet. But it's certainly you're getting better prices than you did February 19, and-- and so I think it's to look for those great opportunities.

BRIAN SOZZI: Tim, is tech the right play here? It continues to outperform, and I'm actually surprised it's holding up this well. I get the-- I get these companies, Microsoft, Apple, have a lot of cash, but some of these quarters coming up in a couple of weeks are going to be pretty ugly, especially for tech.

TIM HORSBURGH: Yeah, I think it's an interesting example. I think one of the things from a technical standpoint, and again, normally we're more fundamental investors, but in these cases, technicals are what we rely on when we don't have a lot of hard data to look at. And technicals would say, tech has to wash out too before you really hit that-- that final, final bottom of this big, big decline.

Yet, I think tech's uniquely positioned, especially as we're all working from home, to really outperform in this environment where we're going to rely on those cloud computing tools more than we ever have before. So I think there's some fundamental reasons that tech is going to be a leader, both on the down and on the way out, but you might see some selling pressure, as you said, if you get a couple of ugly quarters in terms of earnings and revenue.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Tim Horsburgh, Investment Strategist at Invesco. Thanks for being with us this morning.

TIM HORSBURGH: Thanks for having me.