Cowen Head of Market Strategy Chris Pollard joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi, Ines Ferre and Heidi Chung to discuss how the coronavirus outbreak is impacting the markets.

Video Transcript

ALEXIS CHRISTOFOROUS: I want to talk about the markets more now with Chris Pollard, who joined us in a previous segment. He is a head of market strategy at Cowen. Chris, what are you looking at right now in terms of outside of equities, taking a look at commodities? We know the dollar was very strong. It's taking a bit of a hit today. I guess no surprise there. Well, we are seeing gold rally at the same time equities are rallying. What does that tell you about investor sentiment right now?

CHRIS POLLARD: So I think it's important to remember that gold is vulnerable to positioning elements just like every other instrument, and in a liquidation event like we saw last week, gold is sold to raise funds, just like we saw people selling IG versus triple-C credit. There was a market for that. There was liquidity for that. And so people took advantage of it. Gold coming into the last couple weeks of volatility was about as crowded of a long as it's ever been. And some of that came out of the market last week.

So gold rising now, along with stocks, I think suggests that some of the liquidation phase is behind us. I would say in addition to gold, it's important to look at markets like energy. Crude oil has bottomed, at least in the near term, off of the low 20s. Not to say that the price war between the Saudis and the Russians and the United States is over in the near-term, but certainly some of that extreme volatility is working its way out of the market here. That's reverberating in areas like tip break evens, and as tip break evens start to move higher that's helping to settle out some of the volatility we saw within the treasury space.

So it really is a cross asset market right now. But the fact that these instruments are not seeing outsized pressure to the downside, I think speaks to us moving away from that pronounced liquidation phase that we saw last week.

BRIAN SOZZI: Chris, what's the one hot [? trigger ?] you're starting to see folks on the street [? put on? ?]

CHRIS POLLARD: Look, I think it's going to be a continuation of those relative themes that we talked about earlier. Areas like technology outperformance, bigger areas like growth outperforming value. I think those trends have shown themselves to be quite durable, and during this process even more durable. So I would expect that as the market begins to find a risk footing, you'll see those trends accelerate even further.

So for us, it's playing what we know right now. And that means tech outperformance. That means things like large cap outperforming small cap. So that would be SPI over IWM as a ratio. Those are the trades that we're really focused on right now. It's tough to make absolute calls, given the uncertainty around the fundamental and macroeconomic environment. But from a relative basis, there is a lot to do. And I think those are two areas where we would be really focused.

HEIDI CHUNG: Hey Chris, it's Heidi Chung here. So this week is gearing up to be a really big one, especially with those initial jobless claims coming out on Thursday before the bell. Markets attempting to come back here, but if we do indeed get that perhaps 3 million number in initial jobless claims, what do you think is going to happen to the market? Is it just more pain ahead?

CHRIS POLLARD: Well, so I think the market has begun to discount the sharp deterioration we're going to see in macroeconomic data. You saw that this morning with the release of services PMI. Even before the real pronounced suppression measures really knew the virus, we knew there were going to be some hits in jobless claims just relating from the volatility we've seen in the energy patch, and the jobs associated there.

So I think that again, markets are discounting mechanisms. They knew that this was going to get worse. I don't think one in particular data point is going to lead to another, say, limit down type session. But what I do think it's going to do is it's going to continue to underpin the idea that stimulative measures are needed. Monetary for sure, but also and importantly, fiscal stimulus measures.

The legislature is working on getting a package over the goal line this week. We're going to need to see more of that. There is going to need to be real fiscal support. If we think about the aggregate demand function, consumption, investment, government spending, and net exports, the government spending portion of that is going to be critical for us to get through this here, and we're going to need to see an awful lot of that coming out of Congress.

INES FERRE: Chris, it's Ines here. When we talk about later on about a recovery, are you looking at a v-shaped recovery? Are you looking at u-shaped? Does this depend on how long we stay in a lockdown in some states, or if the whole country goes sort of in a lockdown? Talk to us about that.

CHRIS POLLARD: So I think that it's tough to see a v-shaped recovery. I think one of the things that's important to keep in mind here, the US is a services economy, and the services demand that's been destroyed throughout this virus process doesn't come back one for one. All of us on this phone won't be coming back and ordering two entrees every time we go out to dinner. Those entrees-- they're not coming back.

So I think that it's going to take a while to replace the shock to overall GDP that this has caused. Stimulus from the government is going to be critical in that. But it will take time. First it's going to be figuring out how long the suppression impact is going to be on earnings and the macro economy. That will allow us to establish a valuation framework.

And then it's going to take time for people to get back to normal. It's unlikely that you're going to see an immediate resumption of the social trends that we all exercised prior to this virus hitting. There's going to be a fear element here. And it's going to take some time. So I think that that speaks to much more of a u recovery as we move out of this unfortunate period.

ALEXIS CHRISTOFOROUS: All right, Chris Pollard, head of market strategy at Cowen. Thanks so much for being with us today, and be well.