Levitt also says that growth stocks will likely outperform value stocks because of what he calls a "challenged" economic environment.
FRED KATAYAMA: Tech stocks and the NASDAQ leading Wall Street lower Friday amid rising US-China tensions and rising cases of COVID-19.
Let's get the implication of that for the markets. We're joined by Brian Levitt. He's Global Market Strategist at Invesco joining us from his home in North Caldwell, New Jersey. Welcome back, Brian.
BRIAN LEVITT: Thank you.
FRED KATAYAMA: Now, I saw your note, and you say-- you use the words "new cycle." So when did the old cycle end, and what do you see in the new cycle?
BRIAN LEVITT: Yeah, so the new-- the old business cycle ended obviously with the great recession, the great shutdown, the great interruption of activity that we had. And, you know, coming out of that, you know, from the depths of that, it was the shortest and deepest recession we had had, and policymakers acted very aggressively to ease financial conditions and to restore some levels of economic activity, and the reopening policies have enabled that to happen. So there has been this resumption and this recovery.
Now, is it going to happen with fits and starts? Sure. But my point is to say a new cycle is that I'm not thinking just over weeks. I'm thinking this is a new cycle that persists for a very long period of time.
FRED KATAYAMA: Are we talking about an economic cycle, or are you talking about a new run for the stock market in terms of a rally?
BRIAN LEVITT: I'm talking about an economic cycle and a market cycle. And so, you know, from a new cycle from a business perspective, you hit a trough on March 23. And, you know, that happens with extreme bearish, huge volatility, big uncertainty, massive policy support, stocks cheap to bonds, improvements in economic activity. And that is, you know, the beginning of this next what I think is going to be elongated market cycle.
FRED KATAYAMA: And recently amidst this new cycle, as you point out, we're starting to see a rotation of growth stocks to value stocks. Do you see that as a blip on the screen, or are we in for a cycle after having seen long underperformance by value stocks?
BRIAN LEVITT: Look, in order for value to outperform, you'll need to see some pretty sustained improvements in economic activity, including higher interest rates and including some rise in inflationary pressures. And so I would think that given, you know, what we're seeing with new cases and some rolling over of mobility that we might be back in a more challenged environment for some time, which would lead me to believe that investors would have concerns about moving back into the more value-oriented parts of the market because that's going to be things like financials, commodities, retail, hotels, airlines, things that had gotten beaten up. So the rise in cases and some decline in mobility probably doesn't get you there.
Now, I think the important point is over the next year, are we able to compress cases, resume some activity? Then, you know, maybe you start to see some of that value get unlocked in the markets. But I think what's most important for investors is over a multiyear period, don't even really think about it growth-value. Think about those companies that are disrupting versus those business models that are being disrupted.
And, you know, those companies that are disrupting now are likely to be those that will so in the future. And to me, those are going to be more aligned with what investors traditionally think of as true growth companies.
FRED KATAYAMA: And lastly, Brian, we had you on last month. Since then, the caseload of COVID-19 has really soared, and now the death rate is starting to rise yet again. Are you still on that rather mildly optimistic mindset that, hey, at least the US has seen it, so it knows how to handle it?
BRIAN LEVITT: Yeah, I do think we know how to handle it. We just have to be better willing to handle it, or at least we have better idea of how to handle it than we did some months ago.
And so, you know, in the near term, could you expect volatility, maybe even a correction in markets? Yeah. That's certainly in the cards because uncertainty leads to volatility, and right now we're dealing again with uncertainty.
I think the larger point is if you look over the next couple of years, do we have a better handle on how to compress cases while still reengaging with the economy? Which, of course, we've been able to do in some parts of the world, particularly China but also the New York Tri-State Area. So that would be the idea, that with masks, with social distancing, with gathering outdoors you can resume some activity. The market's going to benefit from that improvement in economic activity and what I believe is going to be overly accommodative policy well into the future.
FRED KATAYAMA: OK, and this new cycle as you put it. Thanks a lot, Brian.
BRIAN LEVITT: Thank you.
FRED KATAYAMA: Our thanks to Brian Levitt of Invesco. I'm Fred Katayama in New York. This is Reuters. Have a wonderful weekend.