Stocks skyrocket on signs coronavirus may peak soon

Invesco Global Market Strategist Brian Levitt joins Yahoo Finance’s Seana Smith to discuss the market outlook as investors monitor the number of coronavirus cases worldwide.

Video Transcript

SEANA SMITH: Welcome to live market coverage on Yahoo Finance. I'm Seana Smith. We have stocks rallying today following news that the coronavirus outbreak seems to be peaking in some of the hardest hit areas around the world. Now investors are keeping a close eye on the numbers out of Europe where the pace of new confirmed infections and number of deaths are slowing in some regions.

Sector-wise today, we are seeing all 11 sectors move to the upside, led by gains in utilities, consumer discretionary, and also materials. As it stands right now, we have the Dow up over 1,200 points to well above 22,000. So here for more on this,

I want to bring in Brian Levitt of Invesco, Invesco Global Market Strategists. And Brian, let's start with the rally that we're seeing today in the markets. Like I said, the Dow up over 1,200 points as it stands with just around two hours left in the trading day. From your perspective, we're trying to dig through, not read too much into each day's news. But do you think we've turned some sort of a corner at this point?

BRIAN LEVITT: Well, I think it's reflective that markets don't trade on good or bad. They trade on whether things are getting better or worse. And so we're all sitting here now trying to assess whether things are getting better. I wouldn't put too much stock into one day's move. I mean, the volatility index is still very elevated, so we should expect continued swings in markets.

This is just, a couple of weeks or a week ago, we got a good response from policy. This is the first time in a while we're getting a little bit of positive news on cases. It's certainly not an all clear, but the markets are rallying on a little bit of signs of better news.

SEANA SMITH: Right, I know you're saying it's not the all clear, but we haven't touched the lows in the market we saw back in March 23. Do you think we'll likely retest that low, or has the market priced in most if not all the bad news that's to come at this point?

BRIAN LEVITT: You know, history usually suggests that you retest lower levels. So if you're going to follow a pattern that we saw in '87 or 2008, you may retest lower levels. What I'm trying to watch are some of the leading cycle indicators that I still have some concerns about. I mean, by now, I would like to see some of the indicators around inflation looking a little bit better. The two-year rate is still very low. Copper's still very low. The dollar is still strong.

You'd like to see commodity prices improve, high-yield spreads come in. So we need all of those to work together until we get to a better place. But you know, stocks will put in some days like these. It's a process, and we'll have to go through this process.

SEANA SMITH: Brian, when we last spoke a couple weeks ago, you were saying that the policy action was helping us move away from what you called the worst-case scenario. Do you think that's still the case at this point, or do you think investors want to see what could be a phase 4 type of deal come out of Washington?

BRIAN LEVITT: So I think there's two different questions there. The first one is yes, we have walked away from the worst-case scenario. And so the markets priced in, you know, 30-something-% decline is pricing in a recession. Then you assess, do we need to price in a financial crisis or dare we even say a depression? And because we have lived through a Great Depression and because we lived through 2008, policy responded very, very aggressively. And that, in my opinion, takes off the worst-case scenario.

But there's probably more policy support to come. I mean, what we've done with a couple of trillion is provide some cushion, but we still don't know how long this extends. And there's high demand for small business loans. And there's municipalities that probably need support. So I suspect that there is a another phase of fiscal stimulus coming.

But that's what's important for investors. I mean, again, I come back to my original comments-- markets trade on whether things are getting better, and policy support should help to continue to make things better. So is it going to still be volatile? Sure. Could we retest lower levels? Yes. But I suspect a year from now, markets are positive, higher from where we are today.

SEANA SMITH: Brian, what type of recovery are you expecting to see? There's lots of debate out there. I think the consensus now, a majority think that we must see some sort of V-shaped recovery. Others, though, are saying U. We're going to have a guest later on in the show who says that we could be seeing an L-shaped recovery. But what are you expecting at this point.

BRIAN LEVITT: Well, I think it's a little bit too optimistic to say a significant V recovery given where unemployment is going. And so the fiscal stimulus provides some cushion and hopefully helps you get some demand on the other end of this

But Seana, I think what's most important for investors is you don't necessarily need a V shape for a strong market performance. If we think back where we were in '08 or '09, we were talking about mortgage defaults that hadn't even peaked yet in ongoing deleveraging environments for households. And so you ended up with a pretty weak recovery.

And yet that weak recovery ended up being good for the markets because it was growth that was enough to support corporate earnings, but not so strong to bring forward inflation and fed tightening in that type. So I wouldn't get too worried about from a market perspective about the shape of it. So long as we trough and the economy starts to modestly improve, that should be a good sign for markets. And the markets should stick that out.

SEANA SMITH: Brian, one of your recent notes was interesting. I was going through some of your recent market commentary. And one was titled that a volatile market may be the time to act against your instincts. What exactly do you mean by that?

BRIAN LEVITT: Yeah. I mean, you know, it's the old Seinfeld line. If every instinct you have is wrong, then do the opposite. And I think far too often, investors try to time these things. And it really is a fool's errand. And the time to be defensive was likely two, three months ago.

You know, investors now flocking to cash, that doesn't typically work. Even if we're not all the way through this downturn, what our statistics found, our analysis found is you're better off investing half way through it and then getting the recovery than waiting a year out or waiting for the economic data to get better. It just doesn't work.

And we also know if you miss the best days in the market, your returns are impaired significantly over time. Today's likely to be another one. I mean, something like 80% of the best days happen either in the bear market or the first two months out of it. And so it's very, very difficult time. So let's push back against our instincts.

SEANA SMITH: All right, Brian Levitt of Invesco. Thanks so much for taking the time today.

BRIAN LEVITT: Thanks, Seana. Appreciate it.