Yahoo Finance’s Alexis Christoforous and Sam Stovall, Chief Investment Strategist at CFRA, discuss market outlook amid Biden’s first 100 days.

Video Transcript

ALEXIS CHRISTOFOROUS: Want to stick with the markets now and bring in Sam Stovall, Chief Investment Strategist at CFRA. Sam, always good to see you. So do you think the stock market's going to have its honeymoon period with President Biden here and it's-- in his first few weeks in office?

SAM STOVALL: Hello, Alexis. Well, if history is a guide, for it's never gospel, I would say yes. Because if you go back to JFK, what you find is in the first 100 days of a new Democratic administration, the market has risen 3 and 1/2% and has fallen only once, and that was under poor Jimmy Carter's first 100 days in office. Every other Democratic president had a positive welcoming by the stock market.

ALEXIS CHRISTOFOROUS: When you look at the market's behavior of late, do you think that it is warranted, the fact that we keep hitting these record highs? When you look at the fundamentals-- I understand that investors are looking out and banking on more fiscal stimulus to help the economy get back on track. But when you look at things like earnings, earnings season, of course, just begun, and you look at the economic reports that are coming in, I mean, the job market is still in a lot of pain right now during this pandemic, should the market really be rallying to record highs the way it has been?

SAM STOVALL: Well, I would probably feel more comfortable if it did digest some of these gains. Just recently, we had the Russell 2000 almost 40% above its 200-day moving average, which is the highest on record since this index was created in the late 1970s. We're also looking at the price-to-earnings ratio on NTM, Next Twelve Month, earnings forecast for the S&P 500.

And there we were 45% above the average over the last 20 years. So I would tend to say that it probably wouldn't hurt for us to digest some of those gains. And besides, history also makes us feel a little more confident that should we end up with a digestion of gains before August, there is a 95% chance that we end up with a positive full year, despite going into a year-to-date decline sometime before the end of August.

ALEXIS CHRISTOFOROUS: What are you forecasting there at CFRA for the market for the year 2021? Do you see gains? And if so, how big? I know RBC Capital came out recently and raised its target for the S&P 500 to 4,100, and the S&P is around 3,800 right now. Where do you stand there at CFRA?

SAM STOVALL: Well, back in December, we initiated our year-end 2021 target at 4,080, so 4,100 probably would be easier to-- to mention, but about a 9 and 1/2% price appreciation. So maybe that makes me a bull, but with a lower case b. I think that we are going to be seeing an improvement in economic activity as the year progresses.

We will likely see an improvement in earnings. We're going to be coming out of this earnings recession in the first quarter of 2021, and gains are expected to be anywhere from 10% to 45% on a quarterly basis. So a lot of upward ramping, I think, is likely to take place.

ALEXIS CHRISTOFOROUS: What do you think will some of the catalysts be to get us to that place that you're talking about, Sam? I know that former Fed chief Janet Yellen will have her confirmation hearing tomorrow to become the first female Treasury secretary during this Biden administration. Do you think that she's going to be a dove for this market going forward in very much the same way she was when she was head of the Fed?

SAM STOVALL: Yes, I do. I also think that Wall Street has a lot of confidence in Janet Yellen. She's a straight shooter and really does what is needed to be done to put a floor under the economy and to help propel economic activity. Right now the estimate is for about $167 in earnings for the S&P 500. But I think we're going to have to get up to about $190, maybe even $200 by the end of the year in order to make Wall Street feel more comfortable with the current valuations.

That would bring us closer in line with a multiple of 20 times, rather than the 23 and change that we're looking at right now. So I would tend to say that coming in with another stimulus package that is more infrastructure and long-term oriented, rather than simply putting a floor underneath those who have been furloughed or laid off, I think is what is needed to help propel the economy share prices and earnings.

ALEXIS CHRISTOFOROUS: We'll see how much Congress agrees with you when they take a look at Biden's $1.9 trillion stimulus package in the coming days. Sam Stovall, Chief Investment Strategist at CFRA, thanks for being with us.

SAM STOVALL: My pleasure. Thanks, Alexis.