Ric Edelman, Edelman Financial Engines Founder, joins Yahoo Finance's Akiko Fujita to discuss the latest stimulus developments as Nancy Pelosi's Tuesday deadline for a deal passes.

Video Transcript

AKIKO FUJITA: Well, the clock is ticking for House Democrats and the White House as they scramble to reach a stimulus agreement by the end of today. That deadline set by House Speaker Nancy Pelosi over the weekend as a last ditch effort to secure additional fiscal help before the November 3 election.

The House Speaker saying earlier today that she is optimistic that a deal can be reached. And we heard from Senate Majority Leader Mitch McConnell a short time ago speaking to reporters, saying that he is aware those discussions are continuing between the president and the speaker for a larger package. McConnell saying if they were to come over, we would have to consider it, and we would consider it.

Let's bring in Ric Edelman. He is the founder of Edelman Financial Engines. And Ric, you've been skeptical all along about this scramble to try and get a deal. Of course, we're just two weeks out from the election. Is there any more reason for optimism today, based on what we're hearing from the two sides?

RIC EDELMAN: Well, the optimism ebbs and flows with the latest headline and inside info that unquoted, unnamed spokespeople on Capitol Hill offer us. The speaker's assertion that we had to have a deal by Tuesday was nonsense. There was no particular reason for that. And it looks like the Republicans are calling her bluff. So we'll just keep moving the goalposts.

At this point, it's not about helping America. It's all about getting re-elected or winning the election for the White House. And both sides want the other side to look wrong. They want to score political points to sway voters. And unfortunately, America is being held hostage by all of us.

AKIKO FUJITA: I mean, to your point about that deadline, we did hear Nancy Pelosi saying that it isn't that this was a day we would have a deal. It was a day that we would have our terms on the table, to be able to go to the next step-- a very muddled message there.

But if, in fact, this is about the election and the optics of making it seem as if they are reaching towards a deal, what is the calculation on either side right now? And could that calculation push things towards some kind of resolution?

RIC EDELMAN: I think at this point, both sides are believing that a compromised deal would not serve either of their best interests. They would both be accused of caving to the other. Because neither side is going to get everything that it wants. So better for them to reject the deal, stand firm, look strong, and blame the other side.

And that appears to be the attitude that they're taking for the moment, which suggests that after the election is over and a victor is declared and the loser concedes, that maybe by then, they'll come forward with a deal. Hopefully, we won't have to wait until January 20 when the new Congress and president are inaugurated. But it's too dicey. It's too uncertain because, frankly, nobody in Washington is acting like a grownup.

AKIKO FUJITA: Even with that said, though, why do you think the markets are up so much on this?

RIC EDELMAN: Because the markets--

AKIKO FUJITA: Is it the expectation that this is eventually going to get pushed until after the election, and if, in fact, the Democrats have a big win, there is going to be an even larger stimulus? I mean, why are we seeing the market move on these headlines if, as you say, it's all about posturing?

RIC EDELMAN: Yeah, the markets, I think, are irrationally exuberant and have been for quite some time. We all have seen the big disconnect between the performance of the economy versus the performance of the stock market. And investors are very optimistic that there is going to be a vaccine very soon, that it's going to be distributed very soon. That the pandemic will be over very soon, and life will get back to normal.

And they believe that all is going to be well with the world. And there has not been built into this market much downside. So anything that supports that premise causes the market to rise ridiculously high. A 1% gain is happening far too often.

And we're seeing that the subtle suggestion of bad news, such as we saw pauses in two vaccine and treatment drugs earlier this weekend and last week, causing the market to go down. So the only thing we can be sure of right now is that volatility is the name of the day.

AKIKO FUJITA: I mean, some of those things you pointed to, a potential vaccine, a potential stimulus deal, potential clarity on election, that's a lot of ifs there. Are we just setting ourselves up for a big pullback?

RIC EDELMAN: Well, I think we're setting ourselves up for disappointment because it doesn't seem to me that bad news is baked into the market. We have a lot of new investors at Robinhood and other online sites who have little to no investment experience prior to 2020. And we've made it look since the end of March very easy to make a lot of money in the market, getting rich quick. A lot of folks have been experiencing that.

We all know that's not how the markets normally operate. So something's got to give. Either the news does, in fact, have to be great-- lots of great stimulus, lots of economic improvement, lots of great news about a vaccine. Or the markets could get disappointed. So long term, I'm not worried. 10 years from now, no big deal. But for 10 days, 10 weeks, it's going to be dicey.

AKIKO FUJITA: In that short-term, though, what does that disappointment look like? How much downside are you talking about?

RIC EDELMAN: Well, look what happened in the springtime. Six weeks, 35% decline. Look at '08, 57% over 18 months. It could get ugly, and it could get ugly quick. It could be ugly for a long time. Who knows? It could be like '87. 24% drop in a single day, but within two months, it was over.

So it's impossible to say how bad, how deep, how long it could occur. And that's even assuming it happens at all. Like I said, if we get the good news the market's looking for, it could all be roses.

AKIKO FUJITA: A 20% to 30% drop, is that how bad it could get?

RIC EDELMAN: Well, that's what happened in the springtime. The markets fell 35% in five weeks. It could happen again.

AKIKO FUJITA: Let's hope that doesn't happen again. And let's hope that there is some kind of deal that's reached here between the two sides. We're going to continue to track those headlines. But Ric Edelman, appreciate you trying to break it down with us. He's the founder of Edelman Financial Engines.