Schwab's Kleintop: This market has nothing to hold on to

Jeffrey Kleintop, Charles Schwab Chief Global Investment Strategist, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi, Brian Cheung and Emily McCormick to discuss how the markets are amid the coronavirus outbreak.

Video Transcript

- I want to bring in Jeffrey Kleintop, Charles Schwab's chief global investment strategist. Jeffrey, thanks for being with us. What do you make of this market action? We could possibly be in for two up days. Is this a signal to you that this market is about to rebuild, or are we going to retest the lows?

JEFFREY KLEINTOP: This is not much of a signal to me. I mean, it's noteworthy because, as you know, it's been a while since we put a couple of days together of gains. But this is a market that has nothing to hold onto to steady it. We know none of the economic data is going to be good for quite some time, and we know companies really can't issue any credible guidance here. So while the market may balance, give us some signs of strength on days where stimulus is announced, it's unlikely to bottom until we get to that peak in new virus cases. And we just don't know when that will be.

BRIAN SOZZI: Hey, Jeff. Brian Sozzi here. Always good to talk with you. You know, there's a lot of executives I'm talking to right now suggest because China's economy is starting to bounce back-- you're seeing production pick back up in pace-- it should be a little more cause for optimism. Do you share that view?

JEFFREY KLEINTOP: Well, hopefully we start to see China's pattern show up elsewhere. So South Korea did follow that same pattern, both in terms of the peak in number of cases and the number of days it took to recover. We're now beginning to see that in Japan, and there may be some early signs that Italy might be beginning to follow that pattern.

But the US is at least 45 days behind all of that, so it's going to be difficult and take some time before we can confirm that. But it is nice to see activity is picking up and that we can actually get through some of this. And so it is maybe some sign that this isn't many quarters to go, that this may be weeks or months to go before we get to the peak.

BRIAN CHEUNG: And then Jeffrey, Brian Cheung here. I just want to ask you quickly. Jared was just flashing the 13-week bill. That's actually negative nominal yielding right now. I've been watching the three-month, which is at five basis points now. It seems like the 10-year, though, for right now, at least holding above 100 basis points. What do you see in the bond market? What is that telling you about the flow of where capital is going around the world? Is it still continuing to come on US shores, or are people trying to figure out exactly where to allocate right now?

JEFFREY KLEINTOP: Well, I think people aren't trying to figure out where to allocate, but certainly, cash has been king, and the dollar has been king. So anything that's basically equated to holding dollars-- and that's very short term T-bills-- is going to see an incredible run. The interesting thing, I think, about the selloff in the 10-year-- this move back up to around a percent or so really, I think, says something about the amount of stimulus being applied and the potential for inflation.

Now, I know we're seeing gold rally a little bit here if we just show that in the charts, but it has sold off a little bit from its peak. And I think that's noteworthy in that $1 trillion is an enormous amount of stimulus. Just to put that in perspective, a billion seconds ago was 1988. A trillion seconds ago was 30,000 BC. I mean, it's that much stimulus. And I think the market is beginning to respond to the prospects for inflation down the road.

- Hi, Jeffrey. This is Emily. Following up on Brian's question, just looking at this fund flow data that we had, we had investment-grade bond fund flows-- the outflows the largest ever at $55.3 billion for this week, so seeing that even top the outflows out of high yield and some of these junk bonds. So when do you see that potentially turning around? Are we going to get a pickup back in to IG grade bonds, or what is the timeline that you're looking at right now?

JEFFREY KLEINTOP: It's a really great question, because credit is often a good leading indicator for everything else, and it continues to weaken. I think, again, the signal for that is going to be tied to the peak in global new virus cases. And again, we don't know when that will be. We can follow some of the case data. And maybe there are some indicators in Asia showing that with China, South Korea, and now Japan maybe getting past their peak, that we can hopefully begin to see this.

But I think that as we think about the credit markets, and overall yields in particular, they can still widen a lot further. I mean, if we take a look back, we can certainly see explosions in credit markets when things get really difficult. And I think the Fed is trying to address these liquidity concerns, both in the credit marketplace-- we're seeing this in Europe as well with QE being extended to corporate bonds, so we'll have to see whether that begins to address some of these incredibly wide spread.

- Jeffrey, do you think that the market will be unable to have a rally that is sustainable until the headlines regarding the actual pandemic begin to change? I mean, we've seen both the Fed and the US government, and actually world governments, get pretty aggressive. Many are saying you need to get even more aggressive. But is nothing really going to stick until the headlines regarding the pandemic get better?

JEFFREY KLEINTOP: Yes. And I think the reason for that is because all of the stimulus and putting money in people's pockets-- that's great. It's a very good thing. But the money is not going to be spent until we finally feel safe leaving our homes again. I mean, we can't go to basketball games that aren't there. We can't go to concerts that aren't taking place.

So this money is a lot of pent-up demand that could get unleashed only when we finally feel safe spending it again. So I think these stimulus measures are important, but they're unlikely to turn the market around until, as you know, we start to see the signs that the virus has run its course.

- Jeff, if you read the tea leaves here, we may get that national quarantine. I'm sure you saw the news out of California. Most of the state is quarantined. President Trump has pushed away or pushed down the fact that he would want a national [AUDIO OUT] to the stock market if that were to be announced?

JEFFREY KLEINTOP: Yeah, so I'm not sure what it would do. I think that markets are welcoming the idea of anything that would contain the duration of this spreading of the virus. At the same time, all of these measures deepen the economic and earnings impact.

So it's a balance for the market that this is great. Hopefully it will be over as we get well into the summer or the fall if we take these draconian measures. But at the same time, we have-- GDP is in freefall with economic activity halted, so stocks may not react well to a quarantine, even though it would limit the overall duration of the decline.

- All right. Jeffrey Kleintop of Charles Schwab, thanks so much for being with us this morning.