Stay put in equities despite market uncertainty -advisor

Don't take a chance, don't add to positions now, hold those equity positions, said Johnson.

"I still think this is a bull market having a little bit of an interruption right now," he added.

Video Transcript

CONWAY G. GITTENS: The US stock market is trying to recover from the black eye it received on Wednesday. Let's talk to Hugh Johnson. He is the Chief Investment Officer at Hugh Johnson Advisors. Thank you, Hugh. So tell me, looks like we have a market that is caught between election day and rising COVID cases. So what's the pull for the market here?

HUGH JOHNSON: Well, I think both of 'em are pretty important. I think the deepest worry is, of course, COVID. And the worry is that COVID obviously getting much worse in Europe and causing some real lockdowns or shutdowns in Europe, the worry is we're going to have the same thing happen in the US, that we might get sort of a repeat of what we saw in March and April where the economy effectively shuts down. So I think right now, that's really the deepest worry.

And the election effects that. The election affects that obviously, because we hear different things from different folks. And the question is, in this sort of lame duck period, if that's what we're going to call it, will we get a level of stimulus and will it be strong enough to help state and local governments, small businesses, and most importantly, individuals? We still have six million more people unemployed today than we had at the end of 2019. So the economy faces some real challenges, it needs some help, and who gets elected and what they do and what we do during the lame duck session is going to be very, very important.

CONWAY G. GITTENS: So I'm wondering, the fact that we are seeing a rebound today, I mean, it's not, we're not wiping out the losses that we saw the day before or even what happened at the beginning of the week, so I noticed that the sector kind of leading the rally today is technology. So what does that kind of say to you about what we've seen this week? Was it an overreaction to the COVID numbers or what's going on?

HUGH JOHNSON: A lot of uncertainty, Conway. A lot of people just don't know what the answer is. The real question is, one day we get utilities and consumer staple stocks doing really well. That suggests that we're not going to get enough stimulus or help on the way and the economy is going to have sort of it's, we're going to have a double dip or the second leg down in the economy.

The very next day, suggestions we heard from Donald Trump today, he did suggest that we might have more stimulus than we might have previously expected, that bolstered spirits. That led us to believe that we will get enough stimulus. So the real issue now is looking at what we're facing in this economy is, will we get enough stimulus? And believe me, it's very hard for investors, because one day we hear and it looks as though we won't get enough stimulus, the next day we will get enough stimulus.

We're looking at a very volatile market. And until we get into the post election and we start to zero in on the level of stimulus that we're going to get, we won't be able to answer that question, is this level of stimulus enough to avert the so-called double dip, second leg down in the economy. My guess is, it will be sufficient, we will get something. But we've got to wait and see. There's a lot of negotiations going on.

CONWAY G. GITTENS: So I'm wondering, given that answer, how should investors read the third quarter GDP number that we got earlier today?

HUGH JOHNSON: You're looking through the rearview mirror when you're looking at the third quarter GDP number. A great number, it's a very strong number. And obviously, a recovery from the terrible second quarter number that we had. The real issue now, Conway, the real issue is, what's the fourth quarter going to look like? And what's 2021 going to look like? And that's where all the uncertainty is.

And that's why we have to know, is there going to be any help from Washington. There is no question about one thing, at least in my mind, that we need help from Washington. And that's again, state and local governments, small businesses, medium-sized businesses, and most importantly, individuals. We do need help from Washington. The question is, is it coming? And is it going to be enough?

CONWAY G. GITTENS: And so before I let you go, give me some kind of investment strategy here. If we are kind of like on hold until we find out what kind of stimulus we're going to get, if we're on hold as you said, the election and the COVID-19 situation is actually really one big thing, what are investors to do?

HUGH JOHNSON: Don't take a chance. What I'm trying to say to you is this. First of all, let's look at the basic fact. Interest rates are low and they're going to stay low. The Federal Reserve is committed to keeping interest rates low. And I think through 2021 and probably 2022, trying to find a place to make returns in the fixed income markets, you know and I know that's not going to be easy. The best place to find returns are in the equity markets.

I'm going to say, don't add to positions now. Hold on to your positions. Don't reduce your positions in the equity markets. Hold those equity positions and have a little offense, that means technology and some consumer discretionary stocks, and all the little defense, which means a little bit in the form of staples stocks. I could give you names in both those sectors, but the point being, a little offense, a little defense, hold the line now, but don't reduce your exposure to equities. I still think this is a bull market. We're having a little bit of an interruption right now, but it's an ongoing bull market, we have a long way to go.

CONWAY G. GITTENS: All right, great. Thank you. That's Hugh Johnson, the Chief Investment Officer at Hugh Johnson Advisors. I'm Conway G. Gittens and this is Reuters.