Stocks resume declines as outbreak fears linger

Greg Swenson, Brigg McAdam Founding Partner, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Heidi Chung to discuss how markets are weathering the coronavirus outbreak.

Video Transcript

- I want to welcome in Greg Swenson, Brigg McAdam Founding Partner. Greg, good to see you this morning here. We're seeing stocks under a little pressure this morning, but the market has seen a nice rally. Have you been sold that this rally is sustainable?

GREG SWENSON: Well, no. I think there might be another opportunity to test the lows, you know. This obviously is being driven by massive stimulus coming from governments and as well as from central banks, and that will help. It won't fix the economy, but it will surely help the liquid markets. But I think we're all taking our signals from the coronavirus and the potential curve flattening and how the virus is managed.

So I think there might be another opportunity to buy in at lower levels. It feels good that the market's rallied last week, but I don't think there's-- I don't think this is the end of it.

ALEXIS CHRISTOFOROUS: So, Greg, Alexis Christoforous, here. Good to see you. If there are opportunities to get in because you believe we're going to retest the lows, what would you be looking at getting in to at that point?

GREG SWENSON: Well, of course, I'd do two things. One is keep an eye on the VIX. That's really been a pretty good indicator of opportunities or testing new lows, and you still have the VIX, you know, not at the highs that you saw last week or two weeks ago at eight in the 80s, but it's still very elevated.

So once that starts to come down, I think there might be an opportunity. And in terms of sectors it's really twofold. One is, I like big, well-capitalized, great balance sheet stories. In energy, which has been really beaten up, you're going to see a lot of bankruptcies, especially in the US with the shale producers.

But I think if you stick with BP and Exxon, stocks like that, it's got massive balance sheets, they always make money. You could buy Exxon at 10 times, BP maybe at 20, 21, but more importantly, you've got 9% to 11% yields. So while you ride through the volatility and let this whole thing work out, which it will, you can clip a 10% yield. And what's wrong with that when 10-year treasuries are under 1%?

And then I like the well-capitalized banks, the big money center banks will do well. And, of course, private capital investments. The world still needs infrastructure. We're seeing a lot of great infrastructure opportunities, especially around food production, storage, and distribution, as well as health care and energy. It's really a great time to be looking at those kind of investments.

HEIDI CHUNG: Hi, Greg. It's Heidi Chung here. So you mentioned the VIX earlier, but what kind of gives me a bit of pause here is last week we saw the markets rallying and the VIX was jumping in tandem with it. And then you have today the market's falling and the VIX falling in tandem with it, so I'm not so sure what this is telling markets or investors, and I want your opinion on that.

GREG SWENSON: Yes, Heidi. It's a great point. I noticed that last week, and it doesn't always make sense. Same with the relationship between bond markets and equity markets, which usually have some negative correlation, and, sometimes, we've seen some unusual patterns.

I like to keep an eye on the credit markets, right now, keep an eye on credit spreads. The massive stimulus from the big central banks are going to address the credit markets. I think that will help. As long as credit stays in some-- you know, as long as there's some control around credit spreads and the stimulus packages work on the larger cap credits that can tap money markets, that can tap the bond markets, I think you'll see some good opportunities in spite of the VIX.

But, yeah, it was an unusual relationship last week, but I think, ultimately, it's-- there's still too much volatility. So you've got uncertainty and volatility, and those are two things that are hard to address, no matter how much stimulus there is.

- You know, Greg, a key point there on the stimulus. We had Nancy Pelosi come out this morning and suggest a fourth, a fourth stimulus plan is in the works. Does that give you-- does that send any suggestion to investors that we might end the year slightly higher on the S&P 500?

GREG SWENSON: Look. I think that we will end the year higher. I mean, for sure. But it won't be because of Mrs. Pelosi's stimulus. I mean, this isn't really stimulus. These kind of government interventions don't stimulate. It's really a relief package, and I think that's good. It's relief for workers. It's relief for people who are suffering because the economy's been shut down. But let's face it, this is not stimulus. This is an opportunity for Mrs. Pelosi to expand the State. I think it's a big-- a huge mistake, and I hope that the governments don't overdo it.

I think that when the economy gets rolling again, that's what's going to fix things. Not more government stimulus.

ALEXIS CHRISTOFOROUS: All right, Greg. So, let me ask. If there's not more government stimulus, what's the answer here to help what will be millions of Americans out of work? Any small businesses going under perhaps never to return?

GREG SWENSON: Yeah, no, it's a great point, and, look, the package was designed to be a short term fix. But let's face it. That's not going to fix the economy. That's not going to stimulate, you know-- sending families $3,000 will help them during the pain, for sure. And we're doing that here in the UK, as well. You've got 80% of wages being funded by the government for small businesses.

So it's the right thing to do in the near term to fix the short term pain, but that's not stimulus. That's not going to fix the economy. What's going to fix the economy is addressing and fixing the coronavirus situation and then getting people back to work. That's the only thing that will work. A state-- the expansion of the state and the nationalization of the economy by governments is a short term pain, but it cannot be considered a long-run solution.

- Greg, real quickly here. The expansion of the state, things like that seem to be-- will be around for some time after the coronavirus. Does that reduce the output of corporate America, at least on the bottom line?

GREG SWENSON: Well, of course. I mean, there's going to be a lot of-- massive contraction here in the first, obviously, the first quarter, but also in Q2. What we have to keep in mind is the sooner we can get back to work, the sooner it will be fixed. It's not going to be fixed by government stimulus.

I think Mrs. Pelosi and politicians like her are trying to take advantage. I mean, the old saying of "never let a crisis go to waste." I think it's quite clear with some of the pork that they put into this Phase 3, it's quite obvious that they're just trying to insert a lot of these traditional left-leaning proposals. They could never get that through Congress or through any kind of a process during normal times, but they're trying to take advantage of this.

- All right, let's leave it there. Greg Swenson Brigg McAdam Founding Partner. Thanks for hopping on this morning.

GREG SWENSON: Great to be here. Thanks again.