Stocks waiver as investors eye jobless claims, earnings

Anik Sen, Global Head of Equities at PineBridge Investments, joins Yahoo Finance's Kristin Myers to break down the latest market action, as another 900,000 Americans file new unemployment claims.

Video Transcript

KRISTIN MYERS: But let's talk now about those jobless claims. Came in slightly better than expected, 900,000. That's compared to the 935,000 that economists had anticipated. Of course, those levels are still elevated, so let's talk about this more with Anik Sen, global head of equities at PineBridge Investments.

Anik, great to have you with us, as always. Starting with those jobless claims numbers, I was reading one economist calling it, essentially, a big-- the spike that we saw last week and now what we have this week, essentially calling it a big fluke, putting it all down to seasonal adjustment problems. I'm wondering what your take is.

ANIK SEN: I don't think so. I think that when you look at certainly the US and certainly around the world, the economic expansion is for real. And you're seeing some shortages of labor even starting to crop up in a number of manufacturing industries right now. So clearly, a lot of the virus affected sectors and industries are still struggling. And for that, we have definitely some expectation of large stimulus to come. But I think this is for real, Kristin.

KRISTIN MYERS: So then, do you see these high levels persisting, or do you think we're going to be seeing a big drop back into that 700,000 range on the jobless claims that we had been seeing for quite a bit of time?

ANIK SEN: I see a relatively quick recovery that is taking shape. Obviously, when you look at the trajectory of the virus, it looks as though we've made a peak, not just here in the US, but also in Europe. So the direction of travel actually is looking quite positive. And of course, governments around the world are ramping up the vaccination programs. So that I think is extremely powerful in terms of the time it takes to return to some kind of normality. Let's hope.

But essentially, when you look at the manufacturing industries right now around the world, we see a very solid V-shaped recovery that has been in the making now for a while. But we see no sign of deceleration right now. Obviously, countries like China are actually doing great. We see a lot of industries that are early indicators of manufacturing and early indicators of the economy looking very strong.

One thing that I will note is that the housing market in the US is a very important driver of employment. And it always has been and continues to be. So when you look at all of the statistics around housing, housing permits, house values, the mortgage rate now is well below 3%, 2.88 or so. I think all of these things bode well for the employment numbers.

KRISTIN MYERS: I want to talk about something that I saw in your note, which I thought was really interesting that you call 2021, that there's going to be a stock selection driven market. Because right now, we, of course, have a lot of investors trying to figure out how to navigate given these continued and persistent risks, but also the knowledge that there is opportunity out there, and there will be a lot of opportunity out there this year. So talk to us a bit about that stock selection driven market this year.

ANIK SEN: Well, the context is that obviously valuations are high. Whichever way you cut it at the index level, valuations are definitely much higher and significantly elevated, the history. But the point here also is that you have to temper it with the fact that a lot of things have changed versus history. And notably, the most important thing that has changed is the propensity of the Fed to be much more patient.

So, their mandate now is a different mandate. It's a 2% average inflation targeting mandate. And as we've heard from Fed speakers recently from Chairman Powell down, they have a very, very-- they are indicating a very strong stance towards being patient in terms of tolerating a reflationary period.

So I think this is a very pro-risk environment. You have a very positive stance from the major central banks around the world. You have plenty of pent-up demand. Generally speaking, the last five or six years there hasn't been much investment that has been going on. And I think CEOs and CFOs have struggled to see the visibility to make those investment decisions. And I think come the first quarter results later on this year, you'll start to see a very positive tone developing, which we already detect in the Q4 numbers that are coming through.

So we think that this is a stock selection market largely because valuations are relatively elevated. So the market is very dependent now on positive earnings revisions. And actually, what we're starting to see is that across the board in any region, in any country, the number of companies that are seeing earnings upgrades is now higher than the number of companies that are seeing earnings downgrades.

So the point here on stock selectivity is that because of elevated valuations and elevated expectations in stocks, any disappointments will be very harshly treated by the market.

KRISTIN MYERS: And on that point, we were seeing Apple actually popping because of some of what you're talking about right now, upgraded expectations on earnings. Apple right now up about 3 and 1/2%. Anik Sen, global head of equities at PineBridge Investments, thanks for joining us, as always.

ANIK SEN: Thank you for having me.