The top headlines driving the market

Peter Tchir, Academy Securities Head of Macro Strategy, joined Yahoo Finance's Myles Udland and Jared Blikre to discuss his outlook for the market and how he is navigating the current volatility.

Video Transcript

MYLES UDLAND: All right, welcome back to Yahoo Finance Live. Miles Udland here in New York. We're joined now by Peter Tchir. He's head of Macro Strategy at Academy Securities. Peter, good to hear from you.

Again, let's just kind of-- last time we talked wasn't too long ago, but it does feel like the entire world has changed, even just in a couple of weeks. So I guess, just high level, walk us through how you're looking at the current environment and kind of what signals you're looking at to maybe just ground yourself a little bit amid this kind of volatility.

PETER TCHIR: You know, I've been paying very close attention as always to what's going on in the corporate credit market. And what we were seeing at the end of last week and probably the week before was almost this roll down the curve, where first high yield was getting hit. Then it was EM. Then it was long-dated investment grade. And ultimately, you were starting to see short-dated investment grade bonds get hit pretty hard.

And we were looking at a couple of the ETFs. One is SPSB, which is a one to three-year thing. And that was trading 5% discount to [INAUDIBLE]. It was yielding over 8 and 1/2%. That was getting scary. That started to rebound on Friday. The Fed came out, agreed to buy one to five-year bonds, including ETFs. It seems to have turned it around. And that, to me, has been a really focal and hinge point.

MYLES UDLAND: And I guess, Peter, when you look at the way the market has reacted to the virus, and there's been so much headline risk in this market, right, and as you see it, what are the most important headlines right now that the market is hinging on? Because I think there's a lot of tension and a lot of conversation around, is it gross case counts? Is it flattening the curve? Is it what's happening in New York?

And I think it's really challenging to get a handle on what the virus is going to do because as you noted, what we're hearing now is what's been done. So what the next few weeks look like is actually, I guess in a weird way, right, the future is now sort of thing when it comes to the case counts.

PETER TCHIR: Yeah, I think there's three things I'm looking at. One is will the Fed continue to support the market? I think that's a complete no-brainer. The Fed is going to continue to do stuff. So we've got that at our back.

We need Congress and the Senate to pass this bill. And we probably need them to start talking about a second bill. And then like you say, we're finally starting to get some interesting data points, right? A lot of this has been done without good data points. But what we're watching is number of hospital beds in New York, how many are being used, how many are not.

I think one of the biggest mistakes people are making, though, right now, as they look at this rising case count, this confirmed case count, they're saying, oh my God, it's going, you know, parabolic in New York. I think we have to understand, there is that number of cases in New York that are just finally being tested.

So what we don't really know is how many new cases are being created. And for a lot of us, we've already been in this social distancing for anywhere from a week to maybe almost two weeks. Are we actually going to start seeing, if we could dig deeper, the curve flattening?

And then before I turn it back to you, the other thing I'm spending a lot of time is trying to identify what's going on in Italy versus Germany. So close together, yet dramatically different data.

JARED BLIKRE: Hey, Peter. Just wanted to get back to the corporate bond market. You know, the Fed is stepping in and supporting the investment grade securities and debt. But what about high yield? We have a lot of even investment grade securities that are teetering on the BBB minus on that junk status here. What happens with them? Is that a concern to you?

PETER TCHIR: You know, I think they will start actually doing better. Right now, to me, you know, we-- credit's really a continuum, right? So it starts at AAA. It goes to single C. And you're going to see compression and decompression. So I think so far, high yield has been left in the dust a little bit because everyone kind of got comfortable with investment grade first.

You're starting to see people look at BBs and say, well, if this BBB bond is back to trading here, this BB bond looks very cheap. So you're seeing that risk taking come up. And to me, the S&P 500 and investment grade always tied. And the Russell 2000 and high yield are a little bit more tied. So we need to get that the domestic economy is going to turn around quickly. I actually think you're going to see buying in the high yield space. And you're starting to see a trickle of inflows.

MYLES UDLAND: And I guess, Peter, when you look at where the market is at right now, you mentioned that trickle of inflows. You mentioned all the stuff the Fed has done. I mean, do you expect that financial markets are going to be quite a ways ahead of, you know, kind of the public citizen fallout, right? The economy, the job losses.

And I think even if there's a huge relief package, even if there's two more, it's still going to be a very uncertain couple of months for people living their lives. But does it seem to you like financial markets are very quick to want to maybe get this over with and kind of look forward? And then we can start doing our x 2020 conversations a couple of years down the line.

PETER TCHIR: Yeah, I think financial markets have been anywhere from two weeks to a month ahead of kind of the real economy in terms of this. I think if you go back a month, a lot of people were talking about coronavirus. Many more people I think in the finance community were talking about it than in the real world.

And I think that's one of the reasons stocks fell off so much. I think there's been some unanticipated problems in the REIT market. Some negative reactions to what the Fed did kind of spurred some of this along.

But yeah, I think the financial markets will get ahead. I think right now, everyone is truly looking for a sign that the virus will be under control, and we can get back to a fully functioning economy. Because the damage to the real economy is going to be scary. I think we're going to see a really horrific jobs number tomorrow.

And I don't think what the government did today, or is supposed to do today, is going to be enough to help the average worker. And that's where the problems are starting in this. And they need to get help quickly.

MYLES UDLAND: All right, Peter Tchir, head of macro strategy at Academy Securities, thanks so much for the time. It was good to talk to you. Hopefully, we'll talk soon.