Markets rally; Merck & Novavax move higher on vaccine hopes

Nela Richardson, Edward Jones Investment Strategist, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss overall markets and what she is keeping a close watch on.

Video transcript

BRIAN SOZZI: Let's stay on the markets here and bring in Nela Richardson, Edward Jones Investment Strategist. Nela, it's been a while. It's good to talk with you again.

I'm putting this question to all the pros, such as yourself, today. Do you think the market has fully priced in the impact of a coronavirus vaccine?

NELA RICHARDSON: Good morning, Brian. It's great to be with you. I think the market is being moved, yes, by a lot of optimism about a vaccine. Also, let's not forget, the market was moved initially by this unprecedented amount of monetary and fiscal stimulus. So when you get good news on the health front, because this is first and foremost a health crisis, that's going to rally stocks.

ALEXIS CHRISTOFOROUS: Hey Nela, Alexis here. Good to talk with you again. What do you think is the biggest threat to this market going forward? We were talking to Kristina Hooper from Invesco in the previous hour. And she actually thought that even more than the pandemic itself, and perhaps a second wave, that a possible ratcheting up of US-China trade tensions could be the bigger catalyst for this market. What are your thoughts?

NELA RICHARDSON: Hey, Alexis. Well, remember back-- it seems so far ago, but in 2019, the US-China trade tensions were the big story of the markets. And let's expect that to rise again.

But I really think what's the biggest risk of the markets this year is that markets haven't quite prepared for a protracted recovery. Yes, we know that the magnitude of the decline, economically speaking, is going to be large. We know that the brunt will be in the second quarter, because that's when most of the nation-- in fact, most of the world-- was under a lockdown order.

But has the market prepared for a recovery to pre-pandemic levels that entails two steps forward, a step back sometimes, and more of a protracted disparate recovery? That's the question. And another risk is, again, this ramp up in US-China tensions, in addition to the possibility of a second wave of infections. So the bottom line is there's still a lot of uncertainty, and not all of that uncertainty could be priced into today's rally.

BRIAN SOZZI: Nela, I'll push back on this. Why not a V-shaped recovery for the US economy? We just talked with Target Chairman, CEO Brian Cornell. His company's sales online were up close to 300% in April. And a lot of that momentum, just judging on what he told us, seems to have continued into May.

NELA RICHARDSON: Let's not misinterpret a very fast decline out of a very big hole to a return to pre-pandemic levels. We still have 39 million people who applied for unemployment benefits. That has far outpaced the number of jobs that were created over a 10-year expansion. And even as we reopen and share that reopening safely across the nation, we are reopening in a time period that is far from normal.

So the key question going into the third quarter, as the country reopens, is can businesses make this transition to fewer people in-house, serving fewer clients under this new normal? Can they remain profitable long enough to get through the recovery? And that's a key question that we can't overlook. There are no shortcuts to safely reopening the economy.

ALEXIS CHRISTOFOROUS: Nela, where are you seeing some opportunities right now that maybe you weren't five or six weeks ago, as more economies begin to reopen? Has the portfolio sort of shifted over the past few weeks for you?

NELA RICHARDSON: In some ways, it has. We are long-term investors. We invest in quality. And we believe in a diversified approach at Edward Jones.

So we look at volatility in the markets, which we expect to stay elevated because of the uncertainty. We look at this volatility as an opportunity to buy, in order to keep that diversification in the portfolio. So there are opportunities in this market, especially for long-term investors.

We also pulled back our international allocation. We think that the global recovery is actually not there to the extent it was before the pandemic. We were expecting in January a global growth around 3%. Now we're expecting a 3% contraction in global growth this year.

And the playing field has been leveled in terms of monetary stimulus, both in the United States and around the world. And so we think that these margins aren't as favorable as they were back in January. And so that's changed our view. And it's changed the way we're thinking about diversification going forward.

INES FERRE: Nela, Ines Ferre here. What do you make of the energy sector and oil, which has been rallying?

NELA RICHARDSON: Yeah, it's rallying from a very low level. And that's a good thing. This pandemic was both a hit to supply, and but a bigger hit to demand. And what we saw going into January was an oil market that was oversupplied. And then you got this massive demand hit, starting with China, big oil demander.

And so the way those dynamics played out was a drop in oil. And now we're seeing a global economy that is opening up, albeit slowly, in a phased-in approach. And as you see more people get in their cars, as we see more people start flying, as we see the global economy start to resume normal activity, the outgrowth of that is a rally in oil prices.

The question going forward, though, is oil is going to rally high enough to sustain the oil industry up to a $45 target? Many businesses in our oil sector are not profitable unless oil rises to a sustained level. So we're looking at more integrated, multi-integrated oil companies in terms of investment opportunity.

BRIAN SOZZI: Nela, what's the level of concern, at least from your client perspective, on the election? We've been on the air for over a year already and we haven't talked about election risk. We've talked about risks from the China trade war. But every person that we talk to, or seemingly every person on the street, continues to push off election risk, but it's coming. It's coming very soon.

NELA RICHARDSON: Yeah, I think the closer we get to November, the more those election headlines will have an undercurrent with an investment focus. And there's a lot at stake. There is even more at stake in the 2020 election than we could have imagined in January, because there's such a diverse view between Republicans and Democrats on how, frankly, to handle the pandemic.

A lot of the outbreak, the sharpness of the outbreak, has been in locations that have large Democratic majorities. And so we are not experiencing this pandemic the same way in every part of the country. That's going to play out in elections and how to proceed, and what kind of policy path that this country should embark on.

BRIAN SOZZI: All right, let's leave it there. Nela Richardson, Edward Jones Investment Strategist. Let's hope we see you in the studio next time.

NELA RICHARDSON: I would like that. Good to be with you audibly, though.

BRIAN SOZZI: All right, well, we'll talk to you soon.

NELA RICHARDSON: Take care.