U.S. economy to have its own form of the ‘roaring twenties’: Morgan Stanley

Kathy Entwistle, Managing Director at Morgan Stanley, joins Yahoo Finance’s Alexis Christoforous to discuss outlook on the economy and the future of sustainable investing.

Video transcript

ALEXIS CHRISTOFOROUS: I want to get back to the broader market now. We saw that all three major stock indexes bouncing back nicely from the sell-off we saw yesterday. I want to bring in Kathy Entwistle now, managing director at Morgan Stanley. So Kathy, if you look at the economic data out just this morning, US private sector output growth hitting a fresh series high. You've got March single home sales up 20%. Is the data starting to take on new and more important meaning, I guess, for investors?

KATHY ENTWISTLE: I think the data is always important and takes on important meaning for investors. And thanks for having me, Alexis. It's always good to be here with you. I would say, basically what we're looking at is the economy is opening up. We're starting to see people put money to work. Again, we've all been locked down for a year. And we're going to start seeing different things happening in the economy that are very positive. And it's going to be a big impact on not only our investments, but also the spending, which is going to grow investments into companies even further in a different way, whether it's you're buying a stock or you're buying a product or you're outspending money on retail. It's all going to make an impact.

And I think a few months ago, we talked about sort of what happened after the Spanish flu. And it was the roaring 20s. I think we're going to have our own form of roaring 20s coming up. It will be a little bit different than 100 years ago. But it will still be something that is very energized. And we're going to see money being spent.

ALEXIS CHRISTOFOROUS: Do you think that that's properly priced into the market right now? Or maybe are we getting ahead of ourselves and we're--

KATHY ENTWISTLE: Yeah, usually. Yeah.

ALEXIS CHRISTOFOROUS: Yeah.

KATHY ENTWISTLE: Yeah. No, no, sorry. Yeah, absolutely. So the stock market is always a leading indicator. So it's always going to lead us out of a recession. And we saw that last year. It's, you know-- it was, like, by the book practically, where the markets just started moving forward. We saw the growth hit first. That's typically what we see. Now we're seeing that rotation into value. And now we're seeing the economy pull out. So it's the leading indicator of what the economy's going to do. And it's proving to come true. And at the same time, we're looking at maybe now more the cyclicals, maybe some of the undervalued, some of the different types of companies that are going to do well with an opening economy.

ALEXIS CHRISTOFOROUS: So today, at least, we've got all 11 sectors of the S&P 500 trading higher, but within that, is there anything that you're avoiding right now?

KATHY ENTWISTLE: Avoiding, I guess, you know, more of overpriced growth type of companies. I wouldn't say necessarily sectors, but you could say potentially overpriced technology companies. And if we're going to go into the growth space, you want to go into, like, the reasonably priced growth space. And, you know, there's still opportunities there. In terms of, you know-- my clients are long-term investors. We're not traders. And we're going to have the clients in for the long haul. So what we want to do is maybe peel back a little bit from those higher priced growth companies and put some of those gains back into, like, dividend payers. Especially if we do get inflation towards the end of the year, dividend paying companies tend to fare better in that type of an atmosphere.

ALEXIS CHRISTOFOROUS: And Kathy, before we let you go, I want your take on what you're seeing in terms of enthusiasm for the sustainable investing area. Has that peaked right now? Because I know the infrastructure bill is going to make its way through Congress at some point. We're going to have something. So is there still excitement around that sector?

KATHY ENTWISTLE: There is absolutely, Alexis. Like, mark my words, this is just going to grow and explode even further. People a year or two ago didn't know what ESG stood for, Environmental Social Governance. They didn't know what impact investing was. Now everybody knows. Yesterday, we celebrated Earth Day. Everyone has a much better idea of what's happening to our climate. We're putting more pressure on corporations to take a stance on all these different issues. And the investors, the retail investors want to align their values with their money. It's happening. We're seeing more and more of it. And I would say, at this point, probably every single one of my clients has some form of impact investing in their portfolios. And I only see that growing. And my clients are not that different from all of the other individual investors out there. It's exciting.

ALEXIS CHRISTOFOROUS: All right, Kathy Entwistle. It is exciting. Kathy, thanks so much, managing director at Morgan Stanley.