Economic progress will not be 'straight up': Albion Financial Group Partner

Albion Financial Group Partner & CIO Jason Ware joins the On the Move panel to discuss the latest market action as the economy looks to recover from COVID-19.

Video Transcript

ADAM SHAPIRO: Always good to see you, Jason. I'm curious, what do you make of these numbers, especially since you believe this economy is being propped up by policy support and scientific development?

JASON WARE: Good morning, Adam. I think the retail numbers are to be expected. They shouldn't surprise anyone. You can't continue to have the pace of growth that we saw in May and June continue forever. I think we had a pretty sharp snapback in the late spring, early summer, and that this number corresponds with a number of other data points that suggest that the economy has slowed a little bit here in the mid-summer on the back of some areas in the country having to slow down their reopenings again. So not terribly surprising, but I think we're still moving in the right direction, which is-- which is positive.

JULIE HYMAN: Jason, it's Julie here. Good to see you. So when we talk about the momentum of the economic recovery, of course, a big factor that's been talked about is whether people are going to continue to get stimulus checks-- how large will they be for how long? And one has to wonder about the sustainability of a retail sales rebound, not just the size of it, the magnitude, but also just that it will keep going if the stimulus checks do not. How concerned are you about that? And are you sort of holding back on any of your bets in the market until we see the outcome of that situation?

JASON WARE: Yeah, it's a really great question, Julie, because at the end of the day, we've seen consumption drop during the pandemic, but we've seen incomes rise, which has been kind of a strange dichotomy for a recession, and in part because of the policy support that has been provided by Congress. So as you noted, the additional allotment from the federal government has run out. It doesn't seem like Congress is doing their job in trying to swiftly remedy that by getting those who need it the income supplement to get through this pandemic.

So I think that certainly opens up a hole in the economy if lawmakers don't come together quickly to supply that extra-- that extra amount of money. We'll see incomes take a step down in the third quarter if they don't extend that in some way. I mean, the Democrats would like to see $600 a week extended. The Republicans are a lot more austere than that. And we're at a stalemate.

So we do need to see that pick back up. We also need to see real job growth continue to recover as well. And I think if we get that-- and our expectation is that we will get both. We think the labor market is healing slowly.

And we do think that Congress will do what's necessary. It's just unfortunately going to be a frustrating process to watch. And I think that things will be OK as we get into the back half of the year.

AKIKO FUJITA: When you talk about supportive policy that's needed to keep this momentum going, how much support are we talking about? I mean, we're talking about $600 versus $300 that Republicans are talking about. Is that enough to keep this going?

JASON WARE: So we saw in the first round $600 was enough. In fact, that replaced incomes for many above what they were making at their jobs. So I think $600 is a generous allotment. And we would celebrate another $600 policy for these individuals, because we are in very unprecedented times. And that kind of support, I think, is required given the hole in the economy that the pandemic has opened up.

I mean, this is more like a natural disaster than a traditional type of recession. So these individuals that are out of work-- and there's about 16 million of them that still-- 13 to 16 million lower than we were prior to the pandemic that need some kind of income support. $300 the Republicans are pitching seems a little bit thin in our view. I think, again, that will certainly result in a slowdown in spending.

So we'd like to see something closer to $500, $600. And we think that's necessary given where we are in the economy and given what we're facing still.

DAN ROBERTS: Jason, Dan Roberts here. If we circle back to the retail number from this morning just for a moment, obviously, even though it didn't meet expectations, at least spending rose for the third straight month. And I'm just curious, can we take this data along with, I guess, the most recent unemployment data as a sign that things troughed in May? It seems like we kind of bottomed in May.

Obviously, that could change with new cases. But where do you see that in terms of as we look through the next few months, are things going to continue to get better, even if some months the getting better happens more slowly?

JASON WARE: Yeah, so our view is that the economy did bottom in the spring. We're seeing earnings now bottom in Q2. So I think the path of least resistance is probably higher as we look out over the near and medium term.

Like to your point, progress is not going to be straight up. There are going to be some setbacks. It's going to be a little bit slower in the next few months than it was in the prior couple of months. And that's just because that initial part of a v recovery is always going to be a little bit sharper early on before it starts to level off. So a little bit more of a square root or Nike swoosh, as people have been calling these different recovery shapes, I think is something that can be expected.

But I think that's OK as well. We don't have to get back to a 3% or 4% economic growth to see progress and to be optimistic about where things are going. And we don't need that kind of growth for the stock market to continue to move higher as well. I think it's just the progress toward things improving and healing that's most important.

And I think on the scientific front, we have some [INAUDIBLE] coming this fall that could be helpful toward getting more people out into the economy and getting activity back up. And, of course, a vaccine hopefully in early 2021, which is our current view, I think, would also support that as well.

ADAM SHAPIRO: Jason, we're going to talk about vaccines in just a minute. But very quickly, is there, as the saying goes, irrational exuberance for those who are getting into the market right now, especially with Goldman's note about the S&P 500 potentially hitting 3,600?

JASON WARE: I think if you have a long-term time horizon, there's never a bad time to invest in the stock market. I think if you're looking out over the next couple of months, it's really hard to say where the market's going to go. But if you've got a three, five, ten year plus time horizon, having a portfolio of good companies, well diversified, and having a good asset allocation and a smart financial plan is always the best bet for most investors.

And we continue to think that the market's path of least resistance is higher right now. And I think as we look out over the medium and long term, we're still optimistic on owning a cross-section of US companies.