Chris Konstantinos, Chief Investment Strategist of RiverFront Investment Group, will be attending the final round to discuss the week’s market volatility and what will happen during election week.
SEANA SMITH: I want to bring Chris Konstantinos in. He is the Chief Investment Strategist at RiverFront Investment Group. And Chris, if you look at what Jared just said, just in terms of the pressure, the selling pressure we’ve seen over the past few days of trading, the Dow is having its worst week and month since March. We are only four days away from the election. How do you rate the selling pressure we have seen in the market lately?
CHRIS KONSTANTINOS: Sure, and I always appreciate Jarrett’s launch. Let me add a few technical things to what he just said. If you take a step back – what an armchair technician like me does is what I love to do. If you take a step back and look at the sell-off, it’s basically a minimal retracement sell-off for garden strains right now.
And, you know, he mentioned a couple of levels. I’ll throw a few extra out there. 3240 is of course very important. We think 3050 is another level of retracement to watch. But again, you know, the markets were roughly sold out, let’s call it – you know, let’s squint and call it a 10% peak to brave early September highs. This is exactly what you would expect from a garden variety sell-out. Could it get any worse? Absolutely. We also observe many market installations. And, you know, the recent highs and lows have been a little worrying. We are watching it closely.
But we think it’s a little early to panic just over a technical read. The main trend of the market, you know, the 200 day moving average is still moving higher. And in general, the tech background is still relatively cheap, at least in the US.
SEANA SMITH: Chris, it’s interesting because I’ve read a couple of passages today, just about the drop and the size of the drop that we see in some of these big tech names, that it highlights the fact that for one thing there is little Room for disappointment, but also just the fact that there may be that deeper sense of negativity in the market right now. But it doesn’t sound like you are in this camp at this point.
CHRIS KONSTANTINOS: To be very clear, we’ve been net sellers of stocks here at RiverFront for the past three months. We have moved from a fairly equity-friendly positioning in our asset allocation portfolios to a more or less neutral position. But that’s not because we share that deeply pessimistic point of view that you express. In our opinion, it’s just about prudent money management.
You know, it doesn’t take a market expert to realize that we’re in a pretty volatile period, right? You have some big unknowns. COVID is of course, as you pointed out, unfortunately now, you know, it has caught on again, especially in Europe, but also here in the US. And you know, I don’t think anyone has escaped that we have a choice next week that will be full of intrigue.
You know, long story short, the basic background – and we owe as much as anyone else to talking about politics or thinking about politics here, because that’s what our customers asked us to do. But even from a medium-term perspective, as you mentioned in this program, fiscal and monetary policy and interest rates are, in our opinion, a much stronger driver of interim returns for the stock market than politics.
So if you take a step back and see where we are financially and monetarily, there is unprecedented momentum regardless of who will be in office. You know, in January we will still have unprecedented momentum. M2, which I am following very closely, is growing over 20% year over year here in the US, which is also unprecedented. So there is a lot of liquidity spilling around in the system.
The NASDAQ is up 20% this year. You know, that’s almost 20 percentage points more than S&P. Profit-taking on these technical names makes a lot of sense to me. In my opinion, that doesn’t necessarily mean that the technology will be run over.
AKIKO FUJITA: Chris, here are some interesting tips about your international positioning. And you speak of a position in Germany and Japan that I have not yet heard from many of our guests. But also the question of which markets should offer some great opportunities in the event of a blue wave due to currency fluctuations. Can you talk a little about it
CHRIS KONSTANTINOS: Yes i’m happy about it. I think this is an important and perhaps a bit nuanced point in all of the political talks. In our view, the most likely outcome for a blue wave is in the currency markets and likely with a dollar weakness. This could of course be positive in the US dollar space for all US investors investing in international companies.
It should be said that we still – we still like the US internationally for a number of fundamental reasons. But we’re watching it pretty closely because you know, especially for Asia, for emerging economies and Japan, since you brought up Japan, Asia clearly has a different part of the COVID cycle than the western world, which is a good thing for them.
They are also one of the places that a blue wave could most acutely benefit from because we believe that a democratic blue wave would not necessarily face China tougher against the blue wave in a democratic situation, rather the trade talks would take on a different tenor. We anticipate that a Biden presidency would try not to be so one-sided about their trade talks and would try to include our allies in that conversation too. From a trade point of view, it could be a little less traumatic or volatile.
Again, this could be positive for some of these foreign currencies. So we are not ready to give the all-clear internationally. I would like to make it clear once again that we are overweighting the USA in our portfolios at the expense of internationality. But it is something that we are watching very closely. And that’s probably one of the places where politics will have acute effects in the short term.