Government shutdowns tend to be ‘short-lived’, strategist says

Jordan Jackson, global market strategist at JP Morgan Asset Management, joins Yahoo Finance Live to discuss the state of the markets amid the pandemic and what a possible government shutdown means for the stock market.

Video transcript

BRIAN SOZZI: But first, let’s start with the markets here as the week approaches. And Jordan Jackson is a Global Market Strategist at JP Morgan Asset Management and is joining us now. Jordan, good to see you here again.

Again, we have been talking all morning and there has been a lot on the investor plate this week. What is your current thinking on the market?

JORDAN JACKSON: Yes it seems – looking at the market moves today, it seems the markets are still digesting Evergrande, they are still digesting the Fed action we saw on Wednesday. And so it’s no surprise that we have a bit of market swing or volatility here. And we expect this to continue. This is something that we have been calling for for some time.

Obviously, you still have obstacles in Congress that need to be resolved as well. And so a lot of things are going on in the background, I think the markets are digesting. Always think about the path of least resistance, but as you go through the year and into the next year it is higher.

We still have very, very strong and robust earnings. These revenue numbers continue to increase gradually as we move into 2022, these estimates. And so I think, again, as we move past some of these short-term volatility-causing events, the markets may start to climb.

You know, I wonder, Jordan, because all the risks we’re talking about are risks that are fairly well understood by the markets. Do you think there is anything that is not being watched so closely that could pose a risk for this scenario? Or do you think it’s all pretty – we’re sort of getting a prize here?

JORDAN JACKSON: You know, I think some of the obstacles in Congress are … you know, we’re going to potentially shut down the government starting Friday of next week. So I think there are still risks. You know, we — of course, the $ 3.5 trillion continues to be withheld in the Senate. And so, you know, I think that could also be volatility-inducing events.

I recognize that there are concerns around China, and more particularly in the real estate market. I think the risk of contagion in the United States is relatively low. And again, I’m really thinking of the supportive backdrop of a consistently accommodative monetary policy, isn’t it? You know, tapering is not a squeeze, although we expect tapering to happen at the end of this year.

But still see stimulus in the first half of next year. Obviously, additional benchmarks, additional budgetary expenditure will also be considered. And so I think the markets are sort of looking to the future and recognize that once we get past some of these short term risks, it looks like a blue sky.

BRIAN SOZZI: Jordan, for investors who are increasingly worried about a possible government shutdown – and they are out there – what do you advise them?

JORDAN JACKSON: Well, historically we’ve seen government shutdowns tend to be short-lived. We also know that for these non-essential federal employees, they also receive leave pay. And so recognizing it, right?

If it lasts longer than 30 days, it is definitely going to have a bigger impact on the economy. But generally speaking, these shutdowns tend to be short-lived and the markets, while they may correct themselves in the short term, somehow continue to rise. So I think it’s definitely a risk in terms of a short term mini-correction there. But then again, with all the liquidity out there, I think any kind of jolt in the markets will be short lived.

And Jordan, what are you telling clients in terms of strategy right now? A sort of sectoral strategy. Brian was explaining to us a few minutes ago that, for example, industrials and some other cyclicals have been kind of roughed up. Do you advise clients to enter these areas or are there other areas that you prefer?

JORDAN JACKSON: We are. And I think there’s – it’s really more of a balancing act, isn’t it? We recognize that these kinds of growing names were actually played out – playing a little more on defense. As you can see, the risks that the Delta variant will somehow slow down the outlook. You know, growth tends to be fine on the days when we are having trouble growing.

But I still think this kind of cyclical value trading still has room. These industrialists, these materials, they obviously, as Brian pointed out, have been beaten more recently. But I still think there is room for them from today.

So yes, we advise clients to consider these areas. But really strike a balance between the growing year side as well as the cyclical value parts of the market.

BRIAN SOZZI: All right, we’ll stop there. Jordan Jackson, Global Market Strategist at JP Morgan Asset Management. Always glad to see you. Have a good week-end.

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