Laila Pence on Bloomberg Radio (02/02/2021)

Laila Pence, President of Pence Wealth Management, discusses her market outlook with Rishaad Salamat and Doug Krizner on Bloomberg Daybreak Asia.

February 2, 2021

Today, our guest is Laila Pence, President of Pence Wealth Management, on the line from Newport Beach, California. Thanks for being with us!

I was struck today by a note from a strategist at Bank of America; they’re concerned about rising bullishness. We have been up in a meaningful way over the last two days; are you concerned that we may be kind of top-heavy?

No, not really. The market is going to continue to be volatile. You look at Wednesday and Friday—it’s coming back because those two days (especially Friday) was really overblown and a downside. So you’re going to have a little stretch upside, but we do see a lot of fundamentally good things coming about this year.

Laila, one of your points is that as long as the 10-year treasury is considered a risky investment, risk-adjusted returns will favor equity. Our ten-year treasury is considered risky?

It’s risky in that there’s no return, and interest rates will eventually go up. So, if you buy into a lot of 10-year treasury and buy a lot of bonds, you could be at risk. You could lose the value of interest that goes up from that standpoint and get very little return. So you have to look at equities to get a return where you know that the 10-year bond could only go one way down.

I want to get your take on this retail trading frenzy we’ve seen over the last week or so, focused on heavily shorted stocks. What do you make of all that?

I’ve never seen anything like it. I was captured. My daughter, who is 18 years old, was asking me about it. All of a sudden, it was top of the news! It was definitely a frenzy. I guess it tells you something about the power of small investors. We don’t really know where there are small investors or large investors or foreign investors, but certainly, there’s a group that could do that. A few stocks start off with this notion of where we are going in the broad picture of equities, continuing to light up every day as someone says, “we are set in the moment of a bubble.” I mean, we also have no evidence of a bubble, either. Have we? Because I mean, some of the valuations look fine, and it seems to be concentrated.

A bubble is when that bubble pops.

We have to look at the money coming into the market. You already have a $900 billion stimulus; you’re probably going to get somewhere between 700 to 1.2 trillion coming up, but what’s more important is the money that’s going to individuals. The last time they did this package, they sent checks. This time they’re sending debit cards. When you get a debit card, most individuals buy things and shop. Then they get the extra $1,000 or $1,400, whatever they agree on. It’s a little different. So we expect more spending. The first six months of the year is about stimulus money and the economy. So there’s $1.4 trillion more in savings in December than there were in January of last year.

That’s a lot of money and pent-up demand. The second half is for using that pent-up demand—spending on airlines, travel, hospitality, everything clients are dying to do. It’s not going to be without volatility all year; there’s always something or other, like this trading frenzy or tax bills, but earnings are coming in. The earnings are there. Then, you have corporate earnings doing better because they’re spending.

I’m wondering whether or not you want to continue to be exposed more to US equities or whether you want to be more diversified. I mean, we see a stronger recovery, perhaps on a relative basis happening in Asia, particularly China. Do you want to be in foreign markets right now? More than New York?

Not more. I still think the U.S. because of the stimulus package. Really, we are looking at China—specifically the Asian markets—as a portfolio addition. We think that will start doing well, but certainly not overweight foreign versus the U.S.

Linda, what did you stay well clear of? Is there an asset class in particular not worth getting involved in? One that is far too risky?

We certainly stay away from energy. With all the emphasis on solar, electric cars, and so forth, and the restrictions that will happen in the U.S., we just don’t think energy is a good place to be at the moment. We are getting back into financials, which was an area we had stayed away from. It’s time to look into that, with the fact that they’re allowing banks to do more buybacks and pay dividends. Maybe that’s a little early, but that’s upcoming, and those are the areas we’re looking at.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Bloomberg L.P., Pence Wealth Management and LPL Financial are separate entities.

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