Laila Pence on TDA Network (04/08/2021)

Laila Pence Talks Key Takeaways From Recent Market Highs

Laila Pence says that the S&P 500 stands 82% above its March 23, 2020 low as the CBO expects the U.S. economy to be at pre-pandemic levels by middle of 2021. Also, she believes that the inflation debate is, at present, a little early.

April 8, 2021

Host: (00:00)

Welcome back to the show. Laila, I appreciate you being here. Stocks continue to make all-time highs, the S&P is at record levels…you know, if you look at what’s gone on the backstop of the Fed-still a low-interest-rate environment, even though they have come up so far this year and the amount of stimulus that’s getting put in here, do you expect this Goldilocks type of environment to continue for risk assets such as stocks?

Laila Pence: (00:29)

We do. We think that the first six months of this year will be about the stimulus and all the money that’s going into the markets, and the next half of the year will be about pent-up demand. There’s so much pent-up demand, and investors and consumers have money, and they’re going to spend it, and that’s going to do very well. I mean, look at the expectations for GDP. They’re off the charts-probably around 7%.

Host: (00:57)

You mentioned that liquidity that’s out there. Savings rates are at 40-year highs. So there is a lot of money on the sidelines, which may help propel equity markets to the upside. But if you look at that GDP estimate that we see across the street, whether it’s five, six, or seven percent for the year, and I hear whispers of an 8% number and maybe even double digits, is that what the market needs at this point to continue? Because if we get any dents in that, that’ll definitely take equities off of these levels that we see as far as valuations go, correct?

Laila Pence: (01:39)

Yes, of course. That could be. It’s just not likely that it’s going to happen. You just can’t put that much money into the economy and have all that pent-up demand. Even if we have a bit of a disappointment in the numbers, it won’t be dramatic. If anything, we think there may be a surprise on the upside.

Host: (01:59)

I think a lot of people predict that just with the consumer spending out there and the amount of liquidity. But if you look at inflation now, yields have kind of stabilized this week. Thankfully, that’s got people moving back into the tech sector to kind of sell it out of some of those cyclical winners that we’ve seen early in 2021. But if you look at growth in inflation expectations, Fetcher Paul is making some dovish comments right now and says that inflation is transitory at this point. It doesn’t mean that it’s going to last. Do you look at that as a headwind or that the market’s going to basically digest this a higher inflationary environment or at least a higher yield environment?

Laila Pence: (02:43)

I think the market is going to digest well. I think what happened the first quarter of the year is that it’s just run up way too quickly. We went from, I believe, 0.75 last year to 1.75 in just a few months. So the increase in interest rates was just a little shocking to the markets. Now it’s getting digested, and we do think it’s like the Fed says, inflation is transitory and that we’re going to see a slight rise in interest rates here and there. As long as it doesn’t go up as fast as it did, the market will digest, and growth will continue.

Host: (03:21)

I have to agree with that. I think the velocity and speed at which the rates rose is what put the dent in, especially in the tech sector. What areas or sectors do you expect is to continue to outperform here in 2021 as GDP and expectations for a booming economy expand?

Laila Pence: (03:39)

We really like, of course, infrastructure. That’s going to b a huge relief. We think it’s definitely coming now. There’s no reason that they won’t be able to pass some sort of infrastructure bill. Then, of course, we like tech. Tech has underperformed since September. Part of it’s because of the inflation thing. We think big tech is coming back in a big way and that the earnings will support the valuations here pretty soon. We also like financials. Financials are poised to do well. The losses that they had reserved for are not coming in anywhere as bad as they thought. With the federal reserve allowing them to make distributions and dividends later on this year, it should bode very well for financials.

Host: (04:28)

We’ve got earning season coming up next week, kicking off an officially earning season. But if you take a look at that tech sector, is that the leg that the market’s going to have to stand on because it has underperformed the other three major indices this year? If rates stay at these levels, is that the projectile that’s going to continue to move equities as a whole lot higher?

Laila Pence: (04:51)

Yes. Yes. You need tech. Tech is a big portion of all the indexes. If tech is not performing, the markets will not do as well. We do think that tech is coming back in a big way.