Stocks surge as more states move to reopen amid coronavirus

JP Morgan Private Bank Head of Cross-Asset Thematic Strategy Anastasia Amoroso joins Yahoo Finance’s Seana Smith to discuss the latest market action as more states move to reopen their economies in the wake of the coronavirus.

Video Transcript

SEANA SMITH: Let's get to more on today's moves, and for that we have Anastasia Amoroso at JP Morgan Private Bank, Head of Cross-Asset Thematic Strategy.

Anastasia, thanks so much for taking the time to rejoin the show. I want to start with what we talked about the last time you were on. It was just about a month ago you were on. You were talking about that there is no doubt that we would see this drop in Q2 GDP and that we were at least going to have some sort of a technical recession.

So the question now is, how deep and how long of a recession we could see? What are you thinking at this point?

ANASTASIA AMOROSO: That's right. So the view that we're going to have a very deep recession is certainly playing out, as some of the data that we're getting suggests that the drops are really significant.

But what I would submit to you is that although, obviously, things like initial jobless claims and unemployment rate and manufacturing numbers are very important to see what's happening on the ground right now, if we look into the future, and if we look at how quickly can we see a rebound, what becomes more important is real-time, real-world data. Because some of the data that we're now getting is the backwards-looking view of what happened over the last month. And you and I know that what's going to happen in the next month, hopefully, is going to be pretty vastly different.

So we're looking to things like the mobility reports that tell us, is the traffic to the physical grocery stores, to retail, is it starting to pick up? We're looking at things like TSA lines, are they starting to get a little bit longer, just a little bit? And I do want to say that there's definitely parts of the economy where we're seeing no pickup in activity whatsoever, such as restaurants and movie theaters. Not a surprise. But we're seeing very minuscule, I will say, but nevertheless pickups in economic activity, just judging from some of the mobility reports.

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So this is going to be the story to watch for the next, really, couple of months as more and more states open up, and we'll get this sense of how many of them are resuming economic activity and how quickly.

SEANA SMITH: And Anastasia, going off of that mobility report, it's really interesting, because we talk about the fact that these states are reopening, but take a look at what we've seen just in Texas over the last couple of days. And there was reports, I think there was one in the Wall Street Journal today, talking about the fact that so many of their retail shops are still not seeing the uptick in traffic that many economists, many analysts, were hoping that we would see over the first coming days, as we begin to see states reopening.

So when we take that into account and what exactly that could mean for a potential rebound, and how long it could take until we see a significant rebound, how are you reading that?

ANASTASIA AMOROSO: Yeah, it's going to take a while. You can appreciate psychologically, after the last six weeks or two months of lockdowns, it's going to take a little bit of nudging and a little bit of confidence, which comes with time, before people really turn up at the stores and the restaurants. But if we think about it, not only what's going to happen over the next one week, but what's going to happen over the next six weeks or even over the next two months, I think that's really the most material thing.

I suspect that over the next two months, May and June, we're going to see a recovery in the level of activity. Not back to 100%, maybe not even back to 90%, but maybe somewhere around the 80% range. So as that happens, that's what's really key for the markets, is to make sure that the economy comes back largely online by June, because that's what's currently being reflected in consensus expectations.

SEANA SMITH: Anastasia, it's interesting. I was reading your latest note, and in there, you were talking about how AI and big data, how they're helping to fight the spread of COVID-19. What are some of the trends you're seeing there, and then from an investor's perspective, how can you act on some of those trends?

ANASTASIA AMOROSO: Yeah, absolutely. AI and big data are absolutely front and center, and frankly, this is why you see such a massive leadership of big tech companies. Because a lot of them capitalize on really critical trends at the moment, which is the shift to the cloud, so that's why some of the tech names are leading.

But with this shift to the cloud, more and more companies are also implementing AI capabilities with it. So with the cloud comes AI, and with all of that comes the focus on cloud security. So that's why we see names in the tech sector lead the way here.

The other trend that is absolutely top of mind for us here is AI and how it relates to health care, and more so, the innovation that is happening in the biotech space. Biotech, as you know, has period of performance where it does really well, but if you look at in the last five years, it has actually not done well at all. It's been sideways.

But what I think we're on the cusp of right now is seen as significant payoff. And all this money that went into R&D, that's actually starting to materialize in new treatment approvals, and that's going to ramp up significantly over the next several years. That, I think, is not fully reflected in the valuations of some of these biotech names, and that's where I would be looking to put those extra dollars to work.

SEANA SMITH: Anastasia, what about some of the big tech names? I know it doesn't exactly fit into what you were just talking about, but some of the big names like Apple, for example, Google. They're coming up with ways to assist in the contact tracing and trying to help other ways, just in terms of mitigating the spread of coronavirus. Are you seeing any investment opportunities in some of those bigger tech names?

ANASTASIA AMOROSO: Absolutely. It is actually stunning what they're doing in order to help with the contact tracing and perhaps predicting the future spread of the virus like that. So we would definitely look to those names, because as you know, it's definitely very difficult to open up the economy without having some of those tools in place.

And by the way, one of the reasons why countries like China, like South Korea, like Taiwan, why they were able to in certain cases contain this a whole lot quicker is because they did implement a whole lot of technology to solve this problem. So that's why you see the resiliency in some of those names.

And then the other reason is a lot of this is playing out in the cloud. As enterprises and consumers look to boost our digital resiliency, we now have enterprises accelerate how much money they're going to be spending on transition to the cloud. And that was a big trend that was already in place. Now, I think we'll pull that forward, and once again it adds to the resiliency of those names.

SEANA SMITH: Anastasia, real quick, I just want to get your take on earnings, what we've seen so far. So while we have seen a huge drop-off from what we were initially expecting going back to the beginning of the year, in a lot of instances, the earnings report have not been as bad as what we initially expected.

How are you reading what we're seeing so far, and what we could expect here over the next couple of weeks?

ANASTASIA AMOROSO: Yeah, it's been a very lackluster earnings season to say the least. And what we're seeing now is fewer companies at typical earnings. That's understandable, of course. But also, while the average surprise is usually a positive one, we're not seeing that this time around. So this is why, going into the earnings season, we were expecting to see a bit of a downside or at least sideways markets, because earnings were not going to move the needle for companies.

But the exception to that, of course, is the companies that have managed to beat estimates should be rewarded. I will say they're not being rewarded to the same extent as we would expect them to in this sort of environment, but nevertheless tech and health care, as you've mentioned, are outperforming here.

The other thing that really is largely offsetting some of the lackluster earnings season, which I think we're going to continue to see here, is obviously the hopes about the reopening of the economy. So those are the two factors that the markets are balancing right now.

SEANA SMITH: All right. Anastasia Amoroso, JP Morgan Private Bank, thanks so much for taking the time to join us again.

ANASTASIA AMOROSO: Thank you, Seana.