‘Whoever wins’ the election ‘is going to get the keys to a pretty solid economy’: strategist

Ryan Detrick, LPL Financial Chief Market Strategist, joins The Final Round to discuss his outlook on the markets and what impact the November election will have on the economy.

Video Transcript

MYLES UDLAND: Back to The Final Round here on Yahoo Finance. Myles Udland with you in New York. Well, we are about to wrap up the month of September which, as we have mentioned many times over the last few weeks, is the seasonally weakest period of the year for the markets. But the fourth quarter has been the strongest period of the year over the last decade. For more on how investors should be thinking about that, we're joined now by Ryan Detrick. He is the Chief Market Strategist over at LPL Financial.

So Ryan, let's start with the seasonals there, how important it is as you think about portfolio construction, as you think about counseling investors through this time. We saw the seasonals certainly work in September. Is it something you would expect to work in the fall? Or how does that kind of factor into your analysis now?

RYAN DETRICK: Yeah, Myles, I mean, it's not the most important part of it. But like you said, when you look at September, historically the worst month of the year, and then sure enough, we've had a really good size pullback this-- so far this month, it makes you think. But don't forget, this is an election year. I know no one's forgetting that.

October is actually the worst month of the year, on average, during an election year. So just again, kind of skittishness, I guess we could say, probably ahead of the election. But if there's anything we've seen this year about 2020, it's obviously kind of blown up a lot of these things and what "usually works" hasn't necessarily worked.

But the reality is the market, after a 60% rally, has about a 10% correction, bouncing around, like we said segment before me, having trouble at the 50-day moving average, kind of a technical level. But all in all, I mean, maybe a little more volatility pullback makes sense after 60% rally. It looks like a pretty solid base to us. And the economic data, when you get into that, it's still improving, and we think it's going to be an opportunity to buy once we get to the other side after the election.

MYLES UDLAND: So you mentioned how the market tends to be finicky or skittish, I guess we could say, as we run up to the election. I've asked this to a number of guests because someone said it a couple of weeks ago and it's-- it was surprising to me, but are you also finding that all of your clients every time you're doing an event, you're talking to a group, everyone wants to talk about politics all of the time?

I mean, you are among a group of people who will write and publish things ad nauseam saying that stocks generally go up, and there's shades of gray, depending on how things are constructed. But it shouldn't be that big a part of the conversation. And yet, it does feel like investors are hyper-focused on it as we head towards November 3.

RYAN DETRICK: Yeah, I've been doing this for over 20 years, and there's no question about it, the last two or three months, that's all everyone wants to talk about, and I've never really had that much what does it mean? What's the president? Now, a lot of people like to talk about policy too. You can throw the Fed in there, where 10, 15, 20 years ago, you don't really talk about the Fed all that much.

And so things kind of change from that point of view. But it's so important, you know, we've had bull markets under Republicans. We've had bear markets under Democrats, vice versa. You know, the bottom line is whoever wins this election is going to get the keys to a pretty solid economy, you know, 14-year highs in existing home sales, new home sales, that consumer confidence number yesterday, amazing how confident the consumers are.

I mean, those are some positive things that say this recession is likely in the rear view mirror. And if you think about it, the average expansion's about five years. And if this one just is like one or two months old, we're not saying we've got five more years of this expansion, but that's what history says, that there could be a long time left of potential economic growth, which is much more important than who's in the White House. That's important-- it's hard to separate that for a lot of people, but for investors, it's so important to remember the economy matters more than the election.

DAN ROBERTS: Ryan, Dan Roberts here. I'll ask you another non-election question, although certainly the election will also affect these names, but you mentioned in your note to us that you guys still like growth over value. Within growth, I'm just curious what you think will happen with the mega tech names. Because of course, about a month ago when we saw the pullback with those FANG names and some of the other stay-at-home plays, some of the names that had gotten so high during the pandemic, we had a lot of guests kind of, I think, freaking out and saying, OK, well, this-- this might be it in terms of the same levels for those mega tech names and the surges those names have seen. Now, I think maybe that's less clear. I mean, FANG was the hot trade before the pandemic, and it appears to me it'll still continue to be one of the hottest trades.

RYAN DETRICK: Yeah, Dan, all year we've been a little bit overweight growth versus value. And obviously, talk about growth, a lot of that is the large-cap tech names. Now, the NASDAQ 100, just a couple of weeks ago, was 30% above its 200-day moving average. I don't care who you are, that's extremely stretched and a pullback makes sense.

But just look at this recent earnings season. I mean, tech was the true leader and winner of earnings season. And this year, tech is one of the only groups that's going to support positive year-over-year earnings growth. And if you think about it, in a low growth, low inflation, low rates world, those are tailwinds for what? For growth, because investors reach for growth, and you don't have a lot of growth. It's kind of contrary to think, but that's how it works.

And going forward, yeah, we're out of the recession. Yeah, the economy's getting better. But we're not going to just have this rip-roaring economy. So we would still stick with kind of who brought us to the dance.

The other side of this, though, kind of barbell approach, the cyclical value names, industrials and materials specifically, if the economy gets a little bit better, those look pretty good too. So we're kind of using the barbell approach when we look at things, sticking with growth, but also the cyclical value names on the other side. Both two groups, six to 12 months from now, and they want you to pick just one, right, let's take a couple of them, and we think they'll outperform bonds the next six to 12 months.

MYLES UDLAND: And then, Ryan, before we let you go, I just want to talk a bit about the macro setup in the dollar. We've talked a lot about the dollar's role in this market over the last couple of weeks, the way-- that consensus view that it would get weaker, unwound, and it led to kind of that hiccup as we look towards the trading, let's call it maybe 10 days ago now. How do you see the macro setup and where the dollar fits into maybe more international exposure or keeping things kind of here at home?

RYAN DETRICK: Yeah, Myles, we think the dollar made a major, major structural peak in 2017 and likely to have years to go lower. I know we had that major spike in the dollar back in March. But bigger picture, you know, with all the deficits that are out there and low rates, we think that the dollar probably goes lower potentially for years.

And how we're leveraging that, when you have a lower dollar, tech actually does better, and emerging markets actually do a little bit better, more of a tailwind. So those are some other areas to potentially diversify. If you want to get out of the US, we like emerging markets. And you know what?

We also, in the developed world, we like Japan. I mean, Japan quietly has been doing pretty impressively, in our view. And we think Japan, from an investment point of view next, let's say the next 12 to 18 months, could be one area of the developed world that does well. If that dollar goes lower, should benefit them as well.

MYLES UDLAND: All right, Ryan Detrick is the Chief Market Strategist at LPL Financial. Ryan, always great to get your thoughts. Just want to let you know I'm seeing men on first and third, nobody out for the Reds here in the top of the 12th.

RYAN DETRICK: I know. I was-- the whole time I'm thinking how are my Reds doing, how are my Reds doing? But now you let me know. So I got-- I got to start watching it. Thanks for having me, guys.

MYLES UDLAND: That's the best I could offer you via Gamecast here on ESPN, so go, Reds, and we'll talk to you soon.

RYAN DETRICK: Thanks, guys. Bye bye.