U.S. and China are starting to 'go at it again' but market is shaking it off: Strategist

LPL Financial Senior Market Strategist Ryan Detrick joins Yahoo Finance’s On The Move to discuss the latest jobless claims and outlook for GDP.

Video Transcript

JULIE HYMAN: I am curious when you still get-- yes, we are seeing a trend downward in those unemployment claims, but they're still awfully big numbers. And one would expect to see sort of a fat tail on this, right, that a lot of people are going to be out of work for quite some time. The market doesn't seem to be too concerned.

RYAN DETRICK: Well, first off, thanks for having me back, but you're right. I mean, you know, we-- I've come on with you guys for a couple months saying the market is a forward-looking mechanism. As terrible as the data is that we're seeing here in the United States and around the world, stock markets around the world are saying there could be better times ahead. But-- but you're right. I mean, you know, over 40 million people have filed for initial claims the last 10 weeks. Yet if you look under the surface, those initial claims have actually dropped the past eight weeks.

Now again, 2 million people filing last week's a terrible thing, but the trend is less and less people are filing as things continue to open up, with all the fiscal policy. Look what Japan is doing. Nearly 40% of GDP in Japan, they're seeing fiscal stimulus as a percentage of GDP. That much fiscal stimulus seen in Europe, seen in the US. I mean, it is what it is, right? There's a ton of stimulus out there. The economy is slowly getting off the mat.

Look at the consumer confidence number the other day. Yes, it's still very, very low, better than expected. Actually higher than the month before, a lot like that small business survey we saw recently where six months out, small businesses are optimistic. So maybe we can open up the economy a little bit more than people think the second half of this year, and that's what the stock market is sniffing out.

ADAM SHAPIRO: Always forgetting to unmute myself. Ryan, it's Adam. Good to see you.

RYAN DETRICK: [INAUDIBLE].

ADAM SHAPIRO: Dive deeper into what you just said, and here's where this question comes from. Assuming we put half of the 40 million back to work, that's still 20 million who are unemployed. And we know that consumption may be coming back slowly. So you wrote that, you know, under the surface, something quite rare is happening, that 90% of the S&P 500 components are above their 50-day moving average. Is the market ahead of itself, given the unemployment numbers and what we see with consumption?

RYAN DETRICK: Yeah, Adam, we think it could be, right? I mean, the S&P is up 35% from those March 23 lows, that the economy is poor, like historically poor like we just talked about. But again, the market is telling us something. When you see that many stocks in the S&P above their 50-day moving average, nine out of 10 of them, I know we're getting a little number-y here, but that's a lot of breadth. That's a lot of strength. We took a look at what happens after that. That's only happened 11 times going back the last 18 years, guys. A year later, S&P's higher nine times, up, like, 15%, 16% on average.

So in the near term after this rally, we really think, you know, sell in May, go away. Well, May's up again this year, like it usually is. But the summer months can be rocky. Perfectly normal. But the strength and the blast that we saw off of these lows is not a bear market bounce, but in essence, you know, a continuation or maybe a new bull market, I guess I should say. But we don't anticipate breaking those March 23 lows, and we don't anticipate going back and testing them. Maybe a well-deserved 6% to 8% correction, and then that upward bias you tend to see late in an election year could take over once again.

DAN HOWLEY: Hey, Ryan, this is Dan Howley. I just want to kind of ask about retirement savings. You know, if you have someone who maybe decided to kind of rebalance their portfolio, move away from stocks and into, you know, bonds, kind of more safety, is now the time to rebalance it back and go back into stocks and-- and kind of use the market's upward trajectory now?

RYAN DETRICK: Yeah, Dan, I mean, it's-- it's tough because it's all about the time frame, right? Let's just say someone's 15 to 20 years away. Yes, we think, you know, you could wait for a little bit more of an equity pullback here. But there really is-- when you see a 10-year yield around 70 basis points, we get it. The forward PE on the S&P 500 is up over 21. That's one of the highest numbers we've seen in decades. So stocks are, quote unquote, "overvalued." But then you look at bonds, bonds are really overvalued. We still think, you know, going out 5, 10, 15 years, stocks are the still the place to be to find some appreciation more so than you're going to find in fixed income.

But the-- the glory of this whole thing, and it's been terrible what's happened to the economy, I get it, but that 34% correction, now we've just had this massive spike higher. People that have a plan that do rebalance, but don't drastically rebalance. You know, that's an opportunity if you've got a long time to go. These pullbacks are scary. But from a retirement point of view, it's going to happen again, and there are going to be opportunities at the end of the day.

JULIE HYMAN: Hey, Ryan, I know that the House is considering a revamp of the PPP, right? And also, Mitch McConnell has talked about the need for more stimulus. He's not the only one. There's been bipartisan agreement that some kind of further stimulus is needed. If that doesn't materialize, what does that mean for the market? Is further upside in the market contingent on getting more money out there?

RYAN DETRICK: I don't know if it's totally contingent. I think what we want to see is continued, you know, more testing, less positive cases of COVID-19. Those are probably a little bit more up the ladder. But let's be honest, the-- the market is pricing in record fiscal stimulus, record monetary stimulus. And if that were to go back and forth and-- and maybe go away, at least on the fiscal side of things, the market could be a little upset. And we haven't even talked about US-China, right?

I mean, they are really starting to go at it again, and the market's shaking that off too. So that's kind of the other boogeyman that we're a little worried about as we get into the summer months. But at the same time, it's an election year. You know, there's-- there's a lot of things swirling when it's an election year. Will there really be a fight with China, you know, right ahead of an election? We tend to doubt that, but that's a-- that's a worrisome thing also that's out there.

JULIE HYMAN: It is, indeed. Thank you so much. Ryan Detrick of LPL. Appreciate it.