Reuter’s Trading at Noon: Unemployment, Equity Markets, and Chinese Stocks

January 14, 2021

Greg Hahn joined Reuters Trading at Noon this afternoon to discuss key issues in the market, including unemployment, high equity valuations, and our thoughts on the U.S. blacklisting of Chinese companies.

Natalie: Well, for more on what’s moving the markets, I’m joined by CIO of Winthrop Capital Management, Greg Hahn. Greg, thank you so much for joining us. Let’s start with the unemployment data. Those unemployment figures, what kind of impact are they having on markets?

Greg: So, right, now, we thought that unemployment would be a challenge heading into the end of the year. So, we saw non-farm payrolls lose 140,000 in December. That’s still a 6.7% unemployment rate. The challenge, Natalie, is there’s 10.7 million people that are out of work. When we go back to the financial crisis in 2008-2009, we had over eight million people that were out of work, and it took four years to get the economy to produce the level of jobs for everybody to get back to work. We think it will move quicker this time. And the reason is the stimulus that’s in the system, both monetary and fiscal, is very aggressive. So, it’ll be a support for small business and medium-sized businesses to get jobs created and get people back to work.

Natalie: Now, we know that equity markets are at an all-time high. Do you see this as a risk?

Greg: Yes, we do. We’re looking at a multiple right now with earnings at 1.55 to 1.60. We think that’s a 23 P/E, so that’s extended. But I think history shows that during periods of aggressive stimulus, particularly monetary stimulus, that we will live through extended valuation multiples, and we’re here for a long time. We’re discounting future cash flows at very, very low interest rates. And we think low interest rates are going to be here for a long time, and that will support these higher valuations as well.

Natalie: Shifting focus now to the U.S. blacklisting of a number of Chinese companies. How much volatility is this causing?

Greg: Well, it’s causing volatility in the ETFs and in the indexes that have exposure. We invest in- We’ve got exposure in Alibaba and Tencent. We’ve held those positions and have been buying on weakness. I don’t- our view is that, related to Chinese military, we don’t see a tie. But the U.S. is going to do what it’s going to do. Those are great business models. Alibaba has got its own issues with Jack Ma and the Ant spinoff. We think that they will work through that. It’s one of the premier companies for China. And it’s a great business, and Tencent has done very, very well. So, we’re happy with both positions at this point.

Natalie: Greg, thank you very much for those insights.

Greg: Thank you, Natalie.