Ed Campbell, QMA Portfolio Manager and Managing Director joins the Yahoo Finance Live panel to discuss the latest market action.

Video Transcript

ZACK GUZMAN: And Ed, I mean, perhaps maybe this is just, again, kind of what we saw last year where investors have to grapple with, OK, what pieces of this $1.9 trillion proposal are actually going to come through? So when you look at it, you were already projecting this recovery we've seen play out in the last few months continue here. But how much more fuel to the fire does 1.9 trillion, as it's proposed, maybe add to that?

ED CAMPBELL: Well, 1.9 million would-- 1.9 billion would add tremendous fuel to the fire. But as you point out, it's going to be difficult to get that through Congress with Democrats holding only the narrowest majority and with generally needing to get 60 votes to get something through the Senate.

So I think what we're seeing today is, I mean, the reflation trade, the reopening trade has been dominating year-to-date and pretty much since the election. And you're seeing a little bit of buy the rumor, sell the news. And people are focused more on the difficulties of getting the plan through Congress now that the actual plan is out. I do think that we will ultimately get more stimulus.

But it's probably likely to be a fraction of that. But, you know, the economy is in pretty decent shape, and the question is, do we even need a $1.9 trillion stimulus bill at this point?

AKIKO FUJITA: Does this change your positioning in the market at all? We have seen so many guests who've talked about sort of this rotation that's happening with value over essentially growth stocks. When you look at names like-- or sectors like tech, when you think about the plan that has been put forward, the expectations of it, how do you look at that in relation to your portfolio and where you see the opportunities right now?

ED CAMPBELL: Yeah, so nothing has really changed for us based on today's news. We do think that 2021, the global economy is likely to see a V-shaped vaccine-driven economic recovery. I think a lot of the consensus expectations are probably a little too conservative in terms of what type of growth we're likely to see in the United States and globally.

We think there's a lot of pent-up demand. We're likely to see inventory restocking, financial conditions are pretty buoyant, monetary conditions continue to be accommodative. And the fiscal money continues to come regardless of what ultimately gets passed. I do think something will get passed and that the fiscal thrust for 2021 is likely to still be supportive.

So I think we're likely to see a market in 2021 driven more by earnings after two years of multiple driven expansion. So I think it's going to be a much better environment for some of the things that you had mentioned, like value stocks, small caps, non-US stocks, and cyclicals. Basically, our current view is that last year's laggards should be this year's winner.

ZACK GUZMAN: And lastly, I mean, you mentioned kind of that hope that we would start to see earnings catch up to the valuation multiple expansion here. On that front, we're going to be chatting with another CEO, the CEO of Playtika, later on in the show. But we've already seen basically three companies double on their first day of trading. That's the same number we saw back in 2019.

So when you think about where we're at in valuation right now, maybe excitement, exuberance in the market, of course, obviously the accommodation we're talking, not just from the Fed, but also now from Congress here is historic. But what do you think of where we're sitting right now in the market as we continue to hit all-time highs? We see deaths, the cases continue to rise. What's your take on where we sit right now on that front?

ED CAMPBELL: Yeah, I mean, I think there's no question that equity markets are pricey at this point. I would point out that, you know, we're looking at valuations in relation to earnings that are pretty depressed given the pandemic. Even if we look out 12 months ahead, we're only going to be getting back to and a little bit above where we were in 2019.

So if this is the beginning of a new economic expansion, and we think it is, then I think, you know, the earnings have the opportunity to grow at a rate where we're likely to still get pretty decent equity market returns. Maybe they're not going to keep up with earnings, per se, so we could see valuations decline a little bit. But I think we're still in a robust equity return environment, given the benign interest rate and inflation environment we're likely to be in for 2021 and into 2022.