Even with an historically low Gross Domestic Product and millions of Americans out of work, stock prices are rising again after the biggest names in technology have reported blowout financial results. WGBH Morning Edition Host Joe Mathieu spoke with Art Hogan, chief market strategist at National Securities, to learn more about Wall Street's reaction to the pandemic. The transcript below has been edited for clarity.
Joe Mathieu: These results from the big tech companies I mentioned really underscore the disruption that the virus has caused in our economy. Our spending habits are changing, Art.
Art Hogan: They certainly are. It's interesting that we never knew what we couldn't live without until we had to stay at home, and we're learning that we're really dependent on things like Amazon, Google, Facebook and Apple. And that really came out last night in their report. So when you think about the juxtaposition of just how slow the second quarter was — we saw that GDP report and that laid bare just how much damage was done to the economy because we had to shut businesses down to stop the path of a pandemic — and how we reverted very quickly to using things like Amazon. One of the things that stood out to me in Amazon is there their quarter-over-quarter growth in the second quarter just in e-commerce was 57 percent. This is a company that was already dominant in e-commerce. And to have a quarterly growth number like that, it's just mind blowing.
Mathieu: So the markets are essentially back to where they were before the pandemic, when you look at the Dow [and] the Nasdaq, which has been hitting record highs lately. But we also know the economy cratered in the last quarter and that tens of millions of people are out of work. Granted, big tech is doing really well, but when you look at the broad picture, how do we justify these gains?
Hogan: I think you have to think about three things, Joe, and I think that all of that's true, but the market's not pricing in last year or last quarter. The market's pricing in what we think the third and fourth quarter will look like. And I think that while we had a terrible second quarter and probably the worst reading on GDP that any of us will likely see in our lifetimes, the third and fourth quarter likely will get a bit better. Markets are a forward-pricing mechanism and they're trying to look ahead 6 or 12 months and say, do things get better?
Obviously, we don't want to see an increase in caseload in COVID in the south and southwest; we need to see the sunbelt's new case discovery really plateau. I think the second thing we need to see is that the government continues to move forward with the kind of stimulus we need to bridge the gap between the terrible economy that we're in and the normalized economy that we hope we get to. And then we need to hear about good news on that and the vaccine [and] the therapeutic front. The exciting thing for me is there's three companies right now — one of them located in Massachusetts — that have already gone into phase three testing for a vaccine, which means they're getting close to the finish line. And I think that's exciting. That means that we're working in the right direction. But the confusing thing, as always, is markets tend to be forward-looking. They're a prediction of what could happen over the next 12 months versus what has happened over the last 12 months, and that's why they always seem to be a little dislocated. But in a forward-pricing way, we think things are incrementally getting a little bit better.
Mathieu: Interest rates are near zero, Art. Gold is at a record high. How can all these things be happening at the same time?
Hogan: That's a good question. So interest rates are at zero because our Federal Reserve has locked in a monetary policy that is going to keep rates at or near zero for a long period of time — through most of 2021. They're doing that to stimulate economic activity, so I think that's why that's happening. While that happens, when we have economic policy, when we have monetary policy that is that stimulative, our currency tends to slide versus currencies of other countries that perhaps hurt our recovery a little bit faster and don't have as aggressive monetary policies.
So when our currency slips a bit, you tend to see metals — and particularly precious metals and industrial metals — do better. They're denominated in dollars. Think of that as simply like this: If it takes more dollars to buy an ounce of gold because the valuation of the dollar has gone down a bit, the price of gold goes up. So I think that's why we're seeing both those things happen at the same time. That won't be a dynamic that happens forever, but right now with the currency pulling back, the U.S. dollar is pulling back its value versus other currencies around the world. That's actually a positive for the price of gold and, in large part, for most commodities.
Mathieu: You mentioned the vaccines, Art. We've got a bunch of companies — Moderna, Pfizer, Johnson and Johnson [and] AstraZeneca. There are so many companies in the race here. At some point we're going to wake up to a headline. Is a vaccine the Holy Grail right now for the stock market?
Hogan: Yeah, that's one of the most important things. We won't get back to the kind of economic growth that we saw in 2019 unless and until we actually have a vaccine, and not just to have one that works and is safe, but have one that we can manufacture at scale. So, yes, all of that is true. I think the Holy Grail is exactly that.
I think along the way what what gets better is our therapeutic approach. Remember that three months ago we really didn't know how to treat somebody that presented at the hospital with COVID symptoms. Now that we've been doing this for three months and our health care infrastructure has gotten so much better over the last couple of decades, we actually have better ways to treat you as a patient, so our death rates are going down.
Our new case discoveries hopefully plateau at some point in time, so the therapeutic response is very important — will you survive if you get this? And then the immunity — can I get a vaccine for this, do I have to take it every year, and will this actually be safe and keep me from getting COVID-19? Those are the two things that are of ultra importance. And as a matter of fact, the market tends to react more to good news on the health care front that it does to economic data or quarterly earnings reports.