Speaker 1: Coming up on nine minutes past the Let's get to
Speaker 1: our guests. Anna Han, equity strategist at Will's Fargo Securities.
Speaker 1: A very simple question here, Anna, is the FED overtightening? Oh?
Speaker 1: If you start with the hard questions, all right, Um,
Speaker 1: are they overtightening? I think the FED has been communicating
Speaker 1: that they're following the data. The question is is the
Speaker 1: data lagging? When you have a lagging indicator, that's really
Speaker 1: where you get in that danger of are they going
Speaker 1: to get ahead of the curve here? But they have
Speaker 1: signaled that they are turning a little more devish and
Speaker 1: consensus expects a lower rate hike this December. I think
Speaker 1: that is actually a pretty sensitive and in tune with
Speaker 1: the data we've been seeing. Okay, I think what what
Speaker 1: we have at the moment is Brian just asking you know,
Speaker 1: they are the dangers of a policy mistake liming larger.
Speaker 1: I would say there's always been that mistake. Has it
Speaker 1: become larger? In fact, I think sentiment has actually improved
Speaker 1: and expected that perhaps that risk has read deuced. Um,
Speaker 1: you're seeing less and less people talking about hard landing
Speaker 1: and the probability or the hope for soft landing increasing. UM.
Speaker 1: I think the fact that you've seen in the last
Speaker 1: CPI print as well as some of the most recent
Speaker 1: data UM with inflation coming down, that the fact that
Speaker 1: they're hiking has taken impact. That's what's giving us hope UM.
Speaker 1: And the fact that they're willing to slow it down.
Speaker 1: That's also giving hope that perhaps the FED won't get
Speaker 1: to ahead and that we can manage that soft landing.
Speaker 1: I think what you said about the timing is is
Speaker 1: very important that we haven't had enough time yet to
Speaker 1: really feel the full brunt of these rate hikes that
Speaker 1: have come through. That said, the markets have have been
Speaker 1: looking beyond and you would think that J. Powell will
Speaker 1: come out more hawkish tomorrow than he might have otherwise
Speaker 1: given the rise in stocks and bonds and what that
Speaker 1: means for UM, for conditions in the financial markets. Oh,
Speaker 1: you can bring up a great point. UM, when you
Speaker 1: have good news and sometimes it could be bad news,
Speaker 1: does it fuel the Fed? Do give them more ability
Speaker 1: to get hawkish without perhaps crashing the markets. But what
Speaker 1: we keep in mind as well is UH, even with
Speaker 1: that backward looking data they they have UM. I think
Speaker 1: the focus is going to be in what trends we're
Speaker 1: seeing with economic data. I think the I S N
Speaker 1: manufacturing and the personal incomes data we're going to see
Speaker 1: on Thursday is going to be a good indicator of
Speaker 1: what direction we're going. What do you think it's gonna
Speaker 1: What sort of picture is it actually gonna paint for you? Well,
Speaker 1: right now, what we're concerned about is how the consumer
Speaker 1: is doing. We're seeing on the manufacturing side that some
Speaker 1: of the prices paid components are suggesting a little bit
Speaker 1: of deflationary pressures. But on the same time, consumers continue
Speaker 1: to spend. Now they're using their access disposable income, they're
Speaker 1: using increased credit card debt. But can that sustain into
Speaker 1: next years? What's going to control elearnings. Let's just have
Speaker 1: a look at where you actually now invest give what
Speaker 1: we talked about in terms of the broader macro picture.
Speaker 1: What kind of companies are doing well in this type
Speaker 1: of environment, and which you're likely to do in the
Speaker 1: one that you're predicting. I think right now what we're
Speaker 1: focused on is momentum, and momentum is simple. You look
Speaker 1: at what companies have been working. That's never a promise
Speaker 1: for the future. But the reason why we're liking these
Speaker 1: good performance, which right now has been energy and particular
Speaker 1: parts of health care, specifically biotech, is that they are
Speaker 1: in a way have an ability to have a little
Speaker 1: more secular growth UM Now, of course energy markets impacted
Speaker 1: by inflation and how this pans out, but particularly um
Speaker 1: the lack of uber caps in the leadership that's looking
Speaker 1: attractive to us right now. So that's sort of where
Speaker 1: we're keeping our eyes. What do you make of of
Speaker 1: Dave Costin's view that that companies margins are likely to
Speaker 1: start coming down next year as expenses normalize. I'd actually
Speaker 1: say margins already are coming down now. You saw with
Speaker 1: this last quarter earnings, and this is something we've been
Speaker 1: saying and expecting for several quarters. To see it realize
Speaker 1: after this past earning season, something we expected, but of
Speaker 1: course something would continue to be weary about. But that
Speaker 1: margin is exactly why on a bigger picture scale, we're
Speaker 1: looking for where we can find secular growers, companies that
Speaker 1: can manage their operational costs, that can continue to manage
Speaker 1: those inflation prices and still grow their earnings. In particular
Speaker 1: for three, when we're expecting and most of the street
Speaker 1: is expecting an overall pretty flat EPs growth. Okay, so
Speaker 1: this is going to be the next question. I think
Speaker 1: in your notes you're talking about uh AN equity market leadership.
Speaker 1: Also look at how that perhaps may well change if
Speaker 1: we look at a change in sentiment towards the greenback,
Speaker 1: which seems to be at a pivotal point. Yeah. I
Speaker 1: think really it's a macro story if you still and
Speaker 1: you're seeing that not just um over the past year,
Speaker 1: but also think about today with field Tire, you're seeing
Speaker 1: the value sectors outperformed, seeing growth take a little bit
Speaker 1: on the chin. But over the month with that decline
Speaker 1: and inflation expectation, especially after we got a more friendly
Speaker 1: i'll say October CPI print, you saw NOMO yields come down,
Speaker 1: and these tech and more growthy industries, especially semis and software,
Speaker 1: you saw those have a bounce this month. So you're
Speaker 1: still seeing the macro narrative pulling the strings on the
Speaker 1: puppets here. I think next year, depending on when the
Speaker 1: FED really decides to fully pivot and go into cutting mode,
Speaker 1: that's going to help determine when we might get that
Speaker 1: resurgence in growth and growth industries for a longer run.
Speaker 1: But that's really a back half story of next year.
Speaker 1: Another good input could be if China starts to reopen.
Speaker 1: We've had a lot of doubts about that. I think
Speaker 1: investors have had some doubts, but a huge rally yesterday
Speaker 1: and it seems like the overall strategy is easing a
Speaker 1: little bit here uh IF if more on the ground
Speaker 1: actions rather than uh in name, the National Health Commission
Speaker 1: said excessive curbs should be avoided. Are you optimistic that
Speaker 1: that is a positive story for markets that's happening in China.
Speaker 1: We do think that would be positive, but we are
Speaker 1: cautious because China's economy hasn't particularly gathered this economic momentum
Speaker 1: post pandemic that you saw in the US. They had
Speaker 1: a lot of stop and start fits. So that's something
Speaker 1: that we're cautious about, and that volatility exposure is why
Speaker 1: we're not particularly pouring or our funds into Chinese equities directly. Rather,
Speaker 1: what we have looked at is within the U S companies,
Speaker 1: particularly the large companies domestically which have the particular higher
Speaker 1: sales to China. There are a good number of SMP
Speaker 1: companies SMP five companies that have over ten percent revenue
Speaker 1: exposure China. That could be a good place to start
Speaker 1: for those who truly believe that this is a turning
Speaker 1: point and that reopening UM is a certainty. But that's
Speaker 1: again something that is a bit more of a higher
Speaker 1: risk investment, so something that would have to fit your
Speaker 1: risk APPA site. Anna, thank you so much for joining
Speaker 1: us that Anna hand, they're joining execuity strategist at Wells
Speaker 1: Fargo Securities getting her take on the market action