WEBVTT - Peter Kenny: Could See A 5% Correction Before Election (Audio) 0:00:02.320 --> 0:00:05.680 Global business news twenty four hours a day. If Bloomberg 0:00:05.760 --> 0:00:08.840 dot com, the radio plus mobile act and on your radio. 0:00:09.119 --> 0:00:14.280 This is a Bloomberg Business Flash from Bloomberg World Headquarters. 0:00:14.360 --> 0:00:17.320 I'm Charlie Pallat of the DAL. The SMP nastac all 0:00:17.400 --> 0:00:21.160 trading higher right now. That are reserve meeting minutes, quelling 0:00:21.239 --> 0:00:24.759 speculation that borrowing costs could rise as soon as next month. 0:00:24.800 --> 0:00:28.160 We've got the SMP five hundred index higher by four 0:00:28.200 --> 0:00:30.960 points right now eighty two, a gain of two tenths 0:00:31.000 --> 0:00:33.840 of one percent. Those minutes, by the way, showed officials 0:00:33.840 --> 0:00:37.839 were divided in July over the urgency to raise interest 0:00:37.920 --> 0:00:40.720 rates again. The Dow up twenty six points, up one 0:00:40.800 --> 0:00:43.480 tenth of one percent, NASTACK up a point a little 0:00:43.560 --> 0:00:46.920 change there, up by less than point one percent. The 0:00:46.960 --> 0:00:49.800 Tenure up five thirty seconds, had yield one point five 0:00:49.880 --> 0:00:52.839 five percent. Gold down four ninety the ounce the thirteen 0:00:52.920 --> 0:00:55.960 forty seven, a drop there of four tenths of one percent. 0:00:56.360 --> 0:00:59.600 Crude Oil West Texas Intermediate up thirty one cents forty 0:00:59.640 --> 0:01:01.920 six eighty nine of barrel. Again they are of seventh 0:01:01.920 --> 0:01:05.080 cents of one percent. I'm Charlie Pellet and dance a 0:01:05.120 --> 0:01:08.200 Bloomberg business flash. Thank you Charlie Pellett. It's time now 0:01:08.240 --> 0:01:09.880 for the E t F Report. It is brought to 0:01:09.920 --> 0:01:13.120 you by E t F Exchange sixteen b n Y 0:01:13.200 --> 0:01:17.600 Melon's Annual E t F Symposium September twenty one in 0:01:17.680 --> 0:01:21.760 Dana Point, California. This essential conference is complementary for I 0:01:22.000 --> 0:01:25.200 R R I A S, but space is limited. Register 0:01:25.319 --> 0:01:28.880 now at b n y melon dot com slash e 0:01:29.160 --> 0:01:31.960 t F. Let's go to Katherine Cowdery for the Exchange 0:01:31.959 --> 0:01:35.800 Traded Fund Report. Money is pouring into e t s 0:01:35.880 --> 0:01:38.880 this month billion dollars in the US in the first 0:01:38.920 --> 0:01:42.840 half of August. Bloomberg Intelligence analyst Eric Baltuna says it 0:01:42.880 --> 0:01:46.119 continues a breakneck call of sixty eight billion dollars since 0:01:46.160 --> 0:01:49.200 the end of June. Is this goldilocks environment, right, You've 0:01:49.200 --> 0:01:52.320 got breaksit behind you, and you've got decent economic news 0:01:52.400 --> 0:01:55.280 but not too good and so there's really just no 0:01:55.400 --> 0:01:57.080 fear of the Fed. And plus I don't think there's 0:01:57.080 --> 0:01:59.480 anybody thinking they're going to raise before the election. Bell 0:01:59.560 --> 0:02:02.440 Junas as a flows are showing that investors are indulging 0:02:02.480 --> 0:02:05.680 their risk on appetite as more than ten different small 0:02:05.720 --> 0:02:08.480 cap e t f s have taken in money. In August, 0:02:08.480 --> 0:02:10.480 they're going all the way. Small cap ets took in 0:02:10.520 --> 0:02:13.000 two point five billion, and about a dozen of them 0:02:13.000 --> 0:02:15.760 saw flows. So this tells me they're really all in 0:02:15.880 --> 0:02:18.240 right now. E t s that focus on industrial companies 0:02:18.280 --> 0:02:20.600 are leading all sectors and flows. So far this month, 0:02:20.880 --> 0:02:24.359 they've taken in eight one million dollars. One of the reasons, 0:02:24.639 --> 0:02:28.720 Beltuna says performance the industrial select sector Spidery t F 0:02:28.840 --> 0:02:32.760 is up five percent since July. That's your Bloomberg ETF report. 0:02:32.919 --> 0:02:39.480 I'm Katherine Cowdery. This is taking Stock with Kathleen Hayes 0:02:39.520 --> 0:02:44.880 and Grim Fox on Bloomberg Radio. Well, stocks are fluctuating, 0:02:45.160 --> 0:02:48.119 still trying to figure out what to watch. The FED 0:02:48.240 --> 0:02:51.320 minutes did show a FED somewhat divided. As I've been 0:02:51.919 --> 0:02:53.680 talking to people on the show today along with my 0:02:53.720 --> 0:02:57.320 co host Pim Fox and looking at research notes, I'm 0:02:57.360 --> 0:03:00.480 seeing that some people are saying they appear slightly more hawkish. 0:03:00.919 --> 0:03:03.639 Some people are saying they're more held back by inflation. 0:03:04.000 --> 0:03:06.000 Question is, though, what does this mean for the stock market? 0:03:06.000 --> 0:03:08.200 And as we watched so many of the retailers following 0:03:08.200 --> 0:03:10.920 short are we seeing signs that some weakness in the 0:03:10.919 --> 0:03:15.359 macro economy is spilling over into the business economy. We're 0:03:15.440 --> 0:03:17.560 very happy to be joined now by Peter Kenny, senior 0:03:17.560 --> 0:03:22.600 market strategist at Global Markets Advisory Group. Uh, Peter, welcome, 0:03:23.160 --> 0:03:26.720 Thank you, Kathleen. So uh just here quickly. From the 0:03:26.800 --> 0:03:29.200 stock market view, from the investing view, we got these 0:03:29.240 --> 0:03:31.000 f onm C minutes. They didn't know how weak the 0:03:31.000 --> 0:03:34.120 GDP was with the second jobs report. Do you just 0:03:34.160 --> 0:03:36.320 put them on the back burner and say next or 0:03:36.360 --> 0:03:39.640 does this? Is there something you take away for the 0:03:39.640 --> 0:03:43.440 stock market well? As far as the markets concerned, what 0:03:43.480 --> 0:03:45.960 we're seeing from the Fed and from the interest rate 0:03:46.000 --> 0:03:50.400 conversation or landscape is that we're likely to see much 0:03:50.440 --> 0:03:53.800 of the same unchanged outlook. In other words, we're seeing 0:03:54.040 --> 0:03:57.160 very mixed economic performance and a very divided f o 0:03:57.320 --> 0:04:02.760 MC that provides for an unchanged view moving forward, and 0:04:02.840 --> 0:04:07.680 that has provided for some significant risk on allocation of 0:04:07.760 --> 0:04:12.080 resources into equities. And that's a concern because we're seeing 0:04:12.120 --> 0:04:17.839 pe ratios well above historical averages. The Dow Industrials, transports, 0:04:17.839 --> 0:04:20.320 and utilities have all seen a meaningful uptick in the 0:04:20.440 --> 0:04:22.880 in the price ratings ratio over the last twelve months 0:04:23.760 --> 0:04:26.080 and are are well into an area where we have 0:04:26.200 --> 0:04:29.280 historically seen a pullback. We're also seeing the same sort 0:04:29.320 --> 0:04:31.919 of themes in the Russell two thousand, nastac one s 0:04:31.960 --> 0:04:35.200 and P five hundred. So as far as I'm concerned, 0:04:35.200 --> 0:04:38.800 this risk on appetite, which has driven valuations higher than 0:04:38.800 --> 0:04:43.200 they've historically been, is some cause for concern, But we're 0:04:43.240 --> 0:04:45.760 not seeing anything on the part of the FED which 0:04:45.800 --> 0:04:49.919 is indicating that we should expect an economic slowdown. The 0:04:50.040 --> 0:04:52.839 issue for the FED is interest rates, and interest rates 0:04:53.080 --> 0:04:56.800 is not something that they can really engage in in 0:04:56.880 --> 0:04:59.760 September in terms of a race, it's not going to happen, 0:05:00.200 --> 0:05:01.920 And if it's not in September, it's not going to 0:05:02.000 --> 0:05:05.520 be before the elections, which means does it happen in December. 0:05:05.520 --> 0:05:08.880 That's far enough off in terms of the calendar for 0:05:08.920 --> 0:05:12.680 investors to not really have to focus on it. Peter, 0:05:12.839 --> 0:05:15.800 where's the money coming from that pushes stocks hire? Is 0:05:15.839 --> 0:05:19.520 that the retail investor? Or? Is it institutions? I think 0:05:19.520 --> 0:05:24.479 it's institution and PIM I think it's institutional institutions. Globally, 0:05:25.400 --> 0:05:29.760 the US equity market is seeing a really significant influx 0:05:29.800 --> 0:05:33.479 of capital from around the world for very very clear reasons, 0:05:34.320 --> 0:05:38.159 whether it is the dividend field on US corporate issues, 0:05:38.480 --> 0:05:43.000 or whether it's the likelihood or the perspective prospects of 0:05:43.000 --> 0:05:47.120 an increase in prices of equities. This is the most 0:05:47.400 --> 0:05:50.240 relatively attractive place to be putting your money to work, 0:05:50.440 --> 0:05:53.839 globally speaking. And you know, just look at negative rates 0:05:53.839 --> 0:05:58.040 in Japan, in EU are largely in some pockets of 0:05:58.080 --> 0:06:01.520 the EU, and you're seeing that this the U S 0:06:01.600 --> 0:06:06.360 equity market is the is the landscape that global investors 0:06:06.440 --> 0:06:08.560 are more than willing to put their money to work 0:06:08.600 --> 0:06:12.640 at because of the relative attractiveness and ren yields. So 0:06:13.040 --> 0:06:17.200 if that's the case, then we are Do you say, 0:06:18.120 --> 0:06:21.919 which of these three? Do you say stocks continue to rise, 0:06:22.200 --> 0:06:27.080 UM as A B spasses it? Do you say, oh, well, 0:06:27.240 --> 0:06:29.760 back and forth, back and forth. You know, global investors 0:06:29.800 --> 0:06:31.520 want invest here. On the other hand, you know the 0:06:31.520 --> 0:06:33.640 earnings have been that great or is there a third 0:06:33.640 --> 0:06:37.279 possibility that stocks drive down? I mean, is the is 0:06:37.279 --> 0:06:40.440 this global demand for anything that looks better than anything 0:06:40.480 --> 0:06:42.400 else going to be a much of a driver for 0:06:42.520 --> 0:06:47.480 this a year? Yeah, certainly, in the last of those 0:06:47.480 --> 0:06:51.400 three options, I think is the most likely, and this 0:06:51.480 --> 0:06:55.600 is why UM equity markets have historically not been able 0:06:55.640 --> 0:07:00.800 to whole evaluations UH as measured by P north of 0:07:00.880 --> 0:07:05.520 twenty for extended periods of time. And I think that 0:07:05.560 --> 0:07:09.400 we've seen over the last two weeks a real slowdown 0:07:09.560 --> 0:07:13.280 in activity in terms of volume and turnover, and we've 0:07:13.320 --> 0:07:17.000 seen a real moderation in terms of price gains. The 0:07:17.040 --> 0:07:21.080 post Brexit rally has run its run its course. We're 0:07:21.080 --> 0:07:24.000 now in a post Brexit rally mentality in terms of 0:07:24.000 --> 0:07:28.880 the broader street, and we're seeing that there's no compelling 0:07:28.960 --> 0:07:32.400 reason at these valuations to put much capital at risk, 0:07:32.960 --> 0:07:36.560 in spite of the fact that the global environment does 0:07:36.680 --> 0:07:40.600 continue to sort of fuel the allocation events of cash 0:07:40.680 --> 0:07:44.000 into US equities and US corporate debt UM. I do 0:07:44.160 --> 0:07:48.080 think that we've kind of reached an equilibrium. The goldilocks 0:07:48.120 --> 0:07:51.680 scenario that many have spoken about is going to add 0:07:51.760 --> 0:07:57.920 best provide for very modest, very incremental returns from here 0:07:58.480 --> 0:08:01.160 until we we hit some to sort of a real 0:08:01.200 --> 0:08:04.040 pivot point in terms of volatility, which will of course 0:08:04.120 --> 0:08:10.320 drive prices two more historically based valuations. Peter, You've got 0:08:10.320 --> 0:08:12.559 to simplify it for me because I just keep thinking 0:08:12.560 --> 0:08:14.520 that one of the reasons that stocks go up is 0:08:14.560 --> 0:08:17.600 that somebody buys them. And I was looking at US companies. 0:08:17.640 --> 0:08:20.760 They've reduced their stock buy backs to the lowest level 0:08:20.960 --> 0:08:23.880 in four years. This is a report from the stock 0:08:24.000 --> 0:08:28.200 research firm trim Tabs. If you have US companies not 0:08:28.320 --> 0:08:31.240 buying back their stock, combine that with what you've just 0:08:31.320 --> 0:08:36.160 described as this perhaps overvalued stock market because of the 0:08:36.240 --> 0:08:40.120 pe levels. What happens when we get maybe a five 0:08:40.200 --> 0:08:44.880 to correction. Let's assume that that takes place, how many 0:08:44.920 --> 0:08:48.160 people go under and what happens next. I do think 0:08:48.200 --> 0:08:50.679 that that takes place. I would not at all be 0:08:50.800 --> 0:08:53.520 surprised to see a five percent pull back between now 0:08:53.520 --> 0:08:57.360 and the elections, possibly more. And I do think it's 0:08:57.360 --> 0:09:00.360 going to be predicated upon a lack of corporate by backs, 0:09:00.520 --> 0:09:03.520 which has been a huge driver of price appreciation and 0:09:03.600 --> 0:09:07.960 equity markets, and coupled with extended evaluations. In that case, 0:09:09.000 --> 0:09:10.680 we're going to have to wait to see that. Where 0:09:10.679 --> 0:09:13.120 the dust clear is because a lot of this volatility 0:09:13.160 --> 0:09:16.640 that we have coming up on us, certainly before the election, 0:09:16.720 --> 0:09:18.520 is going to be as a result of the elections, 0:09:19.280 --> 0:09:22.160 and based on the outcome of those elections, we're gonna 0:09:22.200 --> 0:09:24.800 we're gonna have a much more clarity as to what 0:09:25.920 --> 0:09:28.600 the interest rate scenario looks like going forward and what 0:09:28.679 --> 0:09:32.040 the corporate guidance looked looks like going forward. My sense 0:09:32.160 --> 0:09:34.800 is that we do get that bull back. My senses 0:09:34.880 --> 0:09:37.760 that it represents an opportunity because I think over the 0:09:37.840 --> 0:09:41.360 next twelve months, the S and P five is likely 0:09:41.400 --> 0:09:44.160 to gain somewhere between six and a half and seven percent. 0:09:44.960 --> 0:09:48.120 That's so that would take us up to gosh, how 0:09:48.120 --> 0:09:51.000 far do the math quickly for me, Peter, the math 0:09:51.080 --> 0:09:59.640 would get us to uh twenty, that's not bad today. Yeah, 0:09:59.640 --> 0:10:02.319 I mean you certainly beat the return you'd get holding 0:10:02.920 --> 0:10:05.760 a lot of different kinds of bonds, that's for certain. 0:10:05.800 --> 0:10:08.920 And so in the longer term twelve months, I'm I'm 0:10:08.960 --> 0:10:13.360 actually quite confident, okay, okay, So give me a longer 0:10:13.480 --> 0:10:15.480 term play. What are some names or that you would 0:10:15.600 --> 0:10:18.520 that you would buy now or hold onto now because 0:10:18.600 --> 0:10:21.160 look out over the election divide and you can you 0:10:21.200 --> 0:10:23.679 know you'll hold onto it make some money. Okay, So 0:10:24.480 --> 0:10:28.160 I would when you starting to reverse mining's miners, uh, 0:10:28.240 --> 0:10:30.560 they've had a huge run. I look for them to moderate, 0:10:30.600 --> 0:10:34.920 truckers and parts, huge run moderate, food meets and products 0:10:35.120 --> 0:10:38.360 huge run moderate. So the stocks that I think will 0:10:38.400 --> 0:10:41.520 likely outperform in the next twelve months are at the industrials, 0:10:42.320 --> 0:10:48.840 medical stocks, pharma, and housing. UM. I think that you're 0:10:48.880 --> 0:10:52.680 going to continue to see all rotation into those names, 0:10:52.720 --> 0:10:54.680 and I think that they will lead the market higher. 0:10:55.080 --> 0:10:58.040 Thanks very much, Peter Kenny. He is a senior market 0:10:58.080 --> 0:11:02.720 strategists Global Marks Advisory Group. Is also an independent market 0:11:02.760 --> 0:11:06.400 strategist at Kenny and Co. We're gonna take you through 0:11:06.440 --> 0:11:09.600 to the clothes on Wall Street. This is taking Stock. 0:11:10.040 --> 0:11:13.240 I'm Pim Fox my coast. Kathleen Hayes, this is Bloomberg.