WEBVTT - Wells Fargo's Wren is 'Leaning Cyclical' Through 2016 (Audio)

0:00:02.080 --> 0:00:05.480
<v Speaker 1>Global business news twenty four hours a day at Bloomberg

0:00:05.519 --> 0:00:08.600
<v Speaker 1>dot Com, the radio, plus mobile lap and on your radio.

0:00:08.920 --> 0:00:13.240
<v Speaker 1>This is a Bloomberg business flash from Bloomberg World Headquarters.

0:00:13.320 --> 0:00:16.720
<v Speaker 1>I'm Charlie held at jobs Friday, stocks of paired losses

0:00:16.800 --> 0:00:20.640
<v Speaker 1>as the dollar fell, treasuries and gold gaining after the

0:00:20.760 --> 0:00:24.239
<v Speaker 1>US employers added the fewest jobs in almost six years

0:00:24.440 --> 0:00:27.800
<v Speaker 1>in May, bolstering the case for the FED. Believe rates

0:00:28.120 --> 0:00:31.880
<v Speaker 1>lower for longer. The tenure of thirty seconds that yield

0:00:31.920 --> 0:00:36.120
<v Speaker 1>one point seven percent, gold surging two point seven percent

0:00:36.240 --> 0:00:39.519
<v Speaker 1>up thirty two seventy ounce to twelve forty five, Oil

0:00:39.600 --> 0:00:42.839
<v Speaker 1>down forty cents forty eight seventy seven of barrel on

0:00:42.920 --> 0:00:47.040
<v Speaker 1>West Texas Intermediate Town, eight tenths of one percent. Equities

0:00:47.080 --> 0:00:49.400
<v Speaker 1>lower with thirteen minutes to go ahead of the close,

0:00:49.720 --> 0:00:52.440
<v Speaker 1>SMP down five to two thousand ninety nine and drop

0:00:52.479 --> 0:00:55.520
<v Speaker 1>there of three tents of one percent and has stackdown

0:00:55.560 --> 0:00:58.520
<v Speaker 1>twenty ate a drop of six tents of one percent down,

0:00:58.520 --> 0:01:02.000
<v Speaker 1>industrials down twenty or a drop of point one percent.

0:01:02.480 --> 0:01:06.119
<v Speaker 1>I'm Charlie Pellatin. That's a bloom Grind business flash. Thank

0:01:06.160 --> 0:01:08.240
<v Speaker 1>you very much. Charlie Pellett It's time now for the

0:01:08.240 --> 0:01:10.119
<v Speaker 1>e t F Report. It is brought to you by

0:01:10.200 --> 0:01:13.320
<v Speaker 1>van Eck Vectors. E t F s expect more from

0:01:13.400 --> 0:01:17.680
<v Speaker 1>your munis target tax exempt income by maturity and credit quality,

0:01:17.920 --> 0:01:22.160
<v Speaker 1>all with low cost ETFs. Visit vaneck dot com slash

0:01:22.360 --> 0:01:26.520
<v Speaker 1>Muni Vanek access the opportunities. That's go to Catherine Calgary

0:01:26.560 --> 0:01:29.240
<v Speaker 1>for the e t F Report. The number of so

0:01:29.360 --> 0:01:32.399
<v Speaker 1>called thematic ets is growing as fund providers try to

0:01:32.480 --> 0:01:36.720
<v Speaker 1>tap into transit offer growth opportunities. Global x offers nine

0:01:36.880 --> 0:01:39.720
<v Speaker 1>ranging from lithium to health and wellness to social media.

0:01:40.040 --> 0:01:43.480
<v Speaker 1>It's newest the global Lex Millennials Thematic e t F

0:01:43.520 --> 0:01:47.480
<v Speaker 1>ticker m I. L. N. Day Jacobs, director of Research

0:01:47.520 --> 0:01:49.680
<v Speaker 1>at global X, and the kind of companies that are

0:01:49.680 --> 0:01:52.080
<v Speaker 1>being included in the e t F. We're really trying

0:01:52.120 --> 0:01:55.000
<v Speaker 1>to marry two different ideas. So one we're looking at

0:01:55.040 --> 0:01:57.920
<v Speaker 1>the industries where millennials spend money. These are really basic

0:01:58.000 --> 0:02:02.840
<v Speaker 1>industries food, education and clothing, housing. And then we're looking

0:02:02.880 --> 0:02:06.080
<v Speaker 1>at the unique spending characteristics of monules, what makes them

0:02:06.080 --> 0:02:09.440
<v Speaker 1>different from other generations. So you know their tech ivy generation,

0:02:09.480 --> 0:02:13.440
<v Speaker 1>as digital natives, they're physically mobile, moving across the country

0:02:13.480 --> 0:02:15.720
<v Speaker 1>for college or or work. Companies in the E t

0:02:15.840 --> 0:02:19.679
<v Speaker 1>F range from Amazon to Facebook to Equity Residential and Chipotle.

0:02:20.120 --> 0:02:22.280
<v Speaker 1>The A t F has an expense ratio of sixty

0:02:22.280 --> 0:02:25.000
<v Speaker 1>eight basis points and two point three million dollars in

0:02:25.040 --> 0:02:28.280
<v Speaker 1>total assets. That's your Bloomberg A t F report. I'm

0:02:28.360 --> 0:02:32.720
<v Speaker 1>Catherine Colderie. This is taking stock with pin Box and

0:02:32.840 --> 0:02:38.360
<v Speaker 1>Kathleen Hayes on Bloomberg Radio. What's a difference much weaker

0:02:38.360 --> 0:02:43.040
<v Speaker 1>than forecast jobs report? I can and make bonds and

0:02:43.160 --> 0:02:46.240
<v Speaker 1>rally mode stocks lower, although not as low as they

0:02:46.280 --> 0:02:49.679
<v Speaker 1>were early in the day. What does this mean as

0:02:49.720 --> 0:02:52.519
<v Speaker 1>we move into the second half of this year? Joining

0:02:52.560 --> 0:02:56.480
<v Speaker 1>us now as Scott Rendy, Senior Global equity Strategist at

0:02:56.560 --> 0:03:00.799
<v Speaker 1>Wells Fargo Investment Institute. Scott, welcome back to the show. Hi, Kathleen,

0:03:00.840 --> 0:03:05.000
<v Speaker 1>Thanks so uh you can whether or not you say, oh,

0:03:05.040 --> 0:03:08.440
<v Speaker 1>this is just a one off week job support or

0:03:08.720 --> 0:03:11.600
<v Speaker 1>or not, I would say that if you're an equity

0:03:11.639 --> 0:03:13.680
<v Speaker 1>strategy like you, you still have to contend with an

0:03:13.680 --> 0:03:15.799
<v Speaker 1>economy that has been mixed at best on a lot

0:03:15.800 --> 0:03:17.919
<v Speaker 1>of the numbers so far this year. Now you get

0:03:17.919 --> 0:03:20.519
<v Speaker 1>this ominous sign, do you change your strategy? Do you

0:03:20.560 --> 0:03:23.120
<v Speaker 1>pair something back, what do you do? I think I

0:03:23.240 --> 0:03:25.320
<v Speaker 1>do not think you do that, Kathleen. And the reason

0:03:25.360 --> 0:03:28.840
<v Speaker 1>I say that is because really our overall theme is

0:03:29.000 --> 0:03:32.800
<v Speaker 1>modest growth and modest inflation. The labor market is slowly

0:03:32.880 --> 0:03:36.080
<v Speaker 1>moving in the right direction, the economy is slowly moving

0:03:36.080 --> 0:03:39.040
<v Speaker 1>in the right direction. Is going to look at a

0:03:39.040 --> 0:03:42.080
<v Speaker 1>lot like twenty fifteen that looked a lot like that

0:03:42.120 --> 0:03:45.640
<v Speaker 1>looked at like. So I mean, we're moving slowly in

0:03:45.680 --> 0:03:50.200
<v Speaker 1>the right direction. Uh. Today's non farm payroll number that

0:03:50.360 --> 0:03:54.800
<v Speaker 1>was a surprise, no doubt about it. UM. But I think, UM,

0:03:54.880 --> 0:03:58.280
<v Speaker 1>I think the market, the market clearly absorbed this news

0:03:58.320 --> 0:04:01.040
<v Speaker 1>pretty well. And when I look at that at data,

0:04:01.960 --> 0:04:04.040
<v Speaker 1>you know, hey, two and a half percent year over

0:04:04.160 --> 0:04:08.040
<v Speaker 1>year uh, average hourly earnings change, which I believe is

0:04:08.080 --> 0:04:11.040
<v Speaker 1>the most important number in that report, UM, and has

0:04:11.080 --> 0:04:14.640
<v Speaker 1>been for the last six or seven months. Um. You know,

0:04:14.680 --> 0:04:17.360
<v Speaker 1>there's nothing to get excited about. But I don't think

0:04:17.400 --> 0:04:19.400
<v Speaker 1>it's the end of the world either, And I don't

0:04:19.440 --> 0:04:21.600
<v Speaker 1>want to say it's a one off, but I don't

0:04:21.640 --> 0:04:24.479
<v Speaker 1>think this is the start of a trend. All right, Well,

0:04:24.480 --> 0:04:27.040
<v Speaker 1>I'm glad it's not the start of a trend or

0:04:27.120 --> 0:04:30.919
<v Speaker 1>at least, it's not going to get you to too worried, Scott.

0:04:31.000 --> 0:04:33.599
<v Speaker 1>But you keep talking about the things moving in the

0:04:33.680 --> 0:04:35.240
<v Speaker 1>right direction. How do you know they're moving in the

0:04:35.320 --> 0:04:38.599
<v Speaker 1>right direction until you've actually reached your destination. Well, Pim,

0:04:38.640 --> 0:04:40.080
<v Speaker 1>you know, of course, what they're paying us to do

0:04:40.160 --> 0:04:42.080
<v Speaker 1>is to try to make some projections here and I'll

0:04:42.080 --> 0:04:45.599
<v Speaker 1>give you an example. Um. You know, average hourly earnings

0:04:45.600 --> 0:04:48.840
<v Speaker 1>which I'm sorry, initial jobs claims come as comes out

0:04:48.880 --> 0:04:52.039
<v Speaker 1>every Thursday at eight thirties Eastern time. That is a

0:04:52.200 --> 0:04:55.839
<v Speaker 1>great leading indicator. And we look forward on that and

0:04:55.880 --> 0:04:58.680
<v Speaker 1>we make projections on that number, and we're through about

0:04:58.839 --> 0:05:01.720
<v Speaker 1>January of twenty seventeen. That's about as far out as

0:05:01.760 --> 0:05:03.400
<v Speaker 1>we can look and feel like we have a lot

0:05:03.400 --> 0:05:07.080
<v Speaker 1>of accuracy. UM continues to be under three hundred thousand.

0:05:07.520 --> 0:05:11.440
<v Speaker 1>Any time you see that number under probably even three

0:05:11.920 --> 0:05:15.560
<v Speaker 1>and two. Uh, that's a darn good number. So you know,

0:05:15.680 --> 0:05:19.040
<v Speaker 1>it's things like that leading indicators when we project l

0:05:19.080 --> 0:05:22.719
<v Speaker 1>A I UM. The economic indicators when you when you

0:05:22.760 --> 0:05:24.720
<v Speaker 1>look at the but that's the economy. I'm talking about

0:05:24.720 --> 0:05:26.880
<v Speaker 1>the stock market. I mean the reason the stock I mean,

0:05:26.960 --> 0:05:28.960
<v Speaker 1>you know, you have to think about the economy is

0:05:29.000 --> 0:05:33.160
<v Speaker 1>what allows companies to prosper or to not prosper. So

0:05:33.240 --> 0:05:35.880
<v Speaker 1>the foundation of everything we do is trying to figure

0:05:35.880 --> 0:05:38.679
<v Speaker 1>out what's the economy going to look like going ahead.

0:05:39.000 --> 0:05:43.000
<v Speaker 1>I think valuations here in the US there's only slightly

0:05:43.040 --> 0:05:46.960
<v Speaker 1>ahead of the thirty year median um. And you know,

0:05:47.040 --> 0:05:49.000
<v Speaker 1>let's face that the Federal Reserve is not going to

0:05:49.080 --> 0:05:51.920
<v Speaker 1>tighten up on us. You know too much here, I

0:05:51.920 --> 0:05:53.600
<v Speaker 1>don't think, or at least we're not counting on it.

0:05:53.720 --> 0:05:56.200
<v Speaker 1>So corporate earnings are going to look a lot better

0:05:56.520 --> 0:05:59.640
<v Speaker 1>in the remaining part of the year. The GDP growth

0:05:59.640 --> 0:06:01.880
<v Speaker 1>is going to look better. It's all going to look better.

0:06:01.920 --> 0:06:07.440
<v Speaker 1>In the market knows that. That's why we're sitting up here, Spire.

0:06:08.520 --> 0:06:10.560
<v Speaker 1>The bond markets begs to differ, do you think, I mean,

0:06:10.600 --> 0:06:12.520
<v Speaker 1>you've got the tenure down to one point seven, you've

0:06:12.520 --> 0:06:14.680
<v Speaker 1>got the tier down to point seven seven, big move

0:06:14.760 --> 0:06:18.440
<v Speaker 1>up and utilities David by con Inison and cepra Well, Kathleen,

0:06:18.480 --> 0:06:20.600
<v Speaker 1>I hate to admit it, but as an equity guy,

0:06:20.960 --> 0:06:26.039
<v Speaker 1>bond guys are smarter um but um but and you

0:06:26.080 --> 0:06:30.680
<v Speaker 1>know one seventy one seventy tenure yield um? Does that

0:06:30.760 --> 0:06:34.480
<v Speaker 1>make me happy? It definitely doesn't. Does it make me

0:06:34.560 --> 0:06:38.719
<v Speaker 1>think that the equity guys um are are are you

0:06:38.760 --> 0:06:41.120
<v Speaker 1>know wrong, and the bond guys might be right and

0:06:41.160 --> 0:06:44.080
<v Speaker 1>we might see this yield dip even lower. I don't know.

0:06:44.120 --> 0:06:45.880
<v Speaker 1>I rolled that through my mind all the time. But

0:06:46.040 --> 0:06:50.400
<v Speaker 1>certainly we're in a modest growth environment. There's no reason

0:06:50.440 --> 0:06:52.960
<v Speaker 1>to expect that we're going to see much more than

0:06:53.200 --> 0:06:56.640
<v Speaker 1>you know, two p growth this year, probably next year

0:06:56.680 --> 0:06:59.600
<v Speaker 1>as well. So you know, we're in a mode here

0:06:59.600 --> 0:07:03.880
<v Speaker 1>where they're some flight to quality. It's slow growth, um.

0:07:03.920 --> 0:07:06.039
<v Speaker 1>But you know, you have to say if if you

0:07:06.080 --> 0:07:08.840
<v Speaker 1>think this tenure yields going below one fifty, I mean

0:07:08.920 --> 0:07:13.880
<v Speaker 1>that's that's not a good sign um. So I'll leave

0:07:13.920 --> 0:07:16.680
<v Speaker 1>it at that. But unless you happen to be long bonds, well,

0:07:16.760 --> 0:07:18.600
<v Speaker 1>unless you have to be long bonds, and of course,

0:07:18.640 --> 0:07:20.800
<v Speaker 1>you know with with the clients and and you know,

0:07:21.120 --> 0:07:24.040
<v Speaker 1>retail clients are bread and butter here and we tell

0:07:24.080 --> 0:07:26.200
<v Speaker 1>them to have diversified portfolios. And this is one of

0:07:26.240 --> 0:07:28.920
<v Speaker 1>the reasons why we do that well Scotts. We've discussed

0:07:28.920 --> 0:07:31.800
<v Speaker 1>earlier with George goncab Is from Nomura. Part of the

0:07:31.800 --> 0:07:34.400
<v Speaker 1>reason bonds are doing so well is because of there's

0:07:34.440 --> 0:07:37.400
<v Speaker 1>so many negative bond yields around the world. The treasury

0:07:37.440 --> 0:07:39.560
<v Speaker 1>is the plate pressure markets a place to be. I

0:07:39.600 --> 0:07:42.440
<v Speaker 1>want to get more specific about stocks because if you're right,

0:07:42.440 --> 0:07:45.280
<v Speaker 1>if you kind of just better, we don't know what

0:07:45.280 --> 0:07:48.080
<v Speaker 1>what what are good investments right now? What industries look

0:07:48.080 --> 0:07:50.440
<v Speaker 1>good to like, go to technology banks sold off today?

0:07:50.520 --> 0:07:53.880
<v Speaker 1>Is their value there? What do you suggest? Well, financials

0:07:53.880 --> 0:07:55.840
<v Speaker 1>we can't get too excited about, just because we don't

0:07:55.880 --> 0:07:58.520
<v Speaker 1>think interest rates are going to be moving enough in

0:07:58.560 --> 0:08:01.480
<v Speaker 1>the economy is not going to be elerated accelerating enough

0:08:01.520 --> 0:08:04.440
<v Speaker 1>to get excited about financials. But we we are overweight

0:08:04.480 --> 0:08:08.360
<v Speaker 1>the consumer discretionary sector in there, things like household appliances,

0:08:08.480 --> 0:08:12.320
<v Speaker 1>general merchandise stores, Internet, retail. Those industry groups look good.

0:08:12.880 --> 0:08:18.160
<v Speaker 1>Industrials we like things like industrial conglomerates, conglomerates, construction engineering.

0:08:18.720 --> 0:08:23.720
<v Speaker 1>We were overweight technology, so that'd be semiconductor equipment, application, software,

0:08:24.320 --> 0:08:29.880
<v Speaker 1>consult against services. And we also recently added healthcare to

0:08:30.920 --> 0:08:35.680
<v Speaker 1>our overweight recommendations. And you know that's traditionally a defensive sector.

0:08:35.679 --> 0:08:38.560
<v Speaker 1>We've been leaning cyclical, but I think when you look

0:08:38.559 --> 0:08:42.360
<v Speaker 1>at evaluation relative valuation, healthcare has gotten hit here on

0:08:42.360 --> 0:08:47.440
<v Speaker 1>evaluation purpose, on evaluation basis, or something like Telecom, which

0:08:47.480 --> 0:08:51.200
<v Speaker 1>we went underweight on had been, you know, really outperforming.

0:08:51.280 --> 0:08:56.440
<v Speaker 1>So uh, we like healthcare, but it's purely evaluation play.

0:08:56.520 --> 0:08:58.840
<v Speaker 1>I continue to believe healthcare is going to be a

0:08:58.880 --> 0:09:01.880
<v Speaker 1>defensive sector. Earnings growth is not going to be anywhere

0:09:01.920 --> 0:09:05.160
<v Speaker 1>near what it was when we had to surge after

0:09:05.200 --> 0:09:09.360
<v Speaker 1>the initial A c Affordable Care Act came into play. UM.

0:09:09.400 --> 0:09:11.640
<v Speaker 1>But you know, those are the four sectors that we like.

0:09:11.800 --> 0:09:14.840
<v Speaker 1>Three of them are very cyclical, one of them is defensive,

0:09:14.920 --> 0:09:18.840
<v Speaker 1>and we certainly want to lean cyclical um through the

0:09:18.840 --> 0:09:21.960
<v Speaker 1>balance of this year. Hey, Scott, let's just suspend this

0:09:22.000 --> 0:09:24.320
<v Speaker 1>idea for just a second that the economy and the

0:09:24.360 --> 0:09:28.040
<v Speaker 1>stock market or linked, just for argument's sake. I've been

0:09:28.080 --> 0:09:32.120
<v Speaker 1>looking at some details having to uh deal with equity funds.

0:09:32.160 --> 0:09:37.760
<v Speaker 1>Global equity funds recording net outflows about nine billion dollars

0:09:37.880 --> 0:09:40.280
<v Speaker 1>cumulatively over the past seven weeks. We're talking about a

0:09:40.360 --> 0:09:43.880
<v Speaker 1>fifty nine billion dollar outflow. If you take the idea

0:09:43.920 --> 0:09:45.959
<v Speaker 1>that the reason stocks go up is someone else is

0:09:46.000 --> 0:09:48.600
<v Speaker 1>willing to pay more for the stock that you bought,

0:09:49.640 --> 0:09:51.920
<v Speaker 1>is there a possibility of people just I'm not interested

0:09:51.920 --> 0:09:55.040
<v Speaker 1>in putting them money into stocks. Stop. You know, PIM,

0:09:55.040 --> 0:09:57.320
<v Speaker 1>you and I have talked about this really probably for

0:09:57.360 --> 0:09:59.760
<v Speaker 1>the last couple of years at least. And you know,

0:10:00.200 --> 0:10:03.360
<v Speaker 1>retail clients have been sitting on their hands. The volatility

0:10:03.440 --> 0:10:05.679
<v Speaker 1>earlier this year didn't help. They didn't sell on the

0:10:05.720 --> 0:10:08.400
<v Speaker 1>way down, they didn't buy on the way back up. Um.

0:10:08.440 --> 0:10:11.960
<v Speaker 1>Our clients have too much cash, at least it's in

0:10:12.000 --> 0:10:16.920
<v Speaker 1>our opinion, they're underinvested in stocks. Uh, they're fearful of

0:10:17.000 --> 0:10:19.920
<v Speaker 1>the market. So UM, you know when I hear the

0:10:20.000 --> 0:10:24.360
<v Speaker 1>numbers on the outflows, UH, to me, you know, here

0:10:24.400 --> 0:10:26.200
<v Speaker 1>we are within a couple of percent of the all

0:10:26.240 --> 0:10:28.720
<v Speaker 1>time record high in the SMP five hundred. After all

0:10:28.760 --> 0:10:32.320
<v Speaker 1>that outflow, UM, to me, that's a contrarian indicator. And

0:10:32.400 --> 0:10:37.640
<v Speaker 1>when when retail investors are hesitant, when they're cautious, and

0:10:37.720 --> 0:10:41.560
<v Speaker 1>you see these outflows, UM, you know, to me, we're

0:10:41.559 --> 0:10:43.680
<v Speaker 1>not at the top in the market. And that's a

0:10:43.760 --> 0:10:46.880
<v Speaker 1>that's a good contrarian indicator. So it makes me actually

0:10:46.920 --> 0:10:53.320
<v Speaker 1>feel better that that target we have. Your end is

0:10:53.480 --> 0:10:56.600
<v Speaker 1>uh is good. Thank you very much. You're good to

0:10:56.600 --> 0:11:00.320
<v Speaker 1>have on always. Scott Ran, Senior Global equity strategist, Wells

0:11:00.320 --> 0:11:05.240
<v Speaker 1>Fargo Investment Institute, giving us his thoughts and details about

0:11:05.240 --> 0:11:08.080
<v Speaker 1>the stock market. It ain't over yet. We're coming up

0:11:08.080 --> 0:11:14.760
<v Speaker 1>to the clothes you're listening to Taking stock on bloomberg Rade,