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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot Com, the radio, plus Globo Act and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters

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Speaker 1: on Katherine Cowdery. The stock market is extending at sixth

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Speaker 1: weekly advance and two months pushing the SMP five hundered

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Speaker 1: forward to fresh record. The U S equities are seeing

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Speaker 1: a resurgence and popularity among a few notable constituencies. Bank

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Speaker 1: of America says asset managers are favoring stocks over U

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Speaker 1: S treasuries, while active equity funds are the most bullish

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Speaker 1: since two thousand and eight, and that marks a shift

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Speaker 1: in tone from the start of the year. We talk

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Speaker 1: to markets every fifteen minutes throughout the trading day. Dow

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Speaker 1: Industrial Average currently up seventy one points four tents of

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Speaker 1: a percent at eighteen thousand, six hundred forty seven, SMP

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Speaker 1: five hundred up seven points a third of a percent.

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Speaker 1: Trading at the NAZDAC is up thirty one point six

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Speaker 1: tents of a percent at fifty two sixty three. West

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Speaker 1: Texas Intermedia crude oil up a dollar thirty nine a

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Speaker 1: barrel three point one percent to forty five eight eight

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Speaker 1: spot gold up a dollar eighty announced at thirty five

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Speaker 1: ten year treasury down twelve thirty seconds with the yield

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Speaker 1: of one point five five And that's a Bloomberg business flash.

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Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim

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Speaker 1: Fox on Bloomberg Radio. A slow but steady rise in

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Speaker 1: the major market indexes, and our next guest says that

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Speaker 1: it could even continue. Earnings growth will improve even if

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Speaker 1: it remains week. We're going to see increases in multiples

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Speaker 1: over the next uh several years. He also sees some

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Speaker 1: companies generating loads of cash and returning it to shareholders,

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Speaker 1: and that is a plus in his mind. John gollob

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Speaker 1: is back. Jonathan gollub is chief US market strategist at

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Speaker 1: RBC Capital Markets. So, Jonathan, Uh, earlier today when we

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Speaker 1: started the show, I said to our stocks that Dave

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Speaker 1: Wilson the markets on fire, and I said, well, he said,

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Speaker 1: not really. I mean it's slowly moving up. Maybe looks

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Speaker 1: like a slow burn, but it seems to me after

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Speaker 1: some of the ups and downs this year, this is

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Speaker 1: nice and hot for investors. Yeah. I mean, what's what's

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Speaker 1: really nice about this is that it's moving up in

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Speaker 1: little bits and pieces rather than being super volatile. I mean,

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Speaker 1: you have market volatility at extremely low levels, which is

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Speaker 1: a much smoother ride for investors. Jonathan tell us about

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Speaker 1: the idea of capital spending. I mean, it used to

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Speaker 1: be the companies that did a lot of capital spending,

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Speaker 1: they were the ones that you thought, yeah, they're going

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Speaker 1: to do great stuff with that money. It's going to

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Speaker 1: really end up returning to shareholders. You're saying that may

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Speaker 1: not be the case these days. No, and I think

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Speaker 1: that that this is ultimately the challenge that investors are facing,

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Speaker 1: which is we don't have a robust economy and and

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Speaker 1: so what businesses they're doing in this environment is hoarding cash,

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Speaker 1: not spending it on future growth. And they're taking that

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Speaker 1: money and they're returning it to shareholders. But because we're

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Speaker 1: in such a low interest rate environment, uh, shareholders are

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Speaker 1: viewing that as a very positive thing right now. And

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Speaker 1: the total yield if you add dividends and five backs

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Speaker 1: together on stocks is somewhere between four and a half

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Speaker 1: and five percent, which is just wonderful compared to bonds

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Speaker 1: as an alternative. The problem with this is, Jonathan, it's

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Speaker 1: sort of like you know, you're you're eating the seed

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Speaker 1: instead of planting it. So even though this may be good,

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Speaker 1: if you say, buy the companies that are more services oriented, uh,

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Speaker 1: they can hire some more workers. They don't have to

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Speaker 1: invest in new equipment to the same degree that a

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Speaker 1: manufacturing and construction company might have to do. How long

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Speaker 1: can you remain like that and still have uh, a

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Speaker 1: profitable business climate where companies are actually you know, having

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Speaker 1: the setting the basis for longer term growth or does

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Speaker 1: that no longer matter? And well, well, first of all,

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Speaker 1: it probably matters a little bit less if you're more

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Speaker 1: of a service oriented you know economy. If you were

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Speaker 1: if you're running you know, big industry, you need to

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Speaker 1: constantly invest in your infrastructure or you die. If you're

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Speaker 1: running a software company, you don't necessarily have the same

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Speaker 1: need for capital. So as the economy shifts over time,

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Speaker 1: there is probably less of a need for capital. But

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Speaker 1: you're harder percent right. We have an underlying growth problem,

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Speaker 1: and what businesses are doing is trying to adapt their

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Speaker 1: business models as best they can for this environment. I'll

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Speaker 1: give you one good example. The semiconductor um industry in

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Speaker 1: the United States used to manufacture semiconductors here and that

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Speaker 1: was very capital intensive and it created huge swings in

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Speaker 1: their profitability. Much of that manufacturing has been moved offshore

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Speaker 1: by others and therefore they're really more design and distribution

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Speaker 1: and the like, and as a result, they smoothed out

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Speaker 1: their pattern of returns by changing their business model or

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Speaker 1: you know, to benefit in a slower economic environment. But

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Speaker 1: if you're absolutely right, you know, there's a part of

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Speaker 1: this which is not healthy. But businesses are doing a

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Speaker 1: great job of adapting. And that's really the key story here, Jonathan.

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Speaker 1: The idea that people are hunting for yield, is it

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Speaker 1: going to lead them to false messiahs? You know, I,

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Speaker 1: you know, I don't think so, Pam. And we were

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Speaker 1: we were just doing some analysis, um with some of

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Speaker 1: my college here at RBC on this, and what we

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Speaker 1: found is that when you're in a very low yield environment,

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Speaker 1: let's say right now, we're like a one and a

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Speaker 1: half yield on a tenure government bond, even if interest

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Speaker 1: rates were to edge up towards let's say two percent,

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Speaker 1: you're still likely to see um, those businesses with higher

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Speaker 1: dividends and those that are returning lots of capital out

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Speaker 1: performing so so we probably have a ways to go

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Speaker 1: even if interest rates rise for for this um you know,

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Speaker 1: you know, first for yield that we're currently experiencing in

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Speaker 1: the marketplace. So uh, you say, the economy as you're mentioned,

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Speaker 1: uninspiring but stable and non recessionary, and so uh, this

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Speaker 1: favors growth over value, higher dividend paying stocks, lower ball

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Speaker 1: companies abundant in staples, healthcare, business services and defense contractors.

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Speaker 1: Don't give us a name or two that you like

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Speaker 1: a lot, you know, I'm I'm not you know, I'm

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Speaker 1: not an individual stock picker. But if you look for

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Speaker 1: example in business services, I'll just use this perhaps as

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Speaker 1: as an example rather the stock recommendation. But companies that

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Speaker 1: would haul waste you know, like a waste management or

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Speaker 1: or or like those are businesses that whether the economy

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Speaker 1: is better or worse, they still have to show up

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Speaker 1: every day and and and always. Uh. You know, companies

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Speaker 1: like Sintas who makes you know, uniform you know makes

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Speaker 1: or or claimed uniforms and things like that. Those kind

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Speaker 1: of business services as opposed to you know, industrial companies

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Speaker 1: that are more manufacturing base have a very different type

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Speaker 1: of a or much less sensitivity to the economic whims

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Speaker 1: and they tend to hold up um, you know, they

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Speaker 1: tend to hold up much much better in a weaker environment.

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Speaker 1: I think there will the question that we're going to

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Speaker 1: start to debate more and more as we look forward

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Speaker 1: into and after the election. There's there's a lot of

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Speaker 1: discussion about government stimulus, fiscal stimulus on all kinds of projects,

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Speaker 1: and if we see that type of activity, you could

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Speaker 1: see this market leadership shift away from these more stable

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Speaker 1: growers towards companies that are more economically sensitive. And I

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Speaker 1: think that we're not there yet, but that's if if

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Speaker 1: you're for those who are looking for the next thing

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Speaker 1: and what would change the market leadership. That's the thing

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Speaker 1: that I'm really sensitive to as I look forward again,

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Speaker 1: I think we're a little early on the trade, but

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Speaker 1: there's more chatter in that direction. Jonathan goll have interested

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Speaker 1: in buying commodity stocks or energy stocks. If if I

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Speaker 1: saw and I'm not sure this is good or bad policy,

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Speaker 1: but if I saw that that that that we're looking

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Speaker 1: at more fiscal stimulus after the election, government expenditure on

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Speaker 1: you know, roads and bridges and uh, you know, things

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Speaker 1: of that nature, you are going to see the commodity

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Speaker 1: sensitive groups, infrastructure sensitive groups take off, and that very

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Speaker 1: well could happen after the election, something like home builders, Yes,

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Speaker 1: why are home builders up today? In a nutshell? And

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Speaker 1: is this an area you would be interested? You've got,

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Speaker 1: in fact, you've got told brothers up more than you know.

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Speaker 1: I I'm not sure that that a you know, I'm

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Speaker 1: not sure I have a good answer on why a

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Speaker 1: group like that moved today. Um, but we are seeing

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Speaker 1: that the consumer is much healthier than the press is

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Speaker 1: making it out to be. We have a four point

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Speaker 1: nine percent unemployment rate, the cost of financing a home

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Speaker 1: is at all time or near all time lows. We're

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Speaker 1: seeing wages incrementally picking up, the work week is picking up.

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Speaker 1: So it's not surprising that that that you have, you know,

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Speaker 1: a positive did on the home builders. But I'll tell

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Speaker 1: you and we put a note down in this today

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Speaker 1: consumer discretionary broadly, the fundamentals look very attractive, and the

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Speaker 1: consumer is probably healthier than uh than again than the

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Speaker 1: press would make it out to be. I guess I

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Speaker 1: can't get your interested in anything having to do with

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Speaker 1: gold or gold miners. Probably probably not, But you know

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Speaker 1: I am in general I don't like investing in in

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Speaker 1: gold as a commodity just because it doesn't earn your money.

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Speaker 1: It doesn't. It's aunt basically, yeah, exactly, and so so

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Speaker 1: in order to like gold you have to you're really

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Speaker 1: making a bet that you're the central banks are going

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Speaker 1: to be creating more inflation, and if they do, gold

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Speaker 1: will go up. But otherwise I think that there's always

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Speaker 1: better things to Okay, you think the Fed will move

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Speaker 1: on race the key rate, probably in December, but you say,

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Speaker 1: unlike the consensus, we think this will be positively received

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Speaker 1: by the stock market. Y John Gollobs, Well, the big

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Speaker 1: issue here is that it's the Fed moved. It's because

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Speaker 1: the marketplace is telling the Fed that we're ready for it. Um,

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Speaker 1: the Fed is going to move because the economy is

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Speaker 1: healthy enough to take it without their being a hiccup.

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Speaker 1: So right now, as I mentioned before, we have unemployment

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Speaker 1: under five you know, that's very good. We have inflation

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Speaker 1: which is taking depending on whether you know how you

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Speaker 1: measure it, towards two percent. That's right, more or less.

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Speaker 1: At the feds um long term view, market volatility is

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Speaker 1: relatively lower, actually extremely low, and the global concerns right

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Speaker 1: now are substantially lower than they've been, than you know,

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Speaker 1: than where they've been over the last couple of years.

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Speaker 1: So the Fed really needs to have a reason to

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Speaker 1: not move because conditions really are feeling pretty good. Thank

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Speaker 1: you very much. Jonathan golob is Chief US market Strategist

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Speaker 1: for RBC Capital Markets, giving us his view of what

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Speaker 1: to do with your money. We're going to take you

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Speaker 1: through to the clothes next. On taking stock, I'm pim Fox.

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Speaker 1: My co host Kathleen Hayes. This is Bloomberg. Yeah,