WEBVTT - Bob Doll: July Hike Not Off Table If Conditions Are Met (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash Strom Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie Plott. Stocks are higher, thirteen minutes to go

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<v Speaker 1>ahead of the close. Stocks are advancing, with sentiments susceptible

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<v Speaker 1>to swings before Britain's vote Thursday on its European Union membership.

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<v Speaker 1>Energy producers and technology companies leading the SMP five hundred

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<v Speaker 1>index toward back to back gains. Right now, we've got

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<v Speaker 1>the SMP up seven and two thousand ninety, a gain

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<v Speaker 1>of four tenths of one percent. Nes stack up eleven,

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<v Speaker 1>a gain of two tens of one percent, towing US

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<v Speaker 1>creoles up forty three points, a gain of two tens

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<v Speaker 1>of one percent. The tenure down four thirty seconds that

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<v Speaker 1>held one point seven oh percent, Gold down twenty ninety

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<v Speaker 1>ounce to twelve sixty eight, a drop of one point

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<v Speaker 1>nine percent, and crude is down one percent. West Texas

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<v Speaker 1>Intermediate Town fifty two cents of barrel forty eight eighty five.

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<v Speaker 1>Right now, I'm Charlie Pellett, and that's a Bloomberg Business Flash.

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<v Speaker 1>Charlie Pellett, thanks you so very much. Time now for

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<v Speaker 1>It could become the biggest e t F smart beta craze.

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<v Speaker 1>So far, every year we see some kind of a

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<v Speaker 1>low volatility. Bloomberg Intelligence analyst Eric Beltuna says thirteen billion

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<v Speaker 1>dollars is float into e t s designed to minimize volatility.

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<v Speaker 1>He adds that's double wet currency hedgtfs attracted in their

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<v Speaker 1>first six months. Beltuna takes a closer look at the

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<v Speaker 1>biggest the I shares edge m SCI Minimum Volatility USA

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<v Speaker 1>E t F taker U S m V US m

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<v Speaker 1>V typically has volatility about less than the S and P.

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<v Speaker 1>So people do like the lower downside and that's what's

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<v Speaker 1>attracted investors the low vultility over the past like four

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<v Speaker 1>or five years. But this year This mad rush is

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<v Speaker 1>a classic case of performance chasing. U s m V

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<v Speaker 1>has gained seven point seven per cent since the start

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<v Speaker 1>of the year, while the S and P five thundered

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<v Speaker 1>is up two Valtoona says money has also been flowing

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<v Speaker 1>into low volatility e t s that focus on foreign

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<v Speaker 1>countries and on small and MidCap companies. That's your Bloomberg

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<v Speaker 1>ETF report. I'm Catherine Calderie. You're listening to taking Stock

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<v Speaker 1>with pim Box and kapoleen As on Bloomberg Radio. If

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<v Speaker 1>we are able to avoid Brexit, and if the June

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<v Speaker 1>jobs report comes in strong, is it possible that we

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<v Speaker 1>could see a rate hike next month? So says our

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<v Speaker 1>next guest, Bob Doll. He is chief equity strategist for

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<v Speaker 1>Nouvene Asset Management and he joins US now from Chicago. Bob,

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<v Speaker 1>thank you very much for being with us. UM explain

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<v Speaker 1>your reasoning here that if we avoid a Brexit vote

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<v Speaker 1>on the twenty three, and if the jobs report is strong,

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<v Speaker 1>or at least strong enough, we could see a rate

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<v Speaker 1>height in July. Certainly, pim we heard from Jenny Yellen

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<v Speaker 1>this morning and she's indicated, Look, they want to raise rates,

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<v Speaker 1>but the conditions have to be right. Brexit is one

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<v Speaker 1>of them. If Brexit, Brexit happens, I think there's no

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<v Speaker 1>way they'll go in July. If Brexit doesn't, that's feel

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<v Speaker 1>the first check mark. And then we have to reverse

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<v Speaker 1>the horrible employment report we saw at the beginning of

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<v Speaker 1>this month for the month of May, and then that

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<v Speaker 1>gives us the opportunity to consider raising right. So if

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<v Speaker 1>they don't go in July, I think they'll go in September.

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<v Speaker 1>But July is not off the table, if and only

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<v Speaker 1>if those two things happen. Okay, blah blah. Botchers are saying,

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<v Speaker 1>you take a lot to get enough evidence by the

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<v Speaker 1>next meeting that, in fact, the economy really has turned

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<v Speaker 1>around or shrug it off. Johnyelleny, she she agreed in

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<v Speaker 1>a way with you because she said, look, this could

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<v Speaker 1>be temporary. Don't forget you got might be a one

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<v Speaker 1>month wonder. At the same time, though, uh, the the

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<v Speaker 1>four rate high view the Fed at the beginning of

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<v Speaker 1>the year has turned into two, maybe only one. The

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<v Speaker 1>Feds seems to be saying now Janet Yellen, that the

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<v Speaker 1>world doesn't look the way they thought it would at

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<v Speaker 1>the end of the year. It's this weaker economy and

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<v Speaker 1>it may not be bad for equities, but it doesn't

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<v Speaker 1>seem to be uh the kind of thing that's going

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<v Speaker 1>to push the Fed quickly to the next hike. I agree, Kathleyne. Look,

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<v Speaker 1>I I don't think July is a done deal. If

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<v Speaker 1>those two things happen, it just puts it back on

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<v Speaker 1>the table. The Fed and and and and Janet Yellen

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<v Speaker 1>said this. They do want to quote normalize rates, which

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<v Speaker 1>means they want to bring them up, but they're they

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<v Speaker 1>have said it's depending on lots of things, and all

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<v Speaker 1>those cautionary comments and not hear all those. And I

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<v Speaker 1>agree it's going to be slower than we originally expected

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<v Speaker 1>because growth, especially globally, is a bit slower, and the

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<v Speaker 1>whiff of deflation that shows up from time to time

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<v Speaker 1>leading to a very low or negative interest rates in

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<v Speaker 1>other parts of the world are among the reasons why

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<v Speaker 1>the FIT is taking the good old time. Well, Bob

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<v Speaker 1>in that good old time investors or at least people

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<v Speaker 1>that are looking to invest their money need to make

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<v Speaker 1>some decisions what should they do with it? Well, my

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<v Speaker 1>view is we are going to get some better earnings,

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<v Speaker 1>not great, but good enough in the second half of

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<v Speaker 1>the year, we lap the horrible headwinds from lower oil

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<v Speaker 1>and the rising dollar, and the horrible earnings recession that

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<v Speaker 1>we've been through. Minus five percent in the first quarter,

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<v Speaker 1>probably minus percent or two in the quarter that will

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<v Speaker 1>be reported soon. I either second quarter, paving the way

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<v Speaker 1>for some possible up earnings in the second half. Up

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<v Speaker 1>earnings are a necessary ingredient in my view to have

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<v Speaker 1>a shot at a somewhat better market. And I'm not

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<v Speaker 1>looking for big returns. I just think stocks in the

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<v Speaker 1>US will have mediocre but in a low inflation world,

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<v Speaker 1>that's fine given the environment. Well, this is uh, this

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<v Speaker 1>is I think that what's kind of underlying or behind

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<v Speaker 1>the feds slow down this year. This there really is

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<v Speaker 1>a pretty dramatic shift in their view that I think

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<v Speaker 1>they're realizing that it just it is mediocre growth. And

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<v Speaker 1>if earnings aren't rising, that's not a great sign either.

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<v Speaker 1>But let's be a little more specific, because if I

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<v Speaker 1>do want to put money in stocks, and I'd rather

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<v Speaker 1>have mediocre returns than almost nothing on you know, the

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<v Speaker 1>safest bonds, where do I start looking, Bob, where should

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<v Speaker 1>we putting money? Healthcare, energy, tech, what let me mention

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<v Speaker 1>some some factors that matter, some themes. I think you

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<v Speaker 1>still want to own companies to get a lot of

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<v Speaker 1>their business here in the US, beware of the multinationals.

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<v Speaker 1>Growth here is slow, but it's slower elsewhere. Number two,

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<v Speaker 1>I think you want to focus on companies that are

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<v Speaker 1>able to increase their throughput more unit growth. And number three,

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<v Speaker 1>free cash flow and a slow growth world. Free cash

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<v Speaker 1>flow is king companies that are able to generate that

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<v Speaker 1>can to have more degrees of free them. You find

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<v Speaker 1>these three characteristics and lots of different places. Tech has

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<v Speaker 1>more of them than most um, but you find some

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<v Speaker 1>in healthcare, occasional, consumer discretionary name um and like uh.

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<v Speaker 1>You know, at some point, if the economy continues to

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<v Speaker 1>get a little better and the FED starts normalizing rates again,

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<v Speaker 1>this insatiable search for yield leading to these big outperformance

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<v Speaker 1>of utilities at all will slow down. We're not there yet,

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<v Speaker 1>but I think that will come. I wonder if you

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<v Speaker 1>could tell us what indicators you're looking at, perhaps even

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<v Speaker 1>on a specific level. I know we're going to be

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<v Speaker 1>getting FedEx results after the market closed today. That's an

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<v Speaker 1>issue about volume versus profits or indeed can they turn

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<v Speaker 1>increased volume into increased profits. And I look at the

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<v Speaker 1>transport average. We're talking about a year today change of

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<v Speaker 1>just up under two Pretty pathetic, isn't it. I'm looking

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<v Speaker 1>at the p M I is the purchasing manager in

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<v Speaker 1>the ease and the I s M the institute of

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<v Speaker 1>supply management. These are indicators for parts of the economy

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<v Speaker 1>that tend to be a bit more cyclical, the parts

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<v Speaker 1>of the economy that have been depressed. The consumers doing okay,

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<v Speaker 1>spending some money. It's manufacturing and foreign trade that has

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<v Speaker 1>been troublesome along with capital spending. And we just need

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<v Speaker 1>a little better news out of those areas. And uh,

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<v Speaker 1>you know, it's just a hope. It's not a given

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<v Speaker 1>at this point. Not a hope and not a given. Uh.

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<v Speaker 1>When you look at overseas markets SPOB, is there any

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<v Speaker 1>place do you have to get into more risky emerging markets?

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<v Speaker 1>Is there any place where I can get better than

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<v Speaker 1>mediocre single digit returns? Well, it depends on your time

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<v Speaker 1>rise in Kathleen, if you've got a longer time rise,

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<v Speaker 1>if anybody has it anymore. I'm of the view that

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<v Speaker 1>the emerging markets are in a bottoming process. I wouldn't

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<v Speaker 1>chase them. They're they're up nicely year to data, as

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<v Speaker 1>you know. But I've not given up on the fact

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<v Speaker 1>that in the emerging markets, you've got hype a lot

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<v Speaker 1>of population people moving from the lower class of the

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<v Speaker 1>consumption class, and that's where some of the world growth

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<v Speaker 1>is going to come over the next five to ten years. Bob,

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<v Speaker 1>I always like to find out what is the most

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<v Speaker 1>unloved investment that you hear about. You know, the free

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<v Speaker 1>cash flow story is still not believed. You know, last

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<v Speaker 1>year was the perfect example. Give me a than stock,

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<v Speaker 1>but don't give me a cheap cyclic gold that has

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<v Speaker 1>good free cash flow. And while those stocks had a

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<v Speaker 1>bit of a run that is free cash flow kind

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<v Speaker 1>of from February to April as the market moved up,

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<v Speaker 1>I still think they're unloved by most people. Unloved. Uh,

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<v Speaker 1>give us one of I know you can't maybe talk

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<v Speaker 1>about individual companies, but your favorite place right now and

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<v Speaker 1>something where maybe I could outperform this very modest outlook

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<v Speaker 1>for equity returns this year. Yeah. Also, I'll give names

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<v Speaker 1>that fit most of the bills that we talked about before.

0:09:56.480 --> 0:10:01.400
<v Speaker 1>McKesson is a reasonably can servative stock in health care

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<v Speaker 1>if you want to be more speculative, and a name

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<v Speaker 1>that's been down is Gilead. Uh. In technology, um, you know,

0:10:08.760 --> 0:10:12.000
<v Speaker 1>Big Bad Apple and Cisco to me are a couple

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<v Speaker 1>of names that fit the bill. Airlines have had a

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<v Speaker 1>hard time. They don't look good technically, but if the

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<v Speaker 1>prasums of the revenue per seat mile begin to improve,

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<v Speaker 1>which I think they will over the next quarter, or

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<v Speaker 1>to Delta or or Southwest or our names I've put

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<v Speaker 1>on the list as well. And uh gosh, anything in

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<v Speaker 1>fixed income an yeah, So within fixed income, believing that

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<v Speaker 1>rates are going to creep higher led by the Fed,

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<v Speaker 1>I think that's an eventual head wind. And maybe we

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<v Speaker 1>saw the low in the one fifties for the ten

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<v Speaker 1>year treasury in terms of yield, so I'd be careful

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<v Speaker 1>about duration. But we still think um munis where tax

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<v Speaker 1>conditions permit are interesting, and we still prefer credit to sovereigns.

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<v Speaker 1>Bob Doll. We always prefer having you on our show.

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<v Speaker 1>Thank you, Chief Equities to Aratagies for Nuvine asset management.

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<v Speaker 1>I'm Kathleen Hayes Long with pim Box. The market closes

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<v Speaker 1>upon US movers and Shakers coming up on taking stock

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<v Speaker 1>on Bloomberg Radio h