WEBVTT - Federated's Orlando: Market Feels Similar to Tech Bubble(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>dot com, the radio, plus mobile, lapt and on your radio.

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

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<v Speaker 1>I'm Charlie Hellof. We have gone thirteen minutes to go

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<v Speaker 1>ahead of the close on a Monday, first trading day

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<v Speaker 1>of August. The down SMPO lower nez Dak is higher

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<v Speaker 1>SMP five hundred index, retreating from a fresh intra day record.

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<v Speaker 1>Those falling crewde prices spark a deepening sell off in

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<v Speaker 1>energy shares. Right now, X on mobile is down three

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<v Speaker 1>point six percent, Chevron down three point six percent as well.

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<v Speaker 1>West Texas Intermediate crew to forty dollars of barrel down

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<v Speaker 1>three point nine percent, Gold up to eighty, the ounce

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<v Speaker 1>to thirteen fifty five, a gain of two tens of

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<v Speaker 1>one percent. Tenure down sixteen thirty seconds that yield one

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<v Speaker 1>point five percent. The SMP down three to seventy, a

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<v Speaker 1>drop there of two tens of one percent. The down

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<v Speaker 1>down thirty four, also at off of two tents of

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<v Speaker 1>one percent. Na's stack of one game of four tenths

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<v Speaker 1>of one other set. I'm Charlie Pelletts, and that's a

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<v Speaker 1>Bloomberg Business flash. You're listening to taking stock with pin

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<v Speaker 1>Box and Kathleen Hayes on Bloomberg Radio. Oil oil at

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<v Speaker 1>forty bucks a barrel? Wasn't it well? About fifty heading

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<v Speaker 1>for sixties? Supposedly dipping below that key forty level, big

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<v Speaker 1>factor wing on the stock market today. We want to

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<v Speaker 1>step back to and take a broader look. It is

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<v Speaker 1>early August. We have a couple more FED meetings ahead

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<v Speaker 1>of us. We have a job support on Friday. We

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<v Speaker 1>have a big, big, big presidential election with so many

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<v Speaker 1>issues at stake. How do you put it all together

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<v Speaker 1>to come out with a forecast for this year? Heading

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<v Speaker 1>into seen? Phil Orlando joins us now. He's chief equity

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<v Speaker 1>market strategist, his group head of the macro balance and

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<v Speaker 1>Growth Income teams for Federated Investors here in New York City.

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<v Speaker 1>Welcome back, Phil's great to have you, Kathleen, always a

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<v Speaker 1>pleasure to be your guest. Well, you know just where

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<v Speaker 1>are we? You know, in a couple of months where

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<v Speaker 1>it was all about oil that seemed to receive the

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<v Speaker 1>Fed's been headlines back and forth. You know, in your heart,

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<v Speaker 1>in your gut, where are we? It's all about everything.

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<v Speaker 1>I mean, so you can throw the ramifications that breaks

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<v Speaker 1>it into there as well, corporate earnings, the Fed interest rates,

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<v Speaker 1>that there are probably half a dozen things that you've

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<v Speaker 1>got to focus on simultaneously. And where we are, uh,

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<v Speaker 1>and we've been dead wrong, is that we're scared to

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<v Speaker 1>death right here. The market up here at you know,

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<v Speaker 1>record highs is extended. We're trading at twenty two times

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<v Speaker 1>trailing earnings, where at nineteen times this year's earnings. Uh.

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<v Speaker 1>And you've got nothing but what we think our headwinds

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<v Speaker 1>on the you know, horizon across the valley. And so

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<v Speaker 1>we're sitting here with sort of a cautious neutralish position

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<v Speaker 1>with a dividend centric portfolio to protect us while we're

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<v Speaker 1>way for some clarity and the market just keep it

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<v Speaker 1>going higher. And and you know, at our at our

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<v Speaker 1>meeting today, we were talking about how this reminds us. Uh.

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<v Speaker 1>My boss told the story of how his parents fired

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<v Speaker 1>him as their advisor in the latter stages of the

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<v Speaker 1>tech bubble in the ninety nine period, and he was

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<v Speaker 1>mortified and his mother was like, well, son, I know

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<v Speaker 1>you're trying your best, but but this just isn't working.

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<v Speaker 1>We're going to invest in some of these internet stocks

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<v Speaker 1>and that kind of thing, and obviously that didn't work

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<v Speaker 1>out so good. But you know, this is sort of

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<v Speaker 1>what it reminds us. Alight, if that reminds you of

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<v Speaker 1>N nine and the bursting of the of the tech bubble,

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<v Speaker 1>what does consumers spending now remind you of? Consumer spending

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<v Speaker 1>is actually in decent shape. And and so that that

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<v Speaker 1>disastrous GDP report we saw on Friday, the one glimmer

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<v Speaker 1>that came out of that is that consumer spending was

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<v Speaker 1>pretty good up four And then you say, okay, well,

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<v Speaker 1>why was consumer spending pretty good? Retail sales the last

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<v Speaker 1>three months have been have been fine. The first quarter

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<v Speaker 1>was terrible. The second quarter was much better, and and

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<v Speaker 1>that's good because we're now into the early stages of

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<v Speaker 1>back to school season, which is critically important. And then

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<v Speaker 1>historically there's like an eight to historical correlation between the

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<v Speaker 1>successor failure back to school and the successor failure of holiday,

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<v Speaker 1>and holiday and back to school are the two most

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<v Speaker 1>important seasons of the year. So from the consumer standpoint,

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<v Speaker 1>we're feeling pretty good about things now. Cap X and

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<v Speaker 1>manufacturing is a is a very different story for for

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<v Speaker 1>a number of reasons. We we thought we were getting

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<v Speaker 1>to a bottom of the manufacturing cycle because the dollar

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<v Speaker 1>was starting to weekend and oil prices are starting to strengthen.

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<v Speaker 1>But now post breaks it. You know, over the last

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<v Speaker 1>five or six weeks, the dollars strengthened five or six

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<v Speaker 1>percent against the euro, oil prices are down, and now

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<v Speaker 1>folks are starting to say, well, wait a second. You know, um,

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<v Speaker 1>should we be rethinking what our earnings assumption is on

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<v Speaker 1>for this year or maybe our earnings assumption because the

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<v Speaker 1>two bedrock issues that we were using to support our

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<v Speaker 1>thesis for a stronger seventeen or moving in the wrong direction. Uh.

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<v Speaker 1>And so some of the data points we've seen factory orders,

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<v Speaker 1>durable goods, cap good sales, that those numbers have gotten

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<v Speaker 1>a little sloppy of late. So sloppy of late. Oil.

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<v Speaker 1>I just don't you your quick take on oil too,

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<v Speaker 1>because you know this is it's got so many it

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<v Speaker 1>manages energy companies. It's also kind of a global macro signal,

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<v Speaker 1>isn't it. We've had we've had a pretty good call

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<v Speaker 1>in oil. So so we think twenty six dollars that

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<v Speaker 1>we saw in the first quarters, the bottom and as

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<v Speaker 1>we started to bounce off of that, what we saw

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<v Speaker 1>were a series of one offs that took about three

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<v Speaker 1>and a half million barrels a day off the market. Uh, Libya, Venezuela,

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<v Speaker 1>the Canadian wildfires, you know, etcetera, etcetera. And and so

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<v Speaker 1>it looked to us as if there was going to

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<v Speaker 1>be sort of an unsustained, anible move up in oil.

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<v Speaker 1>And and that move went up to about fifty two bucks.

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<v Speaker 1>And our thought was, Okay, we've extended ourselves. This move

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<v Speaker 1>is going to come back into the high thirties. We

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<v Speaker 1>we you know, sort of thought something thirty thirty nine

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<v Speaker 1>dollars is about right, and I guess we're danna about

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<v Speaker 1>forty one is or so now. So we're moving in

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<v Speaker 1>the right direction. Um, And that underpin part of our

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<v Speaker 1>caution on what earnings look like for next year. The

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<v Speaker 1>bulls are saying, oh, we're gonna do a hundred and

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<v Speaker 1>thirty five dollars in SNP earnings next year. I don't

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<v Speaker 1>think there's any chance we do a hundred and thirty

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<v Speaker 1>five dollars in earnings if if oil is going in

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<v Speaker 1>the wrong direction, the dollars going in the wrong direction.

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<v Speaker 1>So something you know, in the bucket a quarter neighborhood

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<v Speaker 1>seems a lot more reasonable. And even at that, we're

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<v Speaker 1>trading now at about seventeen and a half times next

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<v Speaker 1>year's earnings, which again seem a little rich to me

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<v Speaker 1>given some of the issues on the horizon, not the

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<v Speaker 1>least of which are the risks from Briggs at the

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<v Speaker 1>FED and and UH and the election. Let me ask

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<v Speaker 1>you about government spending, because you note that that has

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<v Speaker 1>lipped and it accounts for about total GDP. So so

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<v Speaker 1>there there were four elements of that report on on Friday,

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<v Speaker 1>the GDP report that that we were horrible uh government spending.

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<v Speaker 1>It wasn't horrible, but it was negative government. Uh spending

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<v Speaker 1>on defense at the federal level was down. UH. State

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<v Speaker 1>and local spending was down as well. So you know,

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<v Speaker 1>you would think that the government would be trying to

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<v Speaker 1>prop up the economy here, sort of prettying things up

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<v Speaker 1>for the election. But you know, at least for one quarter,

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<v Speaker 1>that didn't happen. Uh. You know, Capex was was was terrible,

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<v Speaker 1>Housing was wasn't great. Um. You know, so there were

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<v Speaker 1>there were a number of issues that that were were problematic.

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<v Speaker 1>The only thing, as I said, that really stood out

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<v Speaker 1>and looked great. Was the consumer the consumers in pretty

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<v Speaker 1>good shape. But these other elements of the report, you know,

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<v Speaker 1>don't point a particularly good picture. I mean, the GDP

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<v Speaker 1>run rate coming out of the Great Recession is is

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<v Speaker 1>two point trendline growth in the United States over the

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<v Speaker 1>last half century or so is is about three point

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<v Speaker 1>one percent. So we're running below trend line. And and

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<v Speaker 1>the n b e R tells US National Bureau of

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<v Speaker 1>Economic Research that that given the depth of the recession

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<v Speaker 1>that we came out of, we probably ought to be

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<v Speaker 1>somewhere between four and five percent right now. So GDP growth,

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<v Speaker 1>you know, depending upon your point of view, is probably

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<v Speaker 1>limping along at about half speed. And and that's not

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<v Speaker 1>a great place to be. So if the Fed Reserve

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<v Speaker 1>says there's actually still a chance of September hike, I mean,

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<v Speaker 1>and I think if you pushed that person, and I

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<v Speaker 1>think it was Rob Kaplan who said that, he'd say, well,

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<v Speaker 1>of course, that's that's if the data pickup. That's if

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<v Speaker 1>we have two months of strong jobs absent that though, um,

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<v Speaker 1>no move in September, maybe no move in December. Film well,

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<v Speaker 1>our call has been December. But but this is an

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<v Speaker 1>interesting situation because when you've got a guy like John

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<v Speaker 1>Hills and Wrath at the Journal writing articles at the

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<v Speaker 1>FEDS thinking about September, you've got to believe that they're

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<v Speaker 1>legitimately thinking king about September. So why might September beyond

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<v Speaker 1>the table for the Fed? The labor market has picked up,

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<v Speaker 1>Both is ms have picked up. Retail sales, as we

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<v Speaker 1>talked about a moment ago, have been much stronger over

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<v Speaker 1>the last quarter or so. So the even inflation, not

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<v Speaker 1>not the core PC, but the p p I and

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<v Speaker 1>the c p I have picked up over the last

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<v Speaker 1>couple of months as well. So the key metrics that

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<v Speaker 1>the FEDS looking at have been pretty good. But there's

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<v Speaker 1>another aspect to this, separate and apart from the GDP

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<v Speaker 1>miss that we saw on Friday, and that is the

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<v Speaker 1>proximity to the election. We've done the work on this

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<v Speaker 1>UH and we've gone back over the last half century

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<v Speaker 1>or so and have determined that the FED, in between

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<v Speaker 1>Labor Day and the election in presidential election years, would

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<v Speaker 1>prefer not to be involved in changing monetary policy. If

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<v Speaker 1>they can avoid it. They'll preload changes before Labor Day.

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<v Speaker 1>They'll they'll give us a bunch of changes after the election,

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<v Speaker 1>but they'd like to keep that two month period in

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<v Speaker 1>between clean unless they absolutely have to act. And right now, uh,

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<v Speaker 1>you know, our senses that the Fed doesn't have to act.

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<v Speaker 1>So unless something you know, happens to the data significantly

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<v Speaker 1>one way or the other, our best guess is the

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<v Speaker 1>Fed is probably on hold into the December f O

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<v Speaker 1>MC meeting. Got any thoughts on investing in gold? You know,

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<v Speaker 1>the price of gold is up more than so far

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<v Speaker 1>this year. Yeah, and and you know, uh, we looked

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<v Speaker 1>at this, uh, in the environment, the post Brexit world,

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<v Speaker 1>that the concern about the FED, the concern about you know,

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<v Speaker 1>who's going to win the election, and what kind of

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<v Speaker 1>fiscal policies are we looking at in that environment, that

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<v Speaker 1>there were three havens that made sense to us. Uh,

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<v Speaker 1>long treasuries, long dollar, and and long gold. And gold

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<v Speaker 1>is doing well and it probably ought to have a

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<v Speaker 1>place in your portfolio as a as a hedge of safety. Here,

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<v Speaker 1>thanks very much. Phil Orlando is the chief equity strategist

0:10:58.960 --> 0:11:03.360
<v Speaker 1>at Federated Investors, giving us his outlook for the stock

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<v Speaker 1>market and what to do with your money. We're going

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<v Speaker 1>to take you through to the clothes. Next, I'm pim

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<v Speaker 1>Fox My co host Kathleen Hayes, This is Bloomberg. H