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Speaker 1: This is a Bloomberg Business Flash Strong Bloomberg World Handquarters.
Speaker 1: I'm Charlie Hellof. We have gone thirteen minutes to go
Speaker 1: ahead of the close on a Monday, first trading day
Speaker 1: of August. The down SMPO lower nez Dak is higher
Speaker 1: SMP five hundred index, retreating from a fresh intra day record.
Speaker 1: Those falling crewde prices spark a deepening sell off in
Speaker 1: energy shares. Right now, X on mobile is down three
Speaker 1: point six percent, Chevron down three point six percent as well.
Speaker 1: West Texas Intermediate crew to forty dollars of barrel down
Speaker 1: three point nine percent, Gold up to eighty, the ounce
Speaker 1: to thirteen fifty five, a gain of two tens of
Speaker 1: one percent. Tenure down sixteen thirty seconds that yield one
Speaker 1: point five percent. The SMP down three to seventy, a
Speaker 1: drop there of two tens of one percent. The down
Speaker 1: down thirty four, also at off of two tents of
Speaker 1: one percent. Na's stack of one game of four tenths
Speaker 1: of one other set. I'm Charlie Pelletts, and that's a
Speaker 1: Bloomberg Business flash. You're listening to taking stock with pin
Speaker 1: Box and Kathleen Hayes on Bloomberg Radio. Oil oil at
Speaker 1: forty bucks a barrel? Wasn't it well? About fifty heading
Speaker 1: for sixties? Supposedly dipping below that key forty level, big
Speaker 1: factor wing on the stock market today. We want to
Speaker 1: step back to and take a broader look. It is
Speaker 1: early August. We have a couple more FED meetings ahead
Speaker 1: of us. We have a job support on Friday. We
Speaker 1: have a big, big, big presidential election with so many
Speaker 1: issues at stake. How do you put it all together
Speaker 1: to come out with a forecast for this year? Heading
Speaker 1: into seen? Phil Orlando joins us now. He's chief equity
Speaker 1: market strategist, his group head of the macro balance and
Speaker 1: Growth Income teams for Federated Investors here in New York City.
Speaker 1: Welcome back, Phil's great to have you, Kathleen, always a
Speaker 1: pleasure to be your guest. Well, you know just where
Speaker 1: are we? You know, in a couple of months where
Speaker 1: it was all about oil that seemed to receive the
Speaker 1: Fed's been headlines back and forth. You know, in your heart,
Speaker 1: in your gut, where are we? It's all about everything.
Speaker 1: I mean, so you can throw the ramifications that breaks
Speaker 1: it into there as well, corporate earnings, the Fed interest rates,
Speaker 1: that there are probably half a dozen things that you've
Speaker 1: got to focus on simultaneously. And where we are, uh,
Speaker 1: and we've been dead wrong, is that we're scared to
Speaker 1: death right here. The market up here at you know,
Speaker 1: record highs is extended. We're trading at twenty two times
Speaker 1: trailing earnings, where at nineteen times this year's earnings. Uh.
Speaker 1: And you've got nothing but what we think our headwinds
Speaker 1: on the you know, horizon across the valley. And so
Speaker 1: we're sitting here with sort of a cautious neutralish position
Speaker 1: with a dividend centric portfolio to protect us while we're
Speaker 1: way for some clarity and the market just keep it
Speaker 1: going higher. And and you know, at our at our
Speaker 1: meeting today, we were talking about how this reminds us. Uh.
Speaker 1: My boss told the story of how his parents fired
Speaker 1: him as their advisor in the latter stages of the
Speaker 1: tech bubble in the ninety nine period, and he was
Speaker 1: mortified and his mother was like, well, son, I know
Speaker 1: you're trying your best, but but this just isn't working.
Speaker 1: We're going to invest in some of these internet stocks
Speaker 1: and that kind of thing, and obviously that didn't work
Speaker 1: out so good. But you know, this is sort of
Speaker 1: what it reminds us. Alight, if that reminds you of
Speaker 1: N nine and the bursting of the of the tech bubble,
Speaker 1: what does consumers spending now remind you of? Consumer spending
Speaker 1: is actually in decent shape. And and so that that
Speaker 1: disastrous GDP report we saw on Friday, the one glimmer
Speaker 1: that came out of that is that consumer spending was
Speaker 1: pretty good up four And then you say, okay, well,
Speaker 1: why was consumer spending pretty good? Retail sales the last
Speaker 1: three months have been have been fine. The first quarter
Speaker 1: was terrible. The second quarter was much better, and and
Speaker 1: that's good because we're now into the early stages of
Speaker 1: back to school season, which is critically important. And then
Speaker 1: historically there's like an eight to historical correlation between the
Speaker 1: successor failure back to school and the successor failure of holiday,
Speaker 1: and holiday and back to school are the two most
Speaker 1: important seasons of the year. So from the consumer standpoint,
Speaker 1: we're feeling pretty good about things now. Cap X and
Speaker 1: manufacturing is a is a very different story for for
Speaker 1: a number of reasons. We we thought we were getting
Speaker 1: to a bottom of the manufacturing cycle because the dollar
Speaker 1: was starting to weekend and oil prices are starting to strengthen.
Speaker 1: But now post breaks it. You know, over the last
Speaker 1: five or six weeks, the dollars strengthened five or six
Speaker 1: percent against the euro, oil prices are down, and now
Speaker 1: folks are starting to say, well, wait a second. You know, um,
Speaker 1: should we be rethinking what our earnings assumption is on
Speaker 1: for this year or maybe our earnings assumption because the
Speaker 1: two bedrock issues that we were using to support our
Speaker 1: thesis for a stronger seventeen or moving in the wrong direction. Uh.
Speaker 1: And so some of the data points we've seen factory orders,
Speaker 1: durable goods, cap good sales, that those numbers have gotten
Speaker 1: a little sloppy of late. So sloppy of late. Oil.
Speaker 1: I just don't you your quick take on oil too,
Speaker 1: because you know this is it's got so many it
Speaker 1: manages energy companies. It's also kind of a global macro signal,
Speaker 1: isn't it. We've had we've had a pretty good call
Speaker 1: in oil. So so we think twenty six dollars that
Speaker 1: we saw in the first quarters, the bottom and as
Speaker 1: we started to bounce off of that, what we saw
Speaker 1: were a series of one offs that took about three
Speaker 1: and a half million barrels a day off the market. Uh, Libya, Venezuela,
Speaker 1: the Canadian wildfires, you know, etcetera, etcetera. And and so
Speaker 1: it looked to us as if there was going to
Speaker 1: be sort of an unsustained, anible move up in oil.
Speaker 1: And and that move went up to about fifty two bucks.
Speaker 1: And our thought was, Okay, we've extended ourselves. This move
Speaker 1: is going to come back into the high thirties. We
Speaker 1: we you know, sort of thought something thirty thirty nine
Speaker 1: dollars is about right, and I guess we're danna about
Speaker 1: forty one is or so now. So we're moving in
Speaker 1: the right direction. Um, And that underpin part of our
Speaker 1: caution on what earnings look like for next year. The
Speaker 1: bulls are saying, oh, we're gonna do a hundred and
Speaker 1: thirty five dollars in SNP earnings next year. I don't
Speaker 1: think there's any chance we do a hundred and thirty
Speaker 1: five dollars in earnings if if oil is going in
Speaker 1: the wrong direction, the dollars going in the wrong direction.
Speaker 1: So something you know, in the bucket a quarter neighborhood
Speaker 1: seems a lot more reasonable. And even at that, we're
Speaker 1: trading now at about seventeen and a half times next
Speaker 1: year's earnings, which again seem a little rich to me
Speaker 1: given some of the issues on the horizon, not the
Speaker 1: least of which are the risks from Briggs at the
Speaker 1: FED and and UH and the election. Let me ask
Speaker 1: you about government spending, because you note that that has
Speaker 1: lipped and it accounts for about total GDP. So so
Speaker 1: there there were four elements of that report on on Friday,
Speaker 1: the GDP report that that we were horrible uh government spending.
Speaker 1: It wasn't horrible, but it was negative government. Uh spending
Speaker 1: on defense at the federal level was down. UH. State
Speaker 1: and local spending was down as well. So you know,
Speaker 1: you would think that the government would be trying to
Speaker 1: prop up the economy here, sort of prettying things up
Speaker 1: for the election. But you know, at least for one quarter,
Speaker 1: that didn't happen. Uh. You know, Capex was was was terrible,
Speaker 1: Housing was wasn't great. Um. You know, so there were
Speaker 1: there were a number of issues that that were were problematic.
Speaker 1: The only thing, as I said, that really stood out
Speaker 1: and looked great. Was the consumer the consumers in pretty
Speaker 1: good shape. But these other elements of the report, you know,
Speaker 1: don't point a particularly good picture. I mean, the GDP
Speaker 1: run rate coming out of the Great Recession is is
Speaker 1: two point trendline growth in the United States over the
Speaker 1: last half century or so is is about three point
Speaker 1: one percent. So we're running below trend line. And and
Speaker 1: the n b e R tells US National Bureau of
Speaker 1: Economic Research that that given the depth of the recession
Speaker 1: that we came out of, we probably ought to be
Speaker 1: somewhere between four and five percent right now. So GDP growth,
Speaker 1: you know, depending upon your point of view, is probably
Speaker 1: limping along at about half speed. And and that's not
Speaker 1: a great place to be. So if the Fed Reserve
Speaker 1: says there's actually still a chance of September hike, I mean,
Speaker 1: and I think if you pushed that person, and I
Speaker 1: think it was Rob Kaplan who said that, he'd say, well,
Speaker 1: of course, that's that's if the data pickup. That's if
Speaker 1: we have two months of strong jobs absent that though, um,
Speaker 1: no move in September, maybe no move in December. Film well,
Speaker 1: our call has been December. But but this is an
Speaker 1: interesting situation because when you've got a guy like John
Speaker 1: Hills and Wrath at the Journal writing articles at the
Speaker 1: FEDS thinking about September, you've got to believe that they're
Speaker 1: legitimately thinking king about September. So why might September beyond
Speaker 1: the table for the Fed? The labor market has picked up,
Speaker 1: Both is ms have picked up. Retail sales, as we
Speaker 1: talked about a moment ago, have been much stronger over
Speaker 1: the last quarter or so. So the even inflation, not
Speaker 1: not the core PC, but the p p I and
Speaker 1: the c p I have picked up over the last
Speaker 1: couple of months as well. So the key metrics that
Speaker 1: the FEDS looking at have been pretty good. But there's
Speaker 1: another aspect to this, separate and apart from the GDP
Speaker 1: miss that we saw on Friday, and that is the
Speaker 1: proximity to the election. We've done the work on this
Speaker 1: UH and we've gone back over the last half century
Speaker 1: or so and have determined that the FED, in between
Speaker 1: Labor Day and the election in presidential election years, would
Speaker 1: prefer not to be involved in changing monetary policy. If
Speaker 1: they can avoid it. They'll preload changes before Labor Day.
Speaker 1: They'll they'll give us a bunch of changes after the election,
Speaker 1: but they'd like to keep that two month period in
Speaker 1: between clean unless they absolutely have to act. And right now, uh,
Speaker 1: you know, our senses that the Fed doesn't have to act.
Speaker 1: So unless something you know, happens to the data significantly
Speaker 1: one way or the other, our best guess is the
Speaker 1: Fed is probably on hold into the December f O
Speaker 1: MC meeting. Got any thoughts on investing in gold? You know,
Speaker 1: the price of gold is up more than so far
Speaker 1: this year. Yeah, and and you know, uh, we looked
Speaker 1: at this, uh, in the environment, the post Brexit world,
Speaker 1: that the concern about the FED, the concern about you know,
Speaker 1: who's going to win the election, and what kind of
Speaker 1: fiscal policies are we looking at in that environment, that
Speaker 1: there were three havens that made sense to us. Uh,
Speaker 1: long treasuries, long dollar, and and long gold. And gold
Speaker 1: is doing well and it probably ought to have a
Speaker 1: place in your portfolio as a as a hedge of safety. Here,
Speaker 1: thanks very much. Phil Orlando is the chief equity strategist
Speaker 1: at Federated Investors, giving us his outlook for the stock
Speaker 1: market and what to do with your money. We're going
Speaker 1: to take you through to the clothes. Next, I'm pim
Speaker 1: Fox My co host Kathleen Hayes, This is Bloomberg. H