1
00:00:00,080 --> 00:00:02,760
Speaker 1: Let's get to our guest. Ellen Hazen is with us.

2
00:00:02,759 --> 00:00:06,920
Speaker 1: She's the chief market strategist for f L Putnam Investment Management.

3
00:00:06,960 --> 00:00:10,200
Speaker 1: On the line from Massachusetts, Ellen, thanks for being with us.

4
00:00:10,520 --> 00:00:13,400
Speaker 1: A lot of conversation today is focused on not only

5
00:00:13,440 --> 00:00:16,759
Speaker 1: the FED stance on aggressive tightening, but the risk of

6
00:00:16,760 --> 00:00:20,120
Speaker 1: a policy mistake. Did they go too far and really

7
00:00:20,200 --> 00:00:22,680
Speaker 1: send us economy into the kind of recession that's going

8
00:00:22,720 --> 00:00:28,440
Speaker 1: to be very difficult to to recover from. I don't

9
00:00:28,480 --> 00:00:32,560
Speaker 1: think that they will. Inflation is red hot, and even

10
00:00:32,560 --> 00:00:34,640
Speaker 1: though it has come off the boil a little bit

11
00:00:34,720 --> 00:00:36,839
Speaker 1: from nine point one down to eight point five and

12
00:00:36,920 --> 00:00:40,240
Speaker 1: the most recent reading, it's still much higher than it's

13
00:00:40,280 --> 00:00:44,920
Speaker 1: been in recent years. And the shortage in the labor

14
00:00:45,000 --> 00:00:47,880
Speaker 1: market of enough workers, which you see by the lower

15
00:00:47,920 --> 00:00:53,120
Speaker 1: participation rate, is going to mean that UH goods and

16
00:00:53,120 --> 00:00:58,240
Speaker 1: services are going to remain in scarce supply, even after

17
00:00:59,200 --> 00:01:03,080
Speaker 1: energy comes down UM and even after supply change are unsnarled.

18
00:01:03,080 --> 00:01:05,720
Speaker 1: There are just not enough people. And when you combine

19
00:01:05,760 --> 00:01:08,840
Speaker 1: that with the geo political tensions, inflation is likely to

20
00:01:08,880 --> 00:01:12,880
Speaker 1: stay high, or at least not come immediately down to

21
00:01:12,920 --> 00:01:16,160
Speaker 1: the fed's two percent target. And so they have no choice. UM.

22
00:01:16,240 --> 00:01:19,119
Speaker 1: One thing I would like to highlight, though you've seen

23
00:01:19,200 --> 00:01:22,880
Speaker 1: as as you mentioned earlier, Chair Powell is very firm

24
00:01:22,959 --> 00:01:27,399
Speaker 1: and saying that we're we're going to keep rates highs

25
00:01:27,400 --> 00:01:30,400
Speaker 1: almost like drug ease. Whatever it takes, right, as long

26
00:01:30,440 --> 00:01:33,279
Speaker 1: as we need to. UM. But I really like Thomas

27
00:01:33,360 --> 00:01:37,759
Speaker 1: parkins uh speech from earlier in the month when he said, look,

28
00:01:38,200 --> 00:01:41,520
Speaker 1: will it cause a recession? Maybe nobody has canceled the

29
00:01:41,520 --> 00:01:44,120
Speaker 1: business cycle. And I think that really distills how the

30
00:01:44,120 --> 00:01:46,520
Speaker 1: FED is looking at this. They have got to tame inflation,

31
00:01:46,680 --> 00:01:49,760
Speaker 1: and it may cause a recession, but the costs of

32
00:01:49,800 --> 00:01:54,200
Speaker 1: not doing so are far greater. Yep. Just and you know,

33
00:01:54,240 --> 00:01:56,320
Speaker 1: we got the jobs report and of course we've got

34
00:01:56,360 --> 00:01:59,160
Speaker 1: CPI read coming up on the third teen. You know,

35
00:02:00,040 --> 00:02:02,800
Speaker 1: they're both important, inflation probably a little bit more so here.

36
00:02:03,120 --> 00:02:06,200
Speaker 1: But you know, what kind of signal would you get

37
00:02:06,600 --> 00:02:09,000
Speaker 1: for the for the FED actually just pulls for a bit,

38
00:02:09,040 --> 00:02:12,839
Speaker 1: because ultimately what they do doesn't feed through for quite

39
00:02:12,880 --> 00:02:19,160
Speaker 1: a while. Uh, it's hard to say. I think that

40
00:02:19,240 --> 00:02:23,079
Speaker 1: the FED is chastened by their myths last year, and

41
00:02:23,160 --> 00:02:25,440
Speaker 1: so they are going to air on the side of

42
00:02:25,520 --> 00:02:29,760
Speaker 1: hawkishness all else being equal, UM, I also heard one

43
00:02:29,800 --> 00:02:34,520
Speaker 1: of the FED officials recently say we are data dependent,

44
00:02:34,680 --> 00:02:38,320
Speaker 1: but not data point dependent. So I think that one

45
00:02:38,560 --> 00:02:41,920
Speaker 1: data point is not going to change their minds. I

46
00:02:41,960 --> 00:02:44,280
Speaker 1: think that they're going to look for the preponderance of

47
00:02:44,360 --> 00:02:48,960
Speaker 1: evidence to be shifting towards significantly lower inflation. So even

48
00:02:49,000 --> 00:02:51,120
Speaker 1: if we did get a weaker cp I print, I

49
00:02:51,160 --> 00:02:54,520
Speaker 1: think that one data point alone would not cause the

50
00:02:54,600 --> 00:02:57,920
Speaker 1: FED to go on hold. Having said that, I'm not

51
00:02:58,000 --> 00:02:59,960
Speaker 1: on the FED, I'm not in those meetings, but that's

52
00:03:00,040 --> 00:03:02,200
Speaker 1: by read of the situation. So when you look at

53
00:03:02,200 --> 00:03:05,600
Speaker 1: market functioning, obviously a pullback inequities plays into what the

54
00:03:05,600 --> 00:03:08,560
Speaker 1: FED would like to see right tighter financial conditions. That's

55
00:03:08,560 --> 00:03:11,520
Speaker 1: a symptom along with dollar strength. But I'm more concerned

56
00:03:11,560 --> 00:03:13,880
Speaker 1: to get your your view on the functioning in the

57
00:03:13,880 --> 00:03:16,480
Speaker 1: credit markets right now and the way that you can

58
00:03:16,560 --> 00:03:21,760
Speaker 1: read spreads and potential stresses that may be building very quickly,

59
00:03:21,840 --> 00:03:24,400
Speaker 1: let's say forty seconds or so. Are you seeing signs

60
00:03:24,480 --> 00:03:29,800
Speaker 1: of any stress in the credit market. We're seeing spreads

61
00:03:29,800 --> 00:03:32,080
Speaker 1: widen out a little bit, but I wouldn't say that

62
00:03:32,120 --> 00:03:34,960
Speaker 1: there are signs of stress in the main credit markets.

63
00:03:35,000 --> 00:03:39,120
Speaker 1: I would say that this back market, not that that's

64
00:03:39,120 --> 00:03:41,200
Speaker 1: a credit market per se, but the idea that it's

65
00:03:41,200 --> 00:03:44,960
Speaker 1: a bit more speculative UM and the private equity market

66
00:03:45,080 --> 00:03:48,520
Speaker 1: those are have activity has dried up there, so you

67
00:03:48,560 --> 00:03:51,520
Speaker 1: are seeing stresses in those pockets of the market, but

68
00:03:51,600 --> 00:03:55,320
Speaker 1: not in the core credit bond markets, not that we've seen.

69
00:03:56,040 --> 00:03:57,800
Speaker 1: Let's have a look at what you are at the

70
00:03:57,840 --> 00:04:01,440
Speaker 1: moment doing strategy wise, how how is that evolving given

71
00:04:01,480 --> 00:04:07,120
Speaker 1: the macro backdrop, given the strength of the US dollar

72
00:04:07,440 --> 00:04:10,200
Speaker 1: and the strength of the US economy, certainly compared to

73
00:04:10,240 --> 00:04:15,320
Speaker 1: some other economies, we have stayed focused on the US. UH.

74
00:04:15,360 --> 00:04:18,360
Speaker 1: We really don't see that changing between now and the

75
00:04:18,520 --> 00:04:22,000
Speaker 1: end of the year. It looks as though Europe is

76
00:04:22,520 --> 00:04:26,920
Speaker 1: going to face potentially a very very tough winter UM

77
00:04:27,040 --> 00:04:29,679
Speaker 1: and so so we're really focused on on the US.

78
00:04:30,000 --> 00:04:33,479
Speaker 1: We are taking a close look at Mexico because the

79
00:04:33,800 --> 00:04:39,719
Speaker 1: restoring could benefit companies that are geographically adjacent to the US,

80
00:04:39,920 --> 00:04:43,200
Speaker 1: like like Mexico. But even though the US is slowing,

81
00:04:43,200 --> 00:04:45,240
Speaker 1: we still think it's it's the best place to be

82
00:04:45,400 --> 00:04:47,920
Speaker 1: for for U S investors anyway. So do you want

83
00:04:47,960 --> 00:04:50,560
Speaker 1: to stay focused more in the small and MidCap space

84
00:04:50,560 --> 00:04:53,240
Speaker 1: and avoid a lot of these multinational firms that may

85
00:04:53,279 --> 00:04:56,720
Speaker 1: be exposed to the negative effect of that dollar strength

86
00:04:56,720 --> 00:05:00,960
Speaker 1: that you just described. That's exactly right, that's exactly right.

87
00:05:01,040 --> 00:05:03,880
Speaker 1: Smaller companies tend to be more domestically focused and so

88
00:05:04,000 --> 00:05:07,960
Speaker 1: they don't face that currency headwind that large multinationals face.

89
00:05:09,320 --> 00:05:11,039
Speaker 1: All right, well, then let's get to some of the

90
00:05:11,080 --> 00:05:14,000
Speaker 1: industry groups you like in some of those within those

91
00:05:14,040 --> 00:05:15,760
Speaker 1: are the ones that you don't like. So you know

92
00:05:15,800 --> 00:05:18,200
Speaker 1: the moment, what is your conviction in terms of what

93
00:05:18,240 --> 00:05:22,799
Speaker 1: you would be buying or rotating into. The key things

94
00:05:22,839 --> 00:05:25,440
Speaker 1: within the US that we're rotating out of at the

95
00:05:25,480 --> 00:05:29,200
Speaker 1: moment are primarily housing related, so companies like Sherwin Williams

96
00:05:29,320 --> 00:05:33,440
Speaker 1: or depot UH, companies that are consumer discretionary related. So

97
00:05:33,520 --> 00:05:37,000
Speaker 1: we've seen the pretty poor results from Target and a

98
00:05:37,080 --> 00:05:40,520
Speaker 1: number of the other big box retailers. And then companies

99
00:05:40,520 --> 00:05:42,880
Speaker 1: that have really thin margins who aren't able, who are

100
00:05:42,920 --> 00:05:47,799
Speaker 1: not able to pass along price increases, So hospitals other

101
00:05:48,000 --> 00:05:51,599
Speaker 1: other companies like that UM are what we're routing out of,

102
00:05:51,720 --> 00:05:56,120
Speaker 1: and what we're rotating into is UH no surprise, cheap

103
00:05:56,160 --> 00:05:59,720
Speaker 1: healthcare companies. A lot of the pharmaceutical companies are trading

104
00:06:00,240 --> 00:06:02,960
Speaker 1: high single digit or a low double digit multiples. They

105
00:06:03,000 --> 00:06:06,599
Speaker 1: look pretty pretty attractive with their solid balance sheets and

106
00:06:06,640 --> 00:06:09,920
Speaker 1: solid dividends. So Bristol Bristol Myerage is one that we're

107
00:06:10,360 --> 00:06:13,320
Speaker 1: that we're currently active in. And then of course on

108
00:06:13,360 --> 00:06:16,640
Speaker 1: the defense side, with the geopolitical tensions that we have

109
00:06:16,839 --> 00:06:21,320
Speaker 1: seen rising really since the beginning of this year, defense

110
00:06:21,320 --> 00:06:23,480
Speaker 1: companies have done well, but we think that they can

111
00:06:23,520 --> 00:06:26,960
Speaker 1: continue to do well as we go forward, so pivoting

112
00:06:27,000 --> 00:06:31,640
Speaker 1: away from those interest rate sensitive and consumer sensitive areas

113
00:06:31,680 --> 00:06:34,160
Speaker 1: and more toward areas that are going to be more defensive,

114
00:06:34,240 --> 00:06:37,880
Speaker 1: more durable. Within the large cap space again looking at

115
00:06:37,720 --> 00:06:41,080
Speaker 1: at healthcare and defense, and then on top of that,

116
00:06:41,160 --> 00:06:43,880
Speaker 1: as you suggested, we're also and we have been for

117
00:06:43,920 --> 00:06:47,640
Speaker 1: some months now, rotating toward more small and MidCap companies

118
00:06:47,680 --> 00:06:51,600
Speaker 1: because they don't face that FX headwind. What about the

119
00:06:51,880 --> 00:06:55,520
Speaker 1: technology space, We were talking earlier in the program about

120
00:06:55,680 --> 00:06:59,160
Speaker 1: the cross currents happening right now in the semiconductors. We

121
00:06:59,240 --> 00:07:01,520
Speaker 1: heard from broad Calm after the bell with a very

122
00:07:01,520 --> 00:07:04,480
Speaker 1: strong sales forecast for the current quarter. But boy, and

123
00:07:04,600 --> 00:07:06,520
Speaker 1: not a great day if you were long in video.

124
00:07:07,040 --> 00:07:09,880
Speaker 1: The company is being challenged right now with new rules

125
00:07:10,520 --> 00:07:15,720
Speaker 1: governing the export of artificial intelligence chips to China. Are

126
00:07:15,800 --> 00:07:21,680
Speaker 1: you interested in anything in technology, particularly the chips? UH?

127
00:07:21,720 --> 00:07:23,440
Speaker 1: I think you put it correctly. There are a lot

128
00:07:23,480 --> 00:07:26,640
Speaker 1: of cross currents around the chips. UM We we do

129
00:07:26,880 --> 00:07:30,640
Speaker 1: lean more positively towards the chips simply because they are

130
00:07:30,840 --> 00:07:36,240
Speaker 1: essential for our world, and a company like t SMC,

131
00:07:36,640 --> 00:07:40,520
Speaker 1: even though uh it is certainly subject to geopolitical tensions,

132
00:07:40,600 --> 00:07:44,280
Speaker 1: is pretty inexpensive. It's under fifteen times earnings, and earnings

133
00:07:44,280 --> 00:07:47,559
Speaker 1: are still growing pretty materially. They're still dominant market share.

134
00:07:48,040 --> 00:07:50,560
Speaker 1: UM we like end video a lot as a company,

135
00:07:50,640 --> 00:07:53,520
Speaker 1: but the valuation is forty times earnings, and so any

136
00:07:53,600 --> 00:07:56,040
Speaker 1: kind of a hiccup, you're going to see that stock

137
00:07:56,120 --> 00:07:59,360
Speaker 1: the volatile as you saw recently. So I think they're

138
00:07:59,520 --> 00:08:03,080
Speaker 1: really strong position too, But valuation matters, and I think

139
00:08:03,080 --> 00:08:06,520
Speaker 1: you need to be careful and pick your spots with Sammy's.

140
00:08:07,000 --> 00:08:11,320
Speaker 1: And there is of course the fear that Hacten addressed

141
00:08:11,360 --> 00:08:14,600
Speaker 1: on the call, But I'm still not sure everyone is

142
00:08:14,600 --> 00:08:17,560
Speaker 1: going to be convinced that customers are merely piling up

143
00:08:17,600 --> 00:08:20,720
Speaker 1: inventory and what looks to them like a very strong

144
00:08:20,840 --> 00:08:23,640
Speaker 1: end demand is actually going to end up coming back

145
00:08:23,680 --> 00:08:25,840
Speaker 1: to bite them. So we have to adapt that very

146
00:08:25,880 --> 00:08:28,840
Speaker 1: closely as we go forward. Ellen Hazen, the chief market

147
00:08:28,880 --> 00:08:32,199
Speaker 1: strategy is that fl Putnam Investment Management getting her take

148
00:08:32,600 --> 00:08:34,959
Speaker 1: on the markets. This is Bloomberg.