WEBVTT - Brinker's Wilson: Consumer Discretionary Spending Increasing

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

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<v Speaker 1>this is a Bloomberg Business flag from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellot. Stocks are retreating from records as a

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<v Speaker 1>tumble in the price of crude sinks energy shares West

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<v Speaker 1>Texas Intermediate Crude down two point six percent following a

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<v Speaker 1>dollar fourteen of arrel forty three oh five Right now

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<v Speaker 1>on w t I. The tenure down to thirty seconds,

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<v Speaker 1>yield one point five seven percent. Gold down seven ninety

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<v Speaker 1>the ounce to thirteen fifteen, a drop there of six

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<v Speaker 1>tenths of one percent. SMP five hundred index down seven

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<v Speaker 1>to sixty seven to drop there of four tenths of

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<v Speaker 1>one percent down. Industrials down eighty five to eighteen thousand,

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<v Speaker 1>four hundred eighty five, a drop of five tenths of

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<v Speaker 1>one percent. I'm Charlie Palot, and that's a Bloomberg Business flash.

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<v Speaker 1>You're listening to Taking Stop with Kathleen Hayes and Pim

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<v Speaker 1>Fox on Bloomberg Radio. Blow interest rates stocks well, they

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<v Speaker 1>are up about six percent year to day, measured by

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<v Speaker 1>the SMP five hundred just last week stock crisis closing

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<v Speaker 1>at a high for the second week in a row.

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<v Speaker 1>We have lots of uncertainty always in the stock market

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<v Speaker 1>and for your investments. Tom Wilson is the senior investment

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<v Speaker 1>manager and managing director of Wealth Advisory at Brinker Capital,

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<v Speaker 1>helping to manage eighteen billion dollars of customer assets. He

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<v Speaker 1>joins us from Philadelphia. Tom, great to have you with us,

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<v Speaker 1>And I don't know are you gonna be attending the

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<v Speaker 1>uh the Democratic National Convention at all? Hey Ben, thanks

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<v Speaker 1>for having me and at the moment that's not my plans.

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<v Speaker 1>Probably certainly the watching on the television. All right. Well,

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<v Speaker 1>the reason I brought up the convention, and of course

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<v Speaker 1>it begins tonight in is in Philadelphia, is what effect

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<v Speaker 1>do you believe that the election cycle is having on

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<v Speaker 1>investment strategy? Sure? Well, when you go back and look

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<v Speaker 1>at years where there's an open election which means the

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<v Speaker 1>current president could no longer run, you find that in

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<v Speaker 1>this year the stock market returns tend to go sideways

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<v Speaker 1>as opposed to years where the current incumbinent can run

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<v Speaker 1>for president. And we think the reason behind that is

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<v Speaker 1>simply the market doesn't like uncertainty, so when you have

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<v Speaker 1>an open election, it increases the uncertainty as far as

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<v Speaker 1>which party is going to take power, and because of that,

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<v Speaker 1>the market it's more of an unknown and acts as

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<v Speaker 1>a bit of a bit of a headwind. Well as

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<v Speaker 1>someone who manages money for institutional and high net worth clients.

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<v Speaker 1>Over the years, have you observed any correlation, any real

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<v Speaker 1>direct connecting the knots between you know, who's in the

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<v Speaker 1>White House and whether or not it really influences the

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<v Speaker 1>economy and therefore the stock market that much. You know,

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<v Speaker 1>Bill Clinton said it's the economy stupid years ago. Uh.

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<v Speaker 1>You know, Donald Trump is advertising himself as a businessman

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<v Speaker 1>who can get things done, as somebody who has to

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<v Speaker 1>manage money. What do you look for in a candidate? Yeah,

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<v Speaker 1>thank you, Kathleen Well On the first part of your question,

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<v Speaker 1>as far as what does the market tend to like,

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<v Speaker 1>Oddly enough, the market tends alike when there is a

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<v Speaker 1>different party in charge of the White House compared to

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<v Speaker 1>the party that's in charge of Congress. So set another way,

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<v Speaker 1>the market tends to like gridlock. Surprisingly enough, Uh, we

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<v Speaker 1>believe the thought process there is that when there's gridlock,

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<v Speaker 1>it will be more of a uh status quo. And

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<v Speaker 1>therefore businesses know what the rules will will be and

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<v Speaker 1>as a result, businesses can plan accordingly, make capital outlays,

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<v Speaker 1>and be able to spend the funds that they have,

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<v Speaker 1>and it helps to take away a bit of that uncertainty,

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<v Speaker 1>as opposed to when one party is in charge of

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<v Speaker 1>both the executive branch and a few charge of the

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<v Speaker 1>White House as well as charge of Congress, then you

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<v Speaker 1>just don't know all the rules that may change. That

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<v Speaker 1>creates more of more of an uncertainty there, Tom Wilson,

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<v Speaker 1>what is the single or maybe there are others, but

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<v Speaker 1>just give us one mistake or one fail that you

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<v Speaker 1>had in the last twelve months. You're one call that

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<v Speaker 1>did not work out well? If there was one thing too,

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<v Speaker 1>and there's obviously in the investment business, it's a it's

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<v Speaker 1>a humbling business. So from time to time you're you're

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<v Speaker 1>gonna uh you know, make uh mistakes as you as

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<v Speaker 1>you put it. But probably the one item is we

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<v Speaker 1>we underestimated how low interest rates would would go. Um

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<v Speaker 1>why we felt that interest rates the fear of rates

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<v Speaker 1>moving up rapidly was not a risk. I think many

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<v Speaker 1>investors did not anticipate rates continue to go down from

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<v Speaker 1>the levels that they were just twelve months ago. So

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<v Speaker 1>what does that mean for you now when you've seen

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<v Speaker 1>just how they could pick up and rally again, pushing

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<v Speaker 1>those yields UH two lows and even in some case

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<v Speaker 1>record lows again when you look outside the United States,

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<v Speaker 1>I mean, it just seems I know there's a way

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<v Speaker 1>to invest in fixed income. I know it helps balance

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<v Speaker 1>the portfolio, but in some in some sense you say, man,

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<v Speaker 1>oh man, why would you even look at bonds? Now? Sure, well,

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<v Speaker 1>part of that is because of the balancing of the portfolio.

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<v Speaker 1>I mean, we we do take a multi asset class

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<v Speaker 1>approach here at Brinker and where we think that fixed

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<v Speaker 1>income is an important element of one's portfolio and it

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<v Speaker 1>does help the hedge against uncertainty. So even if you

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<v Speaker 1>get the interest rate direction call wrong, when there's a

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<v Speaker 1>geopolitical event that takes place in the market, it's sort

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<v Speaker 1>of shocks things such as Brexit back at the end

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<v Speaker 1>of June. Having a piece of your portfolio allocated to conservative,

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<v Speaker 1>high quality fixed income UH will tend to do well

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<v Speaker 1>in those periods of uncertainty. Now we also think, though,

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<v Speaker 1>is that because interest rates are so low um it

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<v Speaker 1>does create a kind of a negative headwind for the

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<v Speaker 1>fixed income asset class. So we also like the idea

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<v Speaker 1>of allocating towards absolute return vehicles, and absolute return vehicles

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<v Speaker 1>tend to try to get a a steady way to

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<v Speaker 1>return regardless of the overall economic environment, so they tend

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<v Speaker 1>to be a lot less interest rate sensitive. What's your

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<v Speaker 1>call on energy companies, Well, what we've see energy has

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<v Speaker 1>been very very interesting, uh in the today, particularly of

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<v Speaker 1>a day where oil is down and the market's gone

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<v Speaker 1>down along with it as well. What we saw in

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<v Speaker 1>the in the first quarter is that the direction of

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<v Speaker 1>oil and the stock market was highly correlated. So oil

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<v Speaker 1>continued to go down and down during the first quarter,

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<v Speaker 1>you saw the markets go down along with it as well.

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<v Speaker 1>In the second quarter, as oil prices began to rise,

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<v Speaker 1>you saw the market move up as well. And as

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<v Speaker 1>the quarter progressed, you actually began to see that the

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<v Speaker 1>price of oil and the price of the markets became

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<v Speaker 1>independent once again of one another. So when oil is

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<v Speaker 1>really really low, it tends to be a negative harbagure

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<v Speaker 1>of weak global growth. As oil begins to rise and

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<v Speaker 1>get out of that real low low territory. When I

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<v Speaker 1>say that I meant dollars a barrel. UM oil can

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<v Speaker 1>trade independently of the of the market. As we think

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<v Speaker 1>about energy companies, we're getting to that anniversary of really

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<v Speaker 1>low oil rates, and as we look at the year

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<v Speaker 1>year comparable oil prices are higher. The market is definitely

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<v Speaker 1>anticipating better things from an earnings perspective coming out of

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<v Speaker 1>the energy sector, which in turn should help the whole

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<v Speaker 1>UH SMP five hundred as far as earnings growth as

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<v Speaker 1>we move into the third and the fourth quarter of

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<v Speaker 1>this year. And what do you make of the story

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<v Speaker 1>today by Bloomberg's own Mark Shank, beware oil bowls. Just

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<v Speaker 1>as US oil production seems low enough to drain supplies,

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<v Speaker 1>demand is about to fall off a cliff consumption gasing

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<v Speaker 1>consumption that is usually ebbs in August and September. And

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<v Speaker 1>he said that a lot of people worried that the

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<v Speaker 1>price is gonna start falling again. Yeah. Well, and certainly

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<v Speaker 1>if oil demand falls off the cliff, yes, we're gonna

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<v Speaker 1>have a certain problem with the price of oil, and

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<v Speaker 1>it will, it will then it will definitely go down.

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<v Speaker 1>UM oil in general, though, of course, is a UH

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<v Speaker 1>you know, a global UH industry, so we need to

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<v Speaker 1>really look at the global demand as well. And UH

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<v Speaker 1>not that long ago the International Energy Agency Administration excuse me,

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<v Speaker 1>actually increase their UH forward looking assumptions for global demand

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<v Speaker 1>up from about eight hundred million barrels UH for the

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<v Speaker 1>year too close to one point three point point four billion.

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<v Speaker 1>So what we're seeing globally is on on balance, a

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<v Speaker 1>little bit an increase in demand for oil. At the

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<v Speaker 1>same time, globally, we've seen rig comes rig counts come

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<v Speaker 1>down as well, so we think that we're moving a

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<v Speaker 1>little bit closer to a point of equilibrium. We're not

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<v Speaker 1>there yet, but we wouldn't be over the surprise in

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<v Speaker 1>the next six or twelve months if oil is able

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<v Speaker 1>to settle it more to equilibrium type of price. Do

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<v Speaker 1>you foresee any increase in consumer spending? Do you think

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<v Speaker 1>that consumer discretionary stocks will do well? Damn? Consumer discretionary

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<v Speaker 1>spending should be increasing as we continue to progress throughout

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<v Speaker 1>the year. And there's a couple of data points that

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<v Speaker 1>we would point to that would back this up. Um

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<v Speaker 1>One is that you do have wages on the rise,

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<v Speaker 1>and it's been shown that as wages will go up,

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<v Speaker 1>consumer spending pence to go up as well. Uh. Two

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<v Speaker 1>is at home prices have not only been uh strong,

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<v Speaker 1>but they've been increasing in price. Uh. Most recently you

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<v Speaker 1>had the case Schiller twenty city home price index up

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<v Speaker 1>five pot year of a year. So with interest rates

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<v Speaker 1>being as low as they are right now, we would

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<v Speaker 1>expect home prices continue to rise. The reason why that's important,

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<v Speaker 1>The reason why that's significant is for the average consumer,

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<v Speaker 1>their largest I said, isn't their stock portfolil, but rather

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<v Speaker 1>it's their house. So as the home price goes up,

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<v Speaker 1>they feel more confident and that tends to lead to uh,

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<v Speaker 1>the more spending. Of course, we have that SMPK Suler

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<v Speaker 1>Home Press Index out tomorrow. TOMA. One more question. The

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<v Speaker 1>Federal Reserved two day meeting probably don't do anything on rates,

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<v Speaker 1>but they send us a signal on the economy. How

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<v Speaker 1>does that influence your outlook right now? Yeah, what you'll

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<v Speaker 1>probably see is them singling that the economy looks good,

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<v Speaker 1>but they're still concerned about international markets and US. They'll

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<v Speaker 1>they'll stand pat and an old likelihood, uh, though they

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<v Speaker 1>might raise the specter of a potential rate increase, if

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<v Speaker 1>not September, but potentially more of a December event. So

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<v Speaker 1>if we saw something other than what I just described,

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<v Speaker 1>that might make us make a change in our capital

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<v Speaker 1>market forecast. But for now, uh why just articulated is

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<v Speaker 1>what we're respecting from the Federal Reserve. Tom Brinker, thank

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<v Speaker 1>you so very much for joining us. The senior investment

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<v Speaker 1>manager and managing director of Wealth Advisory at Brinker Capital

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<v Speaker 1>with eighteen billion dollars of assets under management in Philadelphia.

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<v Speaker 1>And yes, he is watching the convention closely trying to

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<v Speaker 1>figure out what it means for investors. This is Bloomberg