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Brinker's Wilson: Consumer Discretionary Spending Increasing · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day. If Bloomberg
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  Speaker 1: this is a Bloomberg Business flag from Bloomberg World Headquarters.
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  Speaker 1: I'm Charlie Pellot. Stocks are retreating from records as a
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  Speaker 1: tumble in the price of crude sinks energy shares West
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  Speaker 1: Texas Intermediate Crude down two point six percent following a
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  Speaker 1: dollar fourteen of arrel forty three oh five Right now
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  Speaker 1: on w t I. The tenure down to thirty seconds,
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  Speaker 1: yield one point five seven percent. Gold down seven ninety
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  Speaker 1: the ounce to thirteen fifteen, a drop there of six
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  Speaker 1: tenths of one percent. SMP five hundred index down seven
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  Speaker 1: to sixty seven to drop there of four tenths of
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  Speaker 1: one percent down. Industrials down eighty five to eighteen thousand,
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  Speaker 1: four hundred eighty five, a drop of five tenths of
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  Speaker 1: one percent. I'm Charlie Palot, and that's a Bloomberg Business flash.
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  Speaker 1: You're listening to Taking Stop with Kathleen Hayes and Pim
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  Speaker 1: Fox on Bloomberg Radio. Blow interest rates stocks well, they
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  Speaker 1: are up about six percent year to day, measured by
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  Speaker 1: the SMP five hundred just last week stock crisis closing
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  Speaker 1: at a high for the second week in a row.
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  Speaker 1: We have lots of uncertainty always in the stock market
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  Speaker 1: and for your investments. Tom Wilson is the senior investment
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  Speaker 1: manager and managing director of Wealth Advisory at Brinker Capital,
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  Speaker 1: helping to manage eighteen billion dollars of customer assets. He
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  Speaker 1: joins us from Philadelphia. Tom, great to have you with us,
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  Speaker 1: And I don't know are you gonna be attending the
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  Speaker 1: uh the Democratic National Convention at all? Hey Ben, thanks
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  Speaker 1: for having me and at the moment that's not my plans.
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  Speaker 1: Probably certainly the watching on the television. All right. Well,
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  Speaker 1: the reason I brought up the convention, and of course
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  Speaker 1: it begins tonight in is in Philadelphia, is what effect
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  Speaker 1: do you believe that the election cycle is having on
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  Speaker 1: investment strategy? Sure? Well, when you go back and look
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  Speaker 1: at years where there's an open election which means the
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  Speaker 1: current president could no longer run, you find that in
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  Speaker 1: this year the stock market returns tend to go sideways
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  Speaker 1: as opposed to years where the current incumbinent can run
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  Speaker 1: for president. And we think the reason behind that is
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  Speaker 1: simply the market doesn't like uncertainty, so when you have
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  Speaker 1: an open election, it increases the uncertainty as far as
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  Speaker 1: which party is going to take power, and because of that,
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  Speaker 1: the market it's more of an unknown and acts as
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  Speaker 1: a bit of a bit of a headwind. Well as
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  Speaker 1: someone who manages money for institutional and high net worth clients.
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  Speaker 1: Over the years, have you observed any correlation, any real
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  Speaker 1: direct connecting the knots between you know, who's in the
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  Speaker 1: White House and whether or not it really influences the
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  Speaker 1: economy and therefore the stock market that much. You know,
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  Speaker 1: Bill Clinton said it's the economy stupid years ago. Uh.
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  Speaker 1: You know, Donald Trump is advertising himself as a businessman
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  Speaker 1: who can get things done, as somebody who has to
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  Speaker 1: manage money. What do you look for in a candidate? Yeah,
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  Speaker 1: thank you, Kathleen Well On the first part of your question,
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  Speaker 1: as far as what does the market tend to like,
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  Speaker 1: Oddly enough, the market tends alike when there is a
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  Speaker 1: different party in charge of the White House compared to
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  Speaker 1: the party that's in charge of Congress. So set another way,
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  Speaker 1: the market tends to like gridlock. Surprisingly enough, Uh, we
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  Speaker 1: believe the thought process there is that when there's gridlock,
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  Speaker 1: it will be more of a uh status quo. And
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  Speaker 1: therefore businesses know what the rules will will be and
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  Speaker 1: as a result, businesses can plan accordingly, make capital outlays,
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  Speaker 1: and be able to spend the funds that they have,
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  Speaker 1: and it helps to take away a bit of that uncertainty,
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  Speaker 1: as opposed to when one party is in charge of
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  Speaker 1: both the executive branch and a few charge of the
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  Speaker 1: White House as well as charge of Congress, then you
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  Speaker 1: just don't know all the rules that may change. That
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  Speaker 1: creates more of more of an uncertainty there, Tom Wilson,
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  Speaker 1: what is the single or maybe there are others, but
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  Speaker 1: just give us one mistake or one fail that you
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  Speaker 1: had in the last twelve months. You're one call that
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  Speaker 1: did not work out well? If there was one thing too,
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  Speaker 1: and there's obviously in the investment business, it's a it's
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  Speaker 1: a humbling business. So from time to time you're you're
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  Speaker 1: gonna uh you know, make uh mistakes as you as
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  Speaker 1: you put it. But probably the one item is we
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  Speaker 1: we underestimated how low interest rates would would go. Um
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  Speaker 1: why we felt that interest rates the fear of rates
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  Speaker 1: moving up rapidly was not a risk. I think many
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  Speaker 1: investors did not anticipate rates continue to go down from
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  Speaker 1: the levels that they were just twelve months ago. So
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  Speaker 1: what does that mean for you now when you've seen
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  Speaker 1: just how they could pick up and rally again, pushing
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  Speaker 1: those yields UH two lows and even in some case
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  Speaker 1: record lows again when you look outside the United States,
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  Speaker 1: I mean, it just seems I know there's a way
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  Speaker 1: to invest in fixed income. I know it helps balance
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  Speaker 1: the portfolio, but in some in some sense you say, man,
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  Speaker 1: oh man, why would you even look at bonds? Now? Sure, well,
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  Speaker 1: part of that is because of the balancing of the portfolio.
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  Speaker 1: I mean, we we do take a multi asset class
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  Speaker 1: approach here at Brinker and where we think that fixed
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  Speaker 1: income is an important element of one's portfolio and it
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  Speaker 1: does help the hedge against uncertainty. So even if you
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  Speaker 1: get the interest rate direction call wrong, when there's a
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  Speaker 1: geopolitical event that takes place in the market, it's sort
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  Speaker 1: of shocks things such as Brexit back at the end
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  Speaker 1: of June. Having a piece of your portfolio allocated to conservative,
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  Speaker 1: high quality fixed income UH will tend to do well
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  Speaker 1: in those periods of uncertainty. Now we also think, though,
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  Speaker 1: is that because interest rates are so low um it
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  Speaker 1: does create a kind of a negative headwind for the
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  Speaker 1: fixed income asset class. So we also like the idea
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  Speaker 1: of allocating towards absolute return vehicles, and absolute return vehicles
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  Speaker 1: tend to try to get a a steady way to
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  Speaker 1: return regardless of the overall economic environment, so they tend
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  Speaker 1: to be a lot less interest rate sensitive. What's your
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  Speaker 1: call on energy companies, Well, what we've see energy has
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  Speaker 1: been very very interesting, uh in the today, particularly of
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  Speaker 1: a day where oil is down and the market's gone
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  Speaker 1: down along with it as well. What we saw in
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  Speaker 1: the in the first quarter is that the direction of
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  Speaker 1: oil and the stock market was highly correlated. So oil
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  Speaker 1: continued to go down and down during the first quarter,
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  Speaker 1: you saw the markets go down along with it as well.
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  Speaker 1: In the second quarter, as oil prices began to rise,
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  Speaker 1: you saw the market move up as well. And as
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  Speaker 1: the quarter progressed, you actually began to see that the
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  Speaker 1: price of oil and the price of the markets became
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  Speaker 1: independent once again of one another. So when oil is
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  Speaker 1: really really low, it tends to be a negative harbagure
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  Speaker 1: of weak global growth. As oil begins to rise and
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  Speaker 1: get out of that real low low territory. When I
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  Speaker 1: say that I meant dollars a barrel. UM oil can
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  Speaker 1: trade independently of the of the market. As we think
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  Speaker 1: about energy companies, we're getting to that anniversary of really
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  Speaker 1: low oil rates, and as we look at the year
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  Speaker 1: year comparable oil prices are higher. The market is definitely
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  Speaker 1: anticipating better things from an earnings perspective coming out of
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  Speaker 1: the energy sector, which in turn should help the whole
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  Speaker 1: UH SMP five hundred as far as earnings growth as
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  Speaker 1: we move into the third and the fourth quarter of
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  Speaker 1: this year. And what do you make of the story
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  Speaker 1: today by Bloomberg's own Mark Shank, beware oil bowls. Just
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  Speaker 1: as US oil production seems low enough to drain supplies,
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  Speaker 1: demand is about to fall off a cliff consumption gasing
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  Speaker 1: consumption that is usually ebbs in August and September. And
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  Speaker 1: he said that a lot of people worried that the
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  Speaker 1: price is gonna start falling again. Yeah. Well, and certainly
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  Speaker 1: if oil demand falls off the cliff, yes, we're gonna
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  Speaker 1: have a certain problem with the price of oil, and
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  Speaker 1: it will, it will then it will definitely go down.
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  Speaker 1: UM oil in general, though, of course, is a UH
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  Speaker 1: you know, a global UH industry, so we need to
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  Speaker 1: really look at the global demand as well. And UH
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  Speaker 1: not that long ago the International Energy Agency Administration excuse me,
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  Speaker 1: actually increase their UH forward looking assumptions for global demand
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  Speaker 1: up from about eight hundred million barrels UH for the
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  Speaker 1: year too close to one point three point point four billion.
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  Speaker 1: So what we're seeing globally is on on balance, a
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  Speaker 1: little bit an increase in demand for oil. At the
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  Speaker 1: same time, globally, we've seen rig comes rig counts come
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  Speaker 1: down as well, so we think that we're moving a
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  Speaker 1: little bit closer to a point of equilibrium. We're not
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  Speaker 1: there yet, but we wouldn't be over the surprise in
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  Speaker 1: the next six or twelve months if oil is able
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  Speaker 1: to settle it more to equilibrium type of price. Do
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  Speaker 1: you foresee any increase in consumer spending? Do you think
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  Speaker 1: that consumer discretionary stocks will do well? Damn? Consumer discretionary
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  Speaker 1: spending should be increasing as we continue to progress throughout
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  Speaker 1: the year. And there's a couple of data points that
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  Speaker 1: we would point to that would back this up. Um
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  Speaker 1: One is that you do have wages on the rise,
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  Speaker 1: and it's been shown that as wages will go up,
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  Speaker 1: consumer spending pence to go up as well. Uh. Two
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  Speaker 1: is at home prices have not only been uh strong,
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  Speaker 1: but they've been increasing in price. Uh. Most recently you
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  Speaker 1: had the case Schiller twenty city home price index up
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  Speaker 1: five pot year of a year. So with interest rates
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  Speaker 1: being as low as they are right now, we would
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  Speaker 1: expect home prices continue to rise. The reason why that's important,
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  Speaker 1: The reason why that's significant is for the average consumer,
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  Speaker 1: their largest I said, isn't their stock portfolil, but rather
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  Speaker 1: it's their house. So as the home price goes up,
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  Speaker 1: they feel more confident and that tends to lead to uh,
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  Speaker 1: the more spending. Of course, we have that SMPK Suler
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  Speaker 1: Home Press Index out tomorrow. TOMA. One more question. The
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  Speaker 1: Federal Reserved two day meeting probably don't do anything on rates,
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  Speaker 1: but they send us a signal on the economy. How
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  Speaker 1: does that influence your outlook right now? Yeah, what you'll
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  Speaker 1: probably see is them singling that the economy looks good,
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  Speaker 1: but they're still concerned about international markets and US. They'll
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  Speaker 1: they'll stand pat and an old likelihood, uh, though they
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  Speaker 1: might raise the specter of a potential rate increase, if
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  Speaker 1: not September, but potentially more of a December event. So
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  Speaker 1: if we saw something other than what I just described,
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  Speaker 1: that might make us make a change in our capital
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  Speaker 1: market forecast. But for now, uh why just articulated is
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  Speaker 1: what we're respecting from the Federal Reserve. Tom Brinker, thank
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  Speaker 1: you so very much for joining us. The senior investment
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  Speaker 1: manager and managing director of Wealth Advisory at Brinker Capital
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  Speaker 1: with eighteen billion dollars of assets under management in Philadelphia.
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  Speaker 1: And yes, he is watching the convention closely trying to
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  Speaker 1: figure out what it means for investors. This is Bloomberg