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Peter Kenny: Could See A 5% Correction Before Election (Audio) · 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 Flash from Bloomberg World Headquarters.
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  Speaker 1: I'm Charlie Pallat of the DAL. The SMP nastac all
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  Speaker 1: trading higher right now. That are reserve meeting minutes, quelling
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  Speaker 1: We've got the SMP five hundred index higher by four
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  Speaker 1: points right now eighty two, a gain of two tenths
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  Speaker 1: of one percent. Those minutes, by the way, showed officials
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  Speaker 1: were divided in July over the urgency to raise interest
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  Speaker 1: rates again. The Dow up twenty six points, up one
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  Speaker 1: tenth of one percent, NASTACK up a point a little
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  Speaker 1: change there, up by less than point one percent. The
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  Speaker 1: Tenure up five thirty seconds, had yield one point five
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  Speaker 1: five percent. Gold down four ninety the ounce the thirteen
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  Speaker 1: now at b n y melon dot com slash e
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  Speaker 1: t F. Let's go to Katherine Cowdery for the Exchange
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  Speaker 1: Traded Fund Report. Money is pouring into e t s
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  Speaker 1: this month billion dollars in the US in the first
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  Speaker 1: half of August. Bloomberg Intelligence analyst Eric Baltuna says it
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  Speaker 1: continues a breakneck call of sixty eight billion dollars since
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  Speaker 1: the end of June. Is this goldilocks environment, right, You've
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  Speaker 1: got breaksit behind you, and you've got decent economic news
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  Speaker 1: but not too good and so there's really just no
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  Speaker 1: fear of the Fed. And plus I don't think there's
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  Speaker 1: anybody thinking they're going to raise before the election. Bell
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  Speaker 1: Junas as a flows are showing that investors are indulging
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  Speaker 1: their risk on appetite as more than ten different small
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  Speaker 1: cap e t f s have taken in money. In August,
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  Speaker 1: they're going all the way. Small cap ets took in
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  Speaker 1: two point five billion, and about a dozen of them
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  Speaker 1: saw flows. So this tells me they're really all in
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  Speaker 1: right now. E t s that focus on industrial companies
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  Speaker 1: are leading all sectors and flows. So far this month,
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  Speaker 1: they've taken in eight one million dollars. One of the reasons,
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  Speaker 1: Beltuna says performance the industrial select sector Spidery t F
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  Speaker 1: is up five percent since July. That's your Bloomberg ETF report.
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  Speaker 1: I'm Katherine Cowdery. This is taking Stock with Kathleen Hayes
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  Speaker 1: and Grim Fox on Bloomberg Radio. Well, stocks are fluctuating,
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  Speaker 1: still trying to figure out what to watch. The FED
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  Speaker 1: minutes did show a FED somewhat divided. As I've been
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  Speaker 1: talking to people on the show today along with my
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  Speaker 1: co host Pim Fox and looking at research notes, I'm
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  Speaker 1: seeing that some people are saying they appear slightly more hawkish.
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  Speaker 1: Some people are saying they're more held back by inflation.
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  Speaker 1: Question is, though, what does this mean for the stock market?
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  Speaker 1: And as we watched so many of the retailers following
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  Speaker 1: short are we seeing signs that some weakness in the
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  Speaker 1: macro economy is spilling over into the business economy. We're
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  Speaker 1: very happy to be joined now by Peter Kenny, senior
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  Speaker 1: market strategist at Global Markets Advisory Group. Uh, Peter, welcome,
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  Speaker 1: Thank you, Kathleen. So uh just here quickly. From the
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  Speaker 1: stock market view, from the investing view, we got these
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  Speaker 1: f onm C minutes. They didn't know how weak the
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  Speaker 1: GDP was with the second jobs report. Do you just
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  Speaker 1: put them on the back burner and say next or
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  Speaker 1: does this? Is there something you take away for the
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  Speaker 1: stock market well? As far as the markets concerned, what
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  Speaker 1: we're seeing from the Fed and from the interest rate
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  Speaker 1: conversation or landscape is that we're likely to see much
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  Speaker 1: of the same unchanged outlook. In other words, we're seeing
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  Speaker 1: very mixed economic performance and a very divided f o
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  Speaker 1: MC that provides for an unchanged view moving forward, and
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  Speaker 1: that has provided for some significant risk on allocation of
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  Speaker 1: resources into equities. And that's a concern because we're seeing
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  Speaker 1: pe ratios well above historical averages. The Dow Industrials, transports,
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  Speaker 1: and utilities have all seen a meaningful uptick in the
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  Speaker 1: in the price ratings ratio over the last twelve months
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  Speaker 1: and are are well into an area where we have
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  Speaker 1: historically seen a pullback. We're also seeing the same sort
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  Speaker 1: of themes in the Russell two thousand, nastac one s
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  Speaker 1: and P five hundred. So as far as I'm concerned,
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  Speaker 1: this risk on appetite, which has driven valuations higher than
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  Speaker 1: they've historically been, is some cause for concern, But we're
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  Speaker 1: not seeing anything on the part of the FED which
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  Speaker 1: is indicating that we should expect an economic slowdown. The
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  Speaker 1: issue for the FED is interest rates, and interest rates
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  Speaker 1: is not something that they can really engage in in
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  Speaker 1: September in terms of a race, it's not going to happen,
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  Speaker 1: And if it's not in September, it's not going to
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  Speaker 1: be before the elections, which means does it happen in December.
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  Speaker 1: That's far enough off in terms of the calendar for
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  Speaker 1: investors to not really have to focus on it. Peter,
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  Speaker 1: where's the money coming from that pushes stocks hire? Is
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  Speaker 1: that the retail investor? Or? Is it institutions? I think
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  Speaker 1: it's institution and PIM I think it's institutional institutions. Globally,
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  Speaker 1: the US equity market is seeing a really significant influx
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  Speaker 1: of capital from around the world for very very clear reasons,
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  Speaker 1: whether it is the dividend field on US corporate issues,
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  Speaker 1: or whether it's the likelihood or the perspective prospects of
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  Speaker 1: an increase in prices of equities. This is the most
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  Speaker 1: relatively attractive place to be putting your money to work,
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  Speaker 1: globally speaking. And you know, just look at negative rates
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  Speaker 1: in Japan, in EU are largely in some pockets of
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  Speaker 1: the EU, and you're seeing that this the U S
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  Speaker 1: equity market is the is the landscape that global investors
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  Speaker 1: are more than willing to put their money to work
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  Speaker 1: at because of the relative attractiveness and ren yields. So
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  Speaker 1: if that's the case, then we are Do you say,
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  Speaker 1: which of these three? Do you say stocks continue to rise,
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  Speaker 1: UM as A B spasses it? Do you say, oh, well,
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  Speaker 1: back and forth, back and forth. You know, global investors
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  Speaker 1: want invest here. On the other hand, you know the
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  Speaker 1: earnings have been that great or is there a third
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  Speaker 1: possibility that stocks drive down? I mean, is the is
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  Speaker 1: this global demand for anything that looks better than anything
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  Speaker 1: else going to be a much of a driver for
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  Speaker 1: this a year? Yeah, certainly, in the last of those
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  Speaker 1: three options, I think is the most likely, and this
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  Speaker 1: is why UM equity markets have historically not been able
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  Speaker 1: to whole evaluations UH as measured by P north of
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  Speaker 1: twenty for extended periods of time. And I think that
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  Speaker 1: we've seen over the last two weeks a real slowdown
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  Speaker 1: in activity in terms of volume and turnover, and we've
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  Speaker 1: seen a real moderation in terms of price gains. The
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  Speaker 1: post Brexit rally has run its run its course. We're
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  Speaker 1: now in a post Brexit rally mentality in terms of
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  Speaker 1: the broader street, and we're seeing that there's no compelling
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  Speaker 1: reason at these valuations to put much capital at risk,
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  Speaker 1: in spite of the fact that the global environment does
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  Speaker 1: continue to sort of fuel the allocation events of cash
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  Speaker 1: into US equities and US corporate debt UM. I do
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  Speaker 1: think that we've kind of reached an equilibrium. The goldilocks
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  Speaker 1: scenario that many have spoken about is going to add
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  Speaker 1: best provide for very modest, very incremental returns from here
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  Speaker 1: until we we hit some to sort of a real
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  Speaker 1: pivot point in terms of volatility, which will of course
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  Speaker 1: drive prices two more historically based valuations. Peter, You've got
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  Speaker 1: to simplify it for me because I just keep thinking
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  Speaker 1: that one of the reasons that stocks go up is
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  Speaker 1: that somebody buys them. And I was looking at US companies.
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  Speaker 1: They've reduced their stock buy backs to the lowest level
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  Speaker 1: in four years. This is a report from the stock
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  Speaker 1: research firm trim Tabs. If you have US companies not
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  Speaker 1: buying back their stock, combine that with what you've just
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  Speaker 1: described as this perhaps overvalued stock market because of the
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  Speaker 1: pe levels. What happens when we get maybe a five
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  Speaker 1: to correction. Let's assume that that takes place, how many
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  Speaker 1: people go under and what happens next. I do think
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  Speaker 1: that that takes place. I would not at all be
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  Speaker 1: surprised to see a five percent pull back between now
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  Speaker 1: and the elections, possibly more. And I do think it's
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  Speaker 1: going to be predicated upon a lack of corporate by backs,
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  Speaker 1: which has been a huge driver of price appreciation and
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  Speaker 1: equity markets, and coupled with extended evaluations. In that case,
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  Speaker 1: we're going to have to wait to see that. Where
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  Speaker 1: the dust clear is because a lot of this volatility
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  Speaker 1: that we have coming up on us, certainly before the election,
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  Speaker 1: is going to be as a result of the elections,
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  Speaker 1: and based on the outcome of those elections, we're gonna
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  Speaker 1: we're gonna have a much more clarity as to what
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  Speaker 1: the interest rate scenario looks like going forward and what
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  Speaker 1: the corporate guidance looked looks like going forward. My sense
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  Speaker 1: is that we do get that bull back. My senses
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  Speaker 1: that it represents an opportunity because I think over the
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  Speaker 1: next twelve months, the S and P five is likely
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  Speaker 1: to gain somewhere between six and a half and seven percent.
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  Speaker 1: That's so that would take us up to gosh, how
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  Speaker 1: far do the math quickly for me, Peter, the math
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  Speaker 1: would get us to uh twenty, that's not bad today. Yeah,
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  Speaker 1: I mean you certainly beat the return you'd get holding
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  Speaker 1: a lot of different kinds of bonds, that's for certain.
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  Speaker 1: And so in the longer term twelve months, I'm I'm
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  Speaker 1: actually quite confident, okay, okay, So give me a longer
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  Speaker 1: term play. What are some names or that you would
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  Speaker 1: that you would buy now or hold onto now because
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  Speaker 1: look out over the election divide and you can you
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  Speaker 1: know you'll hold onto it make some money. Okay, So
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  Speaker 1: I would when you starting to reverse mining's miners, uh,
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  Speaker 1: they've had a huge run. I look for them to moderate,
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  Speaker 1: truckers and parts, huge run moderate, food meets and products
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  Speaker 1: huge run moderate. So the stocks that I think will
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  Speaker 1: likely outperform in the next twelve months are at the industrials,
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  Speaker 1: medical stocks, pharma, and housing. UM. I think that you're
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  Speaker 1: going to continue to see all rotation into those names,
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  Speaker 1: and I think that they will lead the market higher.
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  Speaker 1: Thanks very much, Peter Kenny. He is a senior market
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  Speaker 1: strategists Global Marks Advisory Group. Is also an independent market
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  Speaker 1: strategist at Kenny and Co. We're gonna take you through
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  Speaker 1: to the clothes on Wall Street. This is taking Stock.
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  Speaker 1: I'm Pim Fox my coast. Kathleen Hayes, this is Bloomberg.