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Bob Doll: July Hike Not Off Table If Conditions Are Met (Audio) · Bloomberg Intelligence

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  Speaker 1: ETF report. I'm Catherine Calderie. You're listening to taking Stock
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  Speaker 1: with pim Box and kapoleen As on Bloomberg Radio. If
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  Speaker 1: we are able to avoid Brexit, and if the June
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  Speaker 1: jobs report comes in strong, is it possible that we
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  Speaker 1: could see a rate hike next month? So says our
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  Speaker 1: next guest, Bob Doll. He is chief equity strategist for
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  Speaker 1: Nouvene Asset Management and he joins US now from Chicago. Bob,
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  Speaker 1: thank you very much for being with us. UM explain
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  Speaker 1: your reasoning here that if we avoid a Brexit vote
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  Speaker 1: on the twenty three, and if the jobs report is strong,
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  Speaker 1: or at least strong enough, we could see a rate
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  Speaker 1: height in July. Certainly, pim we heard from Jenny Yellen
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  Speaker 1: this morning and she's indicated, Look, they want to raise rates,
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  Speaker 1: but the conditions have to be right. Brexit is one
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  Speaker 1: of them. If Brexit, Brexit happens, I think there's no
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  Speaker 1: way they'll go in July. If Brexit doesn't, that's feel
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  Speaker 1: the first check mark. And then we have to reverse
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  Speaker 1: the horrible employment report we saw at the beginning of
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  Speaker 1: this month for the month of May, and then that
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  Speaker 1: gives us the opportunity to consider raising right. So if
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  Speaker 1: they don't go in July, I think they'll go in September.
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  Speaker 1: But July is not off the table, if and only
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  Speaker 1: if those two things happen. Okay, blah blah. Botchers are saying,
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  Speaker 1: you take a lot to get enough evidence by the
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  Speaker 1: next meeting that, in fact, the economy really has turned
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  Speaker 1: around or shrug it off. Johnyelleny, she she agreed in
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  Speaker 1: a way with you because she said, look, this could
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  Speaker 1: be temporary. Don't forget you got might be a one
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  Speaker 1: month wonder. At the same time, though, uh, the the
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  Speaker 1: four rate high view the Fed at the beginning of
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  Speaker 1: the year has turned into two, maybe only one. The
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  Speaker 1: Feds seems to be saying now Janet Yellen, that the
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  Speaker 1: world doesn't look the way they thought it would at
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  Speaker 1: the end of the year. It's this weaker economy and
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  Speaker 1: it may not be bad for equities, but it doesn't
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  Speaker 1: seem to be uh the kind of thing that's going
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  Speaker 1: to push the Fed quickly to the next hike. I agree, Kathleyne. Look,
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  Speaker 1: I I don't think July is a done deal. If
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  Speaker 1: those two things happen, it just puts it back on
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  Speaker 1: the table. The Fed and and and and Janet Yellen
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  Speaker 1: said this. They do want to quote normalize rates, which
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  Speaker 1: means they want to bring them up, but they're they
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  Speaker 1: have said it's depending on lots of things, and all
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  Speaker 1: those cautionary comments and not hear all those. And I
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  Speaker 1: agree it's going to be slower than we originally expected
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  Speaker 1: because growth, especially globally, is a bit slower, and the
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  Speaker 1: whiff of deflation that shows up from time to time
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  Speaker 1: leading to a very low or negative interest rates in
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  Speaker 1: other parts of the world are among the reasons why
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  Speaker 1: the FIT is taking the good old time. Well, Bob
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  Speaker 1: in that good old time investors or at least people
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  Speaker 1: that are looking to invest their money need to make
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  Speaker 1: some decisions what should they do with it? Well, my
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  Speaker 1: view is we are going to get some better earnings,
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  Speaker 1: not great, but good enough in the second half of
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  Speaker 1: the year, we lap the horrible headwinds from lower oil
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  Speaker 1: and the rising dollar, and the horrible earnings recession that
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  Speaker 1: we've been through. Minus five percent in the first quarter,
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  Speaker 1: probably minus percent or two in the quarter that will
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  Speaker 1: be reported soon. I either second quarter, paving the way
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  Speaker 1: for some possible up earnings in the second half. Up
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  Speaker 1: earnings are a necessary ingredient in my view to have
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  Speaker 1: a shot at a somewhat better market. And I'm not
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  Speaker 1: looking for big returns. I just think stocks in the
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  Speaker 1: US will have mediocre but in a low inflation world,
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  Speaker 1: that's fine given the environment. Well, this is uh, this
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  Speaker 1: is I think that what's kind of underlying or behind
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  Speaker 1: the feds slow down this year. This there really is
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  Speaker 1: a pretty dramatic shift in their view that I think
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  Speaker 1: they're realizing that it just it is mediocre growth. And
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  Speaker 1: if earnings aren't rising, that's not a great sign either.
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  Speaker 1: But let's be a little more specific, because if I
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  Speaker 1: do want to put money in stocks, and I'd rather
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  Speaker 1: have mediocre returns than almost nothing on you know, the
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  Speaker 1: safest bonds, where do I start looking, Bob, where should
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  Speaker 1: we putting money? Healthcare, energy, tech, what let me mention
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  Speaker 1: some some factors that matter, some themes. I think you
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  Speaker 1: still want to own companies to get a lot of
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  Speaker 1: their business here in the US, beware of the multinationals.
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  Speaker 1: Growth here is slow, but it's slower elsewhere. Number two,
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  Speaker 1: I think you want to focus on companies that are
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  Speaker 1: able to increase their throughput more unit growth. And number three,
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  Speaker 1: free cash flow and a slow growth world. Free cash
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  Speaker 1: flow is king companies that are able to generate that
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  Speaker 1: can to have more degrees of free them. You find
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  Speaker 1: these three characteristics and lots of different places. Tech has
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  Speaker 1: more of them than most um, but you find some
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  Speaker 1: in healthcare, occasional, consumer discretionary name um and like uh.
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  Speaker 1: You know, at some point, if the economy continues to
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  Speaker 1: get a little better and the FED starts normalizing rates again,
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  Speaker 1: this insatiable search for yield leading to these big outperformance
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  Speaker 1: of utilities at all will slow down. We're not there yet,
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  Speaker 1: but I think that will come. I wonder if you
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  Speaker 1: could tell us what indicators you're looking at, perhaps even
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  Speaker 1: on a specific level. I know we're going to be
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  Speaker 1: getting FedEx results after the market closed today. That's an
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  Speaker 1: issue about volume versus profits or indeed can they turn
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  Speaker 1: increased volume into increased profits. And I look at the
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  Speaker 1: transport average. We're talking about a year today change of
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  Speaker 1: just up under two Pretty pathetic, isn't it. I'm looking
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  Speaker 1: at the p M I is the purchasing manager in
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  Speaker 1: the ease and the I s M the institute of
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  Speaker 1: supply management. These are indicators for parts of the economy
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  Speaker 1: that tend to be a bit more cyclical, the parts
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  Speaker 1: of the economy that have been depressed. The consumers doing okay,
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  Speaker 1: spending some money. It's manufacturing and foreign trade that has
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  Speaker 1: been troublesome along with capital spending. And we just need
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  Speaker 1: a little better news out of those areas. And uh,
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  Speaker 1: you know, it's just a hope. It's not a given
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  Speaker 1: at this point. Not a hope and not a given. Uh.
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  Speaker 1: When you look at overseas markets SPOB, is there any
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  Speaker 1: place do you have to get into more risky emerging markets?
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  Speaker 1: Is there any place where I can get better than
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  Speaker 1: mediocre single digit returns? Well, it depends on your time
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  Speaker 1: rise in Kathleen, if you've got a longer time rise,
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  Speaker 1: if anybody has it anymore. I'm of the view that
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  Speaker 1: the emerging markets are in a bottoming process. I wouldn't
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  Speaker 1: chase them. They're they're up nicely year to data, as
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  Speaker 1: you know. But I've not given up on the fact
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  Speaker 1: that in the emerging markets, you've got hype a lot
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  Speaker 1: of population people moving from the lower class of the
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  Speaker 1: consumption class, and that's where some of the world growth
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  Speaker 1: is going to come over the next five to ten years. Bob,
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  Speaker 1: I always like to find out what is the most
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  Speaker 1: unloved investment that you hear about. You know, the free
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  Speaker 1: cash flow story is still not believed. You know, last
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  Speaker 1: year was the perfect example. Give me a than stock,
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  Speaker 1: but don't give me a cheap cyclic gold that has
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  Speaker 1: good free cash flow. And while those stocks had a
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  Speaker 1: bit of a run that is free cash flow kind
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  Speaker 1: of from February to April as the market moved up,
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  Speaker 1: I still think they're unloved by most people. Unloved. Uh,
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  Speaker 1: give us one of I know you can't maybe talk
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  Speaker 1: about individual companies, but your favorite place right now and
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  Speaker 1: something where maybe I could outperform this very modest outlook
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  Speaker 1: for equity returns this year. Yeah. Also, I'll give names
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  Speaker 1: that fit most of the bills that we talked about before.
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  Speaker 1: McKesson is a reasonably can servative stock in health care
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  Speaker 1: if you want to be more speculative, and a name
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  Speaker 1: that's been down is Gilead. Uh. In technology, um, you know,
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  Speaker 1: Big Bad Apple and Cisco to me are a couple
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  Speaker 1: of names that fit the bill. Airlines have had a
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  Speaker 1: hard time. They don't look good technically, but if the
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  Speaker 1: prasums of the revenue per seat mile begin to improve,
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  Speaker 1: which I think they will over the next quarter, or
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  Speaker 1: to Delta or or Southwest or our names I've put
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  Speaker 1: on the list as well. And uh gosh, anything in
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  Speaker 1: fixed income an yeah, So within fixed income, believing that
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  Speaker 1: rates are going to creep higher led by the Fed,
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  Speaker 1: I think that's an eventual head wind. And maybe we
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  Speaker 1: saw the low in the one fifties for the ten
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  Speaker 1: year treasury in terms of yield, so I'd be careful
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  Speaker 1: about duration. But we still think um munis where tax
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  Speaker 1: conditions permit are interesting, and we still prefer credit to sovereigns.
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  Speaker 1: Bob Doll. We always prefer having you on our show.
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  Speaker 1: Thank you, Chief Equities to Aratagies for Nuvine asset management.
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  Speaker 1: I'm Kathleen Hayes Long with pim Box. The market closes
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