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Commonwealth's McMillan on Need for Consumer Spending (Audio) · Bloomberg Intelligence

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  Speaker 1: That's your Bloomberg ETF report. I'm Catherine Cowdery. You're listening
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  Speaker 1: to Taking Stock with Bim Fox and Kathleen Hayes on
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  Speaker 1: Bloomberg Radio. Scheduled for release tomorrow consumer Prices. What will
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  Speaker 1: that economic report as well as Manufacturing and Industry also
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  Speaker 1: scheduled for tomorrow. What will that mean for your portfolio? Well,
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  Speaker 1: Brad McMillan is the Chief Investment Officer Commonwealth Financial Network,
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  Speaker 1: helping to manage over a hundred billion dollars in assets,
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  Speaker 1: and he can be followed on Twitter at Brad McMillan
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  Speaker 1: c f A. He joins us now, Brad, thanks ver
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  Speaker 1: much for being with us. Let's start off at the
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  Speaker 1: Consumer Price Report, the CPI that will be out tomorrow.
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  Speaker 1: Tell us what you expect and what this means for investors.
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  Speaker 1: We expect to see an increase in UH in inflation
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  Speaker 1: at the headline level, particularly, but also at the core level,
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  Speaker 1: we're gonna see maybe a little bit of fireworks because
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  Speaker 1: you could see the headline number check up, but it's
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  Speaker 1: not going to mean anything. The important number is the
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  Speaker 1: core number and actually just be more of the same,
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  Speaker 1: more of the same, enough for the FED to reserve
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  Speaker 1: to get excited about inflation. You know, we live in
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  Speaker 1: an era that's not like it was thirty years ago,
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  Speaker 1: twenty years ago, ten years ago. FED wants to see
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  Speaker 1: more inflation so it can help boost wages for a
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  Speaker 1: little more lift under the economy sales. The f's in
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  Speaker 1: kind of a rock and a hard place, and you're
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  Speaker 1: absolutely right and wants to see inflation. The problem is
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  Speaker 1: even the core, we're just kicking above the level where
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  Speaker 1: they want to see. So there's enough to justify and
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  Speaker 1: increase at some point, but not enough to light a
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  Speaker 1: fire under them yet. I don't think this is going
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  Speaker 1: to be enough to move them. In June. Brad McMillan, Uh,
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  Speaker 1: how about the industrial production data? What will that show?
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  Speaker 1: We're probably going to see a bit of a recovery.
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  Speaker 1: We're going to see We're going to see utilities continue
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  Speaker 1: to do well, we're going to see manufacturing hopefully picked up.
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  Speaker 1: But again it's going to be a recovery. It's not
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  Speaker 1: going to be a jump ahead. So it will probably
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  Speaker 1: continue stabilization. But nothing to get excited about, nothing to
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  Speaker 1: drive fed to move. Okay, so we can talk about
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  Speaker 1: manufacturing industrial production, and you know the inflation numbers. Housing
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  Speaker 1: starts are also out tomorrow. The Blueberg survey suggests that
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  Speaker 1: we will have some move up in new home construction.
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  Speaker 1: So connect the dots force from some of these industry
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  Speaker 1: to some of the UH stocks you like, the sectors
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  Speaker 1: you like, and let's start with home builders since they're
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  Speaker 1: they're directly involved in home construction. Certainly, you saw the
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  Speaker 1: you saw the Homeme Builders survey come in today. It
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  Speaker 1: was stable at a very positive level, but it and
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  Speaker 1: improved like people expected. And most of that decline actually
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  Speaker 1: came from the Northeast where sentiment went down. Now, the
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  Speaker 1: problem is we've got a lot of supply issues here.
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  Speaker 1: We've got a lack of land, we've got a lack
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  Speaker 1: of labor to build these things. That's what's holding it
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  Speaker 1: back and that's going to limit the improvement. But at
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  Speaker 1: the same time. That's going to make the recovery run
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  Speaker 1: longer because we're not going to be able to over build,
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  Speaker 1: and we're getting enough demand to help continue to drive
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  Speaker 1: consumer spending, which is kicked. All right, you talk about
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  Speaker 1: driving consumer spending, is that going to help corporate profits?
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  Speaker 1: Didn't we just get through a really well bad quarter.
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  Speaker 1: It was a bad quarter, but you have to look
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  Speaker 1: at everything that happened during the quarter. People were thinking
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  Speaker 1: the world was going to end well, guess what, it didn't,
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  Speaker 1: and consumer sentiment, consumer spending was depressed by that. But
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  Speaker 1: spring is here till on the retail sales report last Friday,
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  Speaker 1: consumers are starting to spend. It's not that they couldn't spend,
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  Speaker 1: it's that they chose not to and now they're opening
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  Speaker 1: the wallets, which is excellent. Hey, is it possible, Brad,
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  Speaker 1: that over the course of the year we could find
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  Speaker 1: a bit of a sweep spot for stocks. If you're right,
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  Speaker 1: you see reasonably positive on the US economy. Consumers will
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  Speaker 1: spend enough, they'll spend more. But is it also possible
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  Speaker 1: that they don't spend so much that the fetter reserves
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  Speaker 1: feels in any hurry to raise interest rates with Is
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  Speaker 1: that possible. And if that's what occurs, is that good
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  Speaker 1: for stocks because things have picked up, but the FET
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  Speaker 1: isn't tightening More on policy, I think the Goldilocks scenario
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  Speaker 1: is not only possible but becoming increasingly likely. We need
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  Speaker 1: consumers to start spending that that just there are signs
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  Speaker 1: that that's exactly what they're doing. We need business to stabilize,
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  Speaker 1: and we're seeing signs of that in the energy sector
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  Speaker 1: and in capital investment. But we don't want them going
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  Speaker 1: nuts right now. The fet is happy with where we
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  Speaker 1: are where we are, but they're not dying to raise Rachel,
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  Speaker 1: I could see that continuing for the next quarter or two.
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  Speaker 1: You mentioned energy, and I'm just wondering where do you
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  Speaker 1: think that the energy market is headed When we have
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  Speaker 1: filings for bankruptcy for companies such as Sandridge Energy and
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  Speaker 1: there's no let up. Well, that's the thing. We've seen
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  Speaker 1: energy prices come up by about se off the floor.
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  Speaker 1: What does that mean? That means companies that were just
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  Speaker 1: trying to make it are now going to get a
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  Speaker 1: second rease on life. The ones that have been the worst,
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  Speaker 1: the ones that haven't been able to make it through,
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  Speaker 1: as you say, are going bankrupt, but that queers the
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  Speaker 1: clears the deck for the ones that can continue. And actually,
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  Speaker 1: what's capital? Companies with capital pick up these assets for
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  Speaker 1: pennies on the dollar, and that's also going to help
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  Speaker 1: profits going forward. What do you like in technology? What
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  Speaker 1: are you dislike in technology? It can be you know,
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  Speaker 1: are you are you interested in social media? Are you
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  Speaker 1: interested in some of the old line more blue chip
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  Speaker 1: dividend pairs like Microsoft. It's funny to hear Microsoft described
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  Speaker 1: as a blue line as a blue chip dividend pair,
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  Speaker 1: although of course it is, and that is exactly what
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  Speaker 1: I do white because the real power of technology in
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  Speaker 1: what's still a fairly difficult business environment is to help
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  Speaker 1: companies cut costs. I think there's the opportunity social media
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  Speaker 1: absolutely on a tear, but for sustainable business building, being
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  Speaker 1: able to help other companies cut costs is exactly where
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  Speaker 1: companies like Microsoft, for Oracle are making their mark, and
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  Speaker 1: that's going to continue to be an opportunity going forward.
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  Speaker 1: But doesn't the idea of cutting your costs fly in
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  Speaker 1: the face of increasing your revenues. If you're trying to
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  Speaker 1: cut things to the bone, you're going to improve the
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  Speaker 1: bottom line. But I thought that the top line, the
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  Speaker 1: increase in revenue and sales what what is what is
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  Speaker 1: bedeviling most companies. You're right, the revenue growth is a problem,
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  Speaker 1: and I would tie that into slow growth overall. But nonetheless,
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  Speaker 1: why can't you do both? That's the challenge and that's
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  Speaker 1: actually where I think the opportunity is for companies in
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  Speaker 1: the market. We've had a difficult business environment. They've had
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  Speaker 1: to cut costs and they're doing so, but at this
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  Speaker 1: time they're looking to be more efficient and to grow
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  Speaker 1: their top wine popline growth has not been easy. But
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  Speaker 1: as the economy continues to expand and do so more quickly,
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  Speaker 1: we're going to see companies be able to do both
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  Speaker 1: and that's going to help on the earning side. So
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  Speaker 1: what about bonds. We have a bit of a bit
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  Speaker 1: of a sell off, enough of us all off to
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  Speaker 1: push the tenure note yield up to one point seven five.
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  Speaker 1: It have been one point seven four, one point seven three. Interesting,
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  Speaker 1: fabulous story actually on the terminal today, the mixed view
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  Speaker 1: on Wall Street of where bond deals are heading. Standard
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  Speaker 1: Charter is looking for a rally in the tenure treasury
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  Speaker 1: down to one point six in terms of yield, What
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  Speaker 1: do you see and is there any play that you
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  Speaker 1: would recommend in fixed income right now? Right now? I
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  Speaker 1: think if you're looking at rates, is largely driven by
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  Speaker 1: international news. You're looking at you're looking at Brexit, You're
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  Speaker 1: looking at Europe, you're looking at China. That's what's driving
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  Speaker 1: pricing when US treasuries rather than domestic factors. I don't
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  Speaker 1: think you see the FED moving at all. You know,
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  Speaker 1: it's probably not in June, maybe not until STI number,
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  Speaker 1: So I think that's what's going on. In terms of
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  Speaker 1: where to go. I think credit still remains attractive. We
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  Speaker 1: saw a real rally in high yield and so, but
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  Speaker 1: there still maybe some juice in the apple there. But
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  Speaker 1: I would still be in credit rather than in sovereign
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  Speaker 1: simply because there is incremental return in RBO at commonwealth.
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  Speaker 1: So you don't see a major slowdown. What about a
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  Speaker 1: major correction in the stock market, That's certainly possible, But
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  Speaker 1: if you look at what we saw earlier in the year,
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  Speaker 1: we saw a pullback, A lot of the selling has
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  Speaker 1: been done. Where is the bad news that would force
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  Speaker 1: the correction in the near term. I just don't say
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  Speaker 1: it all right, Brad McMillan, Thank you so very much
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  Speaker 1: for joining us today. Thank you, Chief Investment Officer for
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  Speaker 1: Commonwealth Financial Network. He sees, uh, not too much move
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  Speaker 1: up in inflation, but a consumer that's going to keep
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  Speaker 1: spending and driving the economy and forward, but not so much.
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  Speaker 1: The FED will move right away, maybe on September, and
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  Speaker 1: that's a potential sweet spot for US stock investors. I'm
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  Speaker 1: Kathleen Hayes. Along with pim Fox coming up Dave Wilson
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  Speaker 1: are stocks editor, movers and shakers on Bloomberg Radio.