Latest / Bloomberg Intelligence / Wells Fargo's Wren is 'Leaning Cyclical' Through 2016 (Audio)

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Wells Fargo's Wren is 'Leaning Cyclical' Through 2016 (Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Charlie held at jobs Friday, stocks of paired losses
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  Speaker 1: US employers added the fewest jobs in almost six years
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  Speaker 1: SMP down five to two thousand ninety nine and drop
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  Speaker 1: twenty ate a drop of six tents of one percent down,
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  Speaker 1: Catherine Colderie. This is taking stock with pin Box and
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  Speaker 1: Kathleen Hayes on Bloomberg Radio. What's a difference much weaker
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  Speaker 1: than forecast jobs report? I can and make bonds and
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  Speaker 1: rally mode stocks lower, although not as low as they
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  Speaker 1: were early in the day. What does this mean as
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  Speaker 1: we move into the second half of this year? Joining
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  Speaker 1: us now as Scott Rendy, Senior Global equity Strategist at
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  Speaker 1: Wells Fargo Investment Institute. Scott, welcome back to the show. Hi, Kathleen,
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  Speaker 1: Thanks so uh you can whether or not you say, oh,
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  Speaker 1: this is just a one off week job support or
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  Speaker 1: or not, I would say that if you're an equity
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  Speaker 1: strategy like you, you still have to contend with an
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  Speaker 1: economy that has been mixed at best on a lot
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  Speaker 1: of the numbers so far this year. Now you get
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  Speaker 1: this ominous sign, do you change your strategy? Do you
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  Speaker 1: pair something back, what do you do? I think I
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  Speaker 1: do not think you do that, Kathleen. And the reason
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  Speaker 1: I say that is because really our overall theme is
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  Speaker 1: modest growth and modest inflation. The labor market is slowly
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  Speaker 1: moving in the right direction, the economy is slowly moving
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  Speaker 1: in the right direction. Is going to look at a
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  Speaker 1: lot like twenty fifteen that looked a lot like that
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  Speaker 1: looked at like. So I mean, we're moving slowly in
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  Speaker 1: the right direction. Uh. Today's non farm payroll number that
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  Speaker 1: was a surprise, no doubt about it. UM. But I think, UM,
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  Speaker 1: I think the market, the market clearly absorbed this news
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  Speaker 1: pretty well. And when I look at that at data,
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  Speaker 1: you know, hey, two and a half percent year over
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  Speaker 1: year uh, average hourly earnings change, which I believe is
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  Speaker 1: the most important number in that report, UM, and has
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  Speaker 1: been for the last six or seven months. Um. You know,
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  Speaker 1: there's nothing to get excited about. But I don't think
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  Speaker 1: it's the end of the world either, And I don't
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  Speaker 1: want to say it's a one off, but I don't
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  Speaker 1: think this is the start of a trend. All right, Well,
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  Speaker 1: I'm glad it's not the start of a trend or
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  Speaker 1: at least, it's not going to get you to too worried, Scott.
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  Speaker 1: But you keep talking about the things moving in the
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  Speaker 1: right direction. How do you know they're moving in the
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  Speaker 1: right direction until you've actually reached your destination. Well, Pim,
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  Speaker 1: you know, of course, what they're paying us to do
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  Speaker 1: is to try to make some projections here and I'll
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  Speaker 1: give you an example. Um. You know, average hourly earnings
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  Speaker 1: which I'm sorry, initial jobs claims come as comes out
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  Speaker 1: every Thursday at eight thirties Eastern time. That is a
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  Speaker 1: great leading indicator. And we look forward on that and
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  Speaker 1: we make projections on that number, and we're through about
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  Speaker 1: January of twenty seventeen. That's about as far out as
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  Speaker 1: we can look and feel like we have a lot
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  Speaker 1: of accuracy. UM continues to be under three hundred thousand.
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  Speaker 1: Any time you see that number under probably even three
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  Speaker 1: and two. Uh, that's a darn good number. So you know,
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  Speaker 1: it's things like that leading indicators when we project l
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  Speaker 1: A I UM. The economic indicators when you when you
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  Speaker 1: look at the but that's the economy. I'm talking about
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  Speaker 1: the stock market. I mean the reason the stock I mean,
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  Speaker 1: you know, you have to think about the economy is
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  Speaker 1: what allows companies to prosper or to not prosper. So
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  Speaker 1: the foundation of everything we do is trying to figure
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  Speaker 1: out what's the economy going to look like going ahead.
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  Speaker 1: I think valuations here in the US there's only slightly
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  Speaker 1: ahead of the thirty year median um. And you know,
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  Speaker 1: let's face that the Federal Reserve is not going to
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  Speaker 1: tighten up on us. You know too much here, I
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  Speaker 1: don't think, or at least we're not counting on it.
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  Speaker 1: So corporate earnings are going to look a lot better
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  Speaker 1: in the remaining part of the year. The GDP growth
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  Speaker 1: is going to look better. It's all going to look better.
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  Speaker 1: In the market knows that. That's why we're sitting up here, Spire.
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  Speaker 1: The bond markets begs to differ, do you think, I mean,
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  Speaker 1: you've got the tenure down to one point seven, you've
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  Speaker 1: got the tier down to point seven seven, big move
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  Speaker 1: up and utilities David by con Inison and cepra Well, Kathleen,
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  Speaker 1: I hate to admit it, but as an equity guy,
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  Speaker 1: bond guys are smarter um but um but and you
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  Speaker 1: know one seventy one seventy tenure yield um? Does that
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  Speaker 1: make me happy? It definitely doesn't. Does it make me
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  Speaker 1: think that the equity guys um are are are you
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  Speaker 1: know wrong, and the bond guys might be right and
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  Speaker 1: we might see this yield dip even lower. I don't know.
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  Speaker 1: I rolled that through my mind all the time. But
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  Speaker 1: certainly we're in a modest growth environment. There's no reason
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  Speaker 1: to expect that we're going to see much more than
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  Speaker 1: you know, two p growth this year, probably next year
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  Speaker 1: as well. So you know, we're in a mode here
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  Speaker 1: where they're some flight to quality. It's slow growth, um.
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  Speaker 1: But you know, you have to say if if you
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  Speaker 1: think this tenure yields going below one fifty, I mean
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  Speaker 1: that's that's not a good sign um. So I'll leave
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  Speaker 1: it at that. But unless you happen to be long bonds, well,
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  Speaker 1: unless you have to be long bonds, and of course,
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  Speaker 1: you know with with the clients and and you know,
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  Speaker 1: retail clients are bread and butter here and we tell
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  Speaker 1: them to have diversified portfolios. And this is one of
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  Speaker 1: the reasons why we do that well Scotts. We've discussed
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  Speaker 1: earlier with George goncab Is from Nomura. Part of the
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  Speaker 1: reason bonds are doing so well is because of there's
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  Speaker 1: so many negative bond yields around the world. The treasury
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  Speaker 1: is the plate pressure markets a place to be. I
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  Speaker 1: want to get more specific about stocks because if you're right,
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  Speaker 1: if you kind of just better, we don't know what
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  Speaker 1: what what are good investments right now? What industries look
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  Speaker 1: good to like, go to technology banks sold off today?
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  Speaker 1: Is their value there? What do you suggest? Well, financials
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  Speaker 1: we can't get too excited about, just because we don't
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  Speaker 1: think interest rates are going to be moving enough in
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  Speaker 1: the economy is not going to be elerated accelerating enough
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  Speaker 1: to get excited about financials. But we we are overweight
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  Speaker 1: the consumer discretionary sector in there, things like household appliances,
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  Speaker 1: general merchandise stores, Internet, retail. Those industry groups look good.
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  Speaker 1: Industrials we like things like industrial conglomerates, conglomerates, construction engineering.
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  Speaker 1: We were overweight technology, so that'd be semiconductor equipment, application, software,
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  Speaker 1: consult against services. And we also recently added healthcare to
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  Speaker 1: our overweight recommendations. And you know that's traditionally a defensive sector.
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  Speaker 1: We've been leaning cyclical, but I think when you look
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  Speaker 1: at evaluation relative valuation, healthcare has gotten hit here on
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  Speaker 1: evaluation purpose, on evaluation basis, or something like Telecom, which
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  Speaker 1: we went underweight on had been, you know, really outperforming.
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  Speaker 1: So uh, we like healthcare, but it's purely evaluation play.
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  Speaker 1: I continue to believe healthcare is going to be a
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  Speaker 1: defensive sector. Earnings growth is not going to be anywhere
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  Speaker 1: near what it was when we had to surge after
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  Speaker 1: the initial A c Affordable Care Act came into play. UM.
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  Speaker 1: But you know, those are the four sectors that we like.
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  Speaker 1: Three of them are very cyclical, one of them is defensive,
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  Speaker 1: and we certainly want to lean cyclical um through the
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  Speaker 1: balance of this year. Hey, Scott, let's just suspend this
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  Speaker 1: idea for just a second that the economy and the
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  Speaker 1: stock market or linked, just for argument's sake. I've been
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  Speaker 1: looking at some details having to uh deal with equity funds.
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  Speaker 1: Global equity funds recording net outflows about nine billion dollars
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  Speaker 1: cumulatively over the past seven weeks. We're talking about a
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  Speaker 1: fifty nine billion dollar outflow. If you take the idea
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  Speaker 1: that the reason stocks go up is someone else is
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  Speaker 1: willing to pay more for the stock that you bought,
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  Speaker 1: is there a possibility of people just I'm not interested
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  Speaker 1: in putting them money into stocks. Stop. You know, PIM,
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  Speaker 1: you and I have talked about this really probably for
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  Speaker 1: the last couple of years at least. And you know,
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  Speaker 1: retail clients have been sitting on their hands. The volatility
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  Speaker 1: earlier this year didn't help. They didn't sell on the
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  Speaker 1: way down, they didn't buy on the way back up. Um.
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  Speaker 1: Our clients have too much cash, at least it's in
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  Speaker 1: our opinion, they're underinvested in stocks. Uh, they're fearful of
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  Speaker 1: the market. So UM, you know when I hear the
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  Speaker 1: numbers on the outflows, UH, to me, you know, here
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  Speaker 1: we are within a couple of percent of the all
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  Speaker 1: time record high in the SMP five hundred. After all
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  Speaker 1: that outflow, UM, to me, that's a contrarian indicator. And
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  Speaker 1: when when retail investors are hesitant, when they're cautious, and
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  Speaker 1: you see these outflows, UM, you know, to me, we're
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  Speaker 1: not at the top in the market. And that's a
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  Speaker 1: that's a good contrarian indicator. So it makes me actually
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  Speaker 1: feel better that that target we have. Your end is
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  Speaker 1: uh is good. Thank you very much. You're good to
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  Speaker 1: have on always. Scott Ran, Senior Global equity strategist, Wells
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  Speaker 1: Fargo Investment Institute, giving us his thoughts and details about
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  Speaker 1: the stock market. It ain't over yet. We're coming up
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  Speaker 1: to the clothes you're listening to Taking stock on bloomberg Rade,