BBH's Scott Clemons: Optimistic on Personal Consumption (Audio)

of one percent. The SMP falling two points down. Industrials down eighty five, a drop of five tenths of one percent, NASA stank is up nine, a gain of two tenths of one percent. Ten, you're up three thirty seconds with the old of one point eight four percent, Gold of a dollar fort heats twelve fifteen twenty on advanced there of point one percent, and crude oil down eight tenths of one percent, down forty cents now forty ninety two for a barrel of West Texas in the media crude.

I'm Charlie Pellett. That's a Bloomberg Business Flash. Thank you very much, Charlie Pellett at his time Now for the et F Report. It has brought to you by Van eck Vector's et F s. Expect more from your muni's target tax exempting come by maturity and credit quality, all with low cost e t F s. Visit vaneck dot com slash Muni vanek access the opportunities. Let's go to Catherine Cowdery for the e t F report. Some e t F investors may be wishing they'd paid attention to

that old saying sell in May and go away. Bloomberg Intelligence analyst Eric Beltun has focused on a few e t F that have pulled back this month. The market vector Steel e t F. You probably didn't even think there was a steel et attracts companies that make steel. It got sold off in May, but this is profit taking. It was up this year up until then, so a lot of people literally are selling in May. Valcuna says

investors are selling to lock in some profits. His other examples include the I Shares MSCI Turkey e t F, which again scent this year up until May and has dropped ten percent this month. He also cites the van x Vectors gold Miners e t F, which was up sent until May one and has dropped eleven per cent since then. That's your Bloomberg ETF report. I'm Katherine Calderie. You're listening to Taking Stock with Pim Box and Kathleen

Hayes on Bloomberg Radio. Where is the stock market going next as it waits for the big jobs report on Friday? Is that waits for the feds next policy meeting in the middle of June. A lot of global forces buttressing stocks right now. Scott Clemmens joins us here in our New York studio. He's Chief Investment Strategies for private wealth Management at Brown Brothers Caraman here in New York City. Welcome Scott, Thank you, Kathleen. Happy summer it's here, isn't it?

Big time? Big time? Well, you know, uh, this summer may be heating up the weather on the East Coast. But corporate earnings, you know, if you look at them broadly, have not Certainly some companies performing well. This is one of the big factors you're looking at as you look in the second half of the year for the US stock market. That's right. I think one of my job descriptions is that I get paid to worry, and perhaps the top of the worry list is the lack of

corporate earnings. To extend the metaphor, earnings are the fuel and the tank, and the fuel tank is running sort of thin. We've had six consecutive quarters now of a year over year decline in corporate earnings for the S and P. And that's that's that's worrisome. It's easy to blame a certain amount of that on the energy sector. It's also obvious to blame the energy sector, but it's not entirely energy. It's a pretty widespread malaise and profitability

in corporate America. Having said that, let's look at some individual sectors, perhaps either housing or automobiles. Is we're going to get those new figures. Yeah, those are the Those are the two big drivers of the personal consumption personal income type numbers we've gotten, and they're two strong points of the economy. Uh. And that's important because if you think about it, housing is the primary driver of wealth

for most Americans. It's it's not a financial portfolio, despite most of your listener base, it's really the roof over people's heads. It's the primary store of wealth. And then the job markets the primary source of income. So as long as those two things are in decent shape, the driver of personal income and personal consumption is in pretty good shape. One of the things that I'm looking for over the balance of this year is whether or not

we get an acceleration in wage growth. And we may be beginning to see that average hourly learnings up two and a half percent year over a year. That's not a great big number, but it does represent a little bit of an acceleration. That's important because that not only drives the economy, but ultimately it trickles down into corporate earnings as well. And of course we'll get that piece of news on Friday in the in the jobs report. Corporate earnings, the fact that even absent energy, they haven't

been that great. As the Fed to Reserve contemplates raising the rate June July, waiting until September, we don't know should they be looking at that. The consumer, even if we get stronger wage growth, consumer is not roaring. It just kind of plotting along to that. I'd be more concerned about corporate earnings and corporate profits, you know. I think if that's concerned about a lot of things, not enough to hold them back from raising rates in either

June or July would be my bed. And it's sort of a coin flipp as too, which the two it is. I believe the FED is looking for reasons to raise interest rates, because if they were simply dealt the hand that they've got, which is an unemployment rate of five percent, a reasonably good economy, it's not running away that it's it's not strong, but compared to the rest of the world, it's okay. And they asked themselves, is that consistent with

interest rates measured in basis points instead of percentage points? Yeah, I think the Fed would very much like to raise interest rates. They're not being held back by politics, that's being an election year. Uh, They're not being prompted by inflation. They're no real inflationary concerns. But I think they'd rather move them sooner rather than later, simply that they can reastore a little bit of a normality to interest rates, knowing full well that at some point they're going to

want to cut interest rates again. They can't say that that would lead to concern and maybe even panic in the marketplace, But they right now don't have the ability to lower interest rates in response to an economic downturn. That tools not in the toolbox. They very much like to put it back. Scott, what about investing in stocks? Most of our client moneys and stocks. And it's simply because the risk return trade off and fixed income, at

least traditional fixed income is simply not that appealing. So we are finding within the market and and and to go back to an earlier question, you ask those parts of the market that that are reliant on consumers spending, you find that mostly in the consumer discretionary even the consumer nondiscretionary. Healthcare would be another our investors paying too

much though for these particular types of stuff. Because I keep thinking at if you tell me that corporate earnings are terrible, that a generalization to understanding, but in certain sectors they're terrible. You want to buy something when they're terrible because you want to make sure that someone else buys it from you when they think it's great, exactly right, exactly right, buy low and sell high. I seem to call that being one of the investment UH guys to success.

It can help you keep solving. It's still it's still very much the case. So it's a question of value versus price. And although the overall market is reasonably fully priced about twenty one times trailing earnings, that's not a forecast, that's trailing earnings operating earnings. There are certainly UH sectors and companies within the market that aren't trading at that

it's a very narrowly led market. Even though as we sit here today, the SNP five hundred is within let's say, a couple of percent of a new all time high, most of the stocks in the market are not, So there are opportunities. I just ran this data today. There's something along the lines of a hundred and fifty stocks within the SNP five hundred, So a hundred of the names in the index are or more below they're fifty

two week high. So there are opportunities within the market, although the overall index level wouldn't lead you necessarily that conclusion. So give us some industries. I know you can't share your individual company names that you're investing your clients many in, but let's start with something that you know, technology and within within technology, what part of technology you do or don't like, because it's a pretty broad field. That's a

broad field, it's a very broad field. We draw a distinction within technology between service providers and product providers, and we love to own companies that sell essential products and services that have repeat customers. That ends to be more of a service type business model than a product type business model, and particularly when that services relying on demand from the consumer, and we're pretty optimistic about the strength

of personal consumption. We're finding opportunities in those areas. Mascott, I understand you help manage it. Brown Brothers haremon about twenty seven billion dollars of customer assets. What are some of the questions that you are being asked by these customers? Well, and some of them are the obvious questions. When is the FED going to raise interest rates and by how much? And that's really born out of a desire to earn a reasonable rate of return out of traditional fixed income

conservative investors. And I think I would characterize most of our clients as conservative investors with a lower case love the idea of earning a reasonable rate of return on stable patient capital. And that's what's a reasonable rate of return, something measured in percentage points, not basis points. Um. I was talking to a colleague uh last week about money market yields, and we looked at a graph and and and realized, much to our shock, that money markets back

in two thousand and seven not ancient history. You can earn five five and a quarter percent on money markets. And when you say that today you sound like granddad talking about nickel coax down at the corner store. But that that's an extraordinary example of how far we've come to get five and a quarter percent today. And fixed income you have to own non investment grade debt junk bonds. So a little less than ten years you've gone from money markets to junk to earn the same amount of return.

That's a pretty telling statement about how challenging it is for investors today. Coogog overseas equity market. You started your career as a portfolio manager looking at European stocks, at Asian equities, So do you see buying opportunities in those areas of the world selectively? And and and Kathleen, more often than not in the shares of multinational companies that buy, if you will, historical accident happen to be located in

a certain part of the world. But but really, who do not respect any geographic borders when it comes to pursuing clients and pursuing business growth? And and I believe as an investor we should look through the geographic borders as well and looking for opportunities. So there are fewer and far between, and where we find them, it's more in the multinational sector. Do you have any thoughts on

the US dollar right now? You know, I've got colleagues who pay opportation and that mark chancel, you know, mar in terms of what it means for corporate profits, because I keep hearing this thing, well, you know the reason that they're having trouble selling things overseas is, you know, the dollars too expensive. I I generally, I think that's more of an excuse than a reason. When you actually open the hood and look below the hood of what

companies do. They're either operationally hedged or they're financially hedged. So it's it's a handy reason for I'm gonna be cynical now for a CFO to explain away a quarters miss, but I think it's more excuse than it is a reason more often than not. Thank you very much, much appreciated. Scott Clements is the chief investment strategist Private wealth Management for Brown Brothers Harriman, helping to manage nearly twenty seven

billion dollars of customer assets. You're listening to take king Stock, I'm pim Fox my co host Kathleen Hayes, and we're gonna take you through to the close of trading right now on taking stock on Bloomberg Radio. H