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Right now, the SMP five hundred index down a point at two thousand ninety seven, falling one tenth of one percent, and as stack is up eighteen points again of four tenths of one percent. Down Industrial is up twenty six points again of two tenths of one percent. Gold down six sixty, the ounce the thirteen sixty and dropped there of five tenths of one percent. The yield on the tenure one point three eight percent. The tenure down five
thirty seconds. And crude now at would he five eleven for a barrel of West Texas Intermediate down four point nine percent. I'm Charlie Pello. That's a Bloomberg Business Flash. You're listening to Taking Stock with pin Box on Bloomberg Radio. Will they or won't they? Will the Federal Reserve a raise interest rates one time this year twice this year? Well, what is the Federal Reserve going to do based on votes in the UK to leave the European Union and
sluggish economic growth around the world. Well, let's find out from Russ Coster. Achie's head of asset Allocation for black Rocks Global Allocation Fund, helping the manage over four trillion dollars, joins us from San Francisco, Russ Coster, which thanks very much for being with us. All right, so give us your outlook for the Federal reserves policy. Well, I think the near term it's probably more of the same, which is remaining on hold. Uh. The Brill exit is a
bit difficult at this point. Really, what it's about is uncertainty. What does it mean for the US economy? Arguably not much, But if if things do get rougher in Europe, that could affect consumer confidence, it could affect business confidence, and I think the set is gonna want to sit back
for a bit and assess that before they raise rights. Well, then, boy, that that really does seem to me as if you think about it, that could easily then mean that they're going to be assessing at the end of the year because the negotiations between the UK and the EU are going to take a while. Number One, markets will settle down, right, But um, unless they're just mainly looking at financial contagion and and tightening financial conditions, maybe that sorts itself out
by this autumn. But if it doesn't, then they could I guess they could say even if the economy picks up, they're just gonna sit there. Well, certainly this is something that's gonna linger for a long time, and Kathleen, you're right, this is not going to get settled in a couple of quarters. We're gonna be dealing with the uncertainty for
many years to come. I think the way to frame it is, is there enough pressure in the domestic economy to give the FED conviction that even as things do become a bit unstable in Europe, the US economy is going to be all right. And it's worth remembering the last labor market report we had was disappointing and suggested maybe some of the momentum is coming out of the US economy. Maybe it's coming out of you with labor market, and in that context, I don't think the said feels
the need to rush. Now if we've seen an improvement in the data, well, if there's enough of an improvement, that may trump the uncertainty from overseas and we may wind up getting a hike by the end of the year. But at this point it still needs to be proven. Russ Costrich. If you're talking to people that invest in equities, they're looking at return to the SMP five hundred of about two and a half percent so far this year.
Should they continue to buy equities or should they just hold off on rebalancing perhaps and continue to buy fixed income, which has been the major performer. Well, I think you prefer equities over bond. Certainly within the global allocation fund, you know we've got not not neither one is presenting a great value right now. But between the two, US
stocks do look cheaper than bonds. The problem is we've had the seven year bullmarket, with a lot of that being driven by multiple expansion people willing to pay more for dollar earnings. Bonds in the US have never been as expensive. So what it means is that if you look at a typical portfolio with stocks, maybe bonds, you've got to assume lower urns going forward that we've had over the past five years, and maybe even we've had over the longer term. Well, how about the job support tomorrow?
Because Dave Wilson are stocks that made then the simple clear point. You know, it's simple, but it's so true that ultimately, as you start looking ahead to earnings and you're looking down the road, maybe not just for a quarter or what I purchase and invest in, but for the longer term, if you don't get much growth, it's going to be tough for a lot of companies to post better earnings. Right. So, uh, when you look at the report tomorrow, what is going to be the linkage
between higher number than forecasts lower? When we look first of all the training reaction tomorrow in stocks and then down the road, well, I think the training reaction tomorrow is really going to come to Is it a good enough number that it gives you some conviction that the recovery is on track, but not so strong that's going to scare the Fed. So something in that one range that's probably a market friendly number. It's close to consensus.
It makes you feel that may was a bit of an apparition, but it's not going to scare the Fed into getting aggressive longer term. You know, I think the importance of these numbers is, as I said, we've had a bull market largely based on multiple expansion. It's gonna be hard for you, as companies that are already very profitable to grow their margins. Is stocks are going to rise from here, they need to rise on higher earnings, which needs to happen on the basis of higher revenue.
And for that to occur, the economy has to accelerate, and unfortunately we've been stuck into slow growth mode for a very long period of time. Effert rust, doesn't it really take increased buying to move stocks high? I mean, it doesn't really matter what the companies do. You can have companies that don't make any money and people will still buy the stock. You've just got to have willing buyers, and they don't seem to be appearing on the market. Well,
and in him, I think you've nailed it. We don't have willing buyers. We've got a lot of money. We've got a lot of money on the sidelines, and honestly, if you're put any new money to work. It's less exciting doing that when the S and P five is trade in at nineteen and a half times trailing earnings versus four or five years ago, when the multiple is a lot lower. If we're going to get the games, we can't rely on as much of people constantly willing
to pay more for dollar of earnings. We've got to see that companies are starting to raise their estimates and there's some acceleration in the earnings they can generate. So if we want to gettle more specific about this kind of world Brexit uncertainty, Uh, it takes some time to play out. Fed Maybe uncertain don't learn know about the economy. You go to something solid, like me the healthcare industry.
Do you turn to come of these some of which look like you know they even though there's been a lot of alatility lately, they've hit bottom, they're moving higher. Where do you go first? I think there are a couple of things we do like health care. I think health care is one of those parts of the economy where you're going to see secular growth. We know we're all getting older, the country is getting older. People are
spending more in healthcare less on things like apparel. So that's a it's a long term structural shift that I think benefits the sector. Second, Kathleen, you mentioned commodities. You know, the one asset class that has been doing well for what I think are obvious reasons has been gold. And if we're in an environment in which the Fed and other central banks are going to keep pushing real interest rates to zero or below zero, that's an environment where
goal typically does well. So that's another asset class to think about if we're stuck in this world for a while longer. Yeah, but Russ, if you if what you say is accurate that the central banks are going to continue to push interest rates even lower, why not just go out and buy some bonds. Looking at the tenure if you bought the tenures Treasury at the beginning of the year, you would have made well. The rallying bonds
has been extraordinary. Certainly, it's nothing that many people predicted, and I think bonds have a legitimate role in the portfolio. The question is how much, uh you know, Certainly some of the longer duration bonds you are getting some pick up from what you get on the shorten the curve and The other advantage of that asset class, which is why I think you do own some of them in your portfolio, is they have proven a very effective hedge
when stocks them and going lower. On the other hand, are you really going to pile into bonds with the ten you're yielding one point for eight percent? You know for a taxable investor for most of us that pay taxes, and that means that you're after tax income is actually
going to be below the rate of inflation. So what I'd like to know about technology in here, because sometimes it seems to be in its own orbit, and of course you've got everything from ship makers to social media to you know, old line companies like Microsoft, anybody you like in there. In this kind of environment, they have some of those companies, for example, become almost sort of above all this or apart from that, because there's so much on their own trajectory. Well, I think it's a
really interesting point. And certainly there parts of technology that have have demonstrated that they're going to keep growing earnings even in a slow growth world. And technology is one of the sectors we like. And it sort of goes back to the argument and made a moment ago about health care. You know, in a slow growth world, you're not getting that lift that we normally received from a growing economy. But there are segments that are benefiting from
greater wallet share. We're all spending more money on technology, just like we're spending more money on healthcare, and that's like that they continue and that's one of the reasons I think that sector can continue to do relatively well. RUSS anything to do with hard assets. So you mentioned gold briefly, but I was thinking for example of real estate. Boy, I mean, if you can actually borrow the money, you're
almost getting the real estate for nothing. Well, that's a that's a great point, and I think real estate is a little bit harder to access. Certainly there's liquidity issue,
it's it's not as easy to sell. But any real estate that has income generating properties, I think that's another place and investors want to look and and the reason it's not hard to understand anything that can generate income, whether you're talking about a piece of real estate or you're talking about a dividend pain stock where you're talking about a bond, uh, let's say a corporate bond. People are flocking to those asset classes because the traditional sources
of income cash, government bonds. Municipals are just paying a fraction of what they paid ten or twenty years ago. Well, RST Custards, thank you so much for joining us. You've really set the table for us at the stage for the job support tomorrow. Do you think with the uncertainty of Brexit, the feder Reserve and so much more rest as head of asset allocation for black Rocks, a global allocation fund. Well, we're heading into the clothes now, will be joined by Dave Wilson our Stock Center to look
at the movers and shakers. Got the Dow actually down two tens thirty two points at seventeen thousand, eight eighty six s and P five hundred down about a tenth two and a half points at twenty ninety seven. The Nasdaq is up a third of a point sixteen to forty eight seventy five. This is Bloomberg