Brinker's Wilson: Consumer Discretionary Spending Increasing

yield one point five seven percent. Gold down seven ninety the ounce to thirteen fifteen, a drop there of six tenths of one percent. SMP five hundred index down seven to sixty seven to drop there of four tenths of one percent down. Industrials down eighty five to eighteen thousand, four hundred eighty five, a drop of five tenths of one percent. I'm Charlie Palot, and that's a Bloomberg Business flash. You're listening to Taking Stop with Kathleen Hayes and Pim

Fox on Bloomberg Radio. Blow interest rates stocks well, they are up about six percent year to day, measured by the SMP five hundred just last week stock crisis closing at a high for the second week in a row. We have lots of uncertainty always in the stock market and for your investments. Tom Wilson is the senior investment manager and managing director of Wealth Advisory at Brinker Capital, helping to manage eighteen billion dollars of customer assets. He

joins us from Philadelphia. Tom, great to have you with us, And I don't know are you gonna be attending the uh the Democratic National Convention at all? Hey Ben, thanks for having me and at the moment that's not my plans. Probably certainly the watching on the television. All right. Well, the reason I brought up the convention, and of course it begins tonight in is in Philadelphia, is what effect do you believe that the election cycle is having on

investment strategy? Sure? Well, when you go back and look at years where there's an open election which means the current president could no longer run, you find that in this year the stock market returns tend to go sideways as opposed to years where the current incumbinent can run

for president. And we think the reason behind that is simply the market doesn't like uncertainty, so when you have an open election, it increases the uncertainty as far as which party is going to take power, and because of that, the market it's more of an unknown and acts as a bit of a bit of a headwind. Well as someone who manages money for institutional and high net worth clients.

Over the years, have you observed any correlation, any real direct connecting the knots between you know, who's in the White House and whether or not it really influences the economy and therefore the stock market that much. You know, Bill Clinton said it's the economy stupid years ago. Uh. You know, Donald Trump is advertising himself as a businessman who can get things done, as somebody who has to

manage money. What do you look for in a candidate? Yeah, thank you, Kathleen Well On the first part of your question, as far as what does the market tend to like, Oddly enough, the market tends alike when there is a different party in charge of the White House compared to the party that's in charge of Congress. So set another way, the market tends to like gridlock. Surprisingly enough, Uh, we believe the thought process there is that when there's gridlock,

it will be more of a uh status quo. And therefore businesses know what the rules will will be and as a result, businesses can plan accordingly, make capital outlays, and be able to spend the funds that they have, and it helps to take away a bit of that uncertainty, as opposed to when one party is in charge of both the executive branch and a few charge of the White House as well as charge of Congress, then you

just don't know all the rules that may change. That creates more of more of an uncertainty there, Tom Wilson, what is the single or maybe there are others, but just give us one mistake or one fail that you had in the last twelve months. You're one call that did not work out well? If there was one thing too, and there's obviously in the investment business, it's a it's a humbling business. So from time to time you're you're gonna uh you know, make uh mistakes as you as

you put it. But probably the one item is we we underestimated how low interest rates would would go. Um why we felt that interest rates the fear of rates moving up rapidly was not a risk. I think many investors did not anticipate rates continue to go down from

the levels that they were just twelve months ago. So what does that mean for you now when you've seen just how they could pick up and rally again, pushing those yields UH two lows and even in some case record lows again when you look outside the United States, I mean, it just seems I know there's a way to invest in fixed income. I know it helps balance the portfolio, but in some in some sense you say, man,

oh man, why would you even look at bonds? Now? Sure, well, part of that is because of the balancing of the portfolio. I mean, we we do take a multi asset class approach here at Brinker and where we think that fixed income is an important element of one's portfolio and it does help the hedge against uncertainty. So even if you get the interest rate direction call wrong, when there's a geopolitical event that takes place in the market, it's sort of shocks things such as Brexit back at the end

of June. Having a piece of your portfolio allocated to conservative, high quality fixed income UH will tend to do well in those periods of uncertainty. Now we also think, though, is that because interest rates are so low um it does create a kind of a negative headwind for the

fixed income asset class. So we also like the idea of allocating towards absolute return vehicles, and absolute return vehicles tend to try to get a a steady way to return regardless of the overall economic environment, so they tend to be a lot less interest rate sensitive. What's your call on energy companies, Well, what we've see energy has been very very interesting, uh in the today, particularly of a day where oil is down and the market's gone

down along with it as well. What we saw in the in the first quarter is that the direction of oil and the stock market was highly correlated. So oil continued to go down and down during the first quarter, you saw the markets go down along with it as well. In the second quarter, as oil prices began to rise, you saw the market move up as well. And as the quarter progressed, you actually began to see that the price of oil and the price of the markets became

independent once again of one another. So when oil is really really low, it tends to be a negative harbagure of weak global growth. As oil begins to rise and get out of that real low low territory. When I say that I meant dollars a barrel. UM oil can trade independently of the of the market. As we think about energy companies, we're getting to that anniversary of really low oil rates, and as we look at the year

year comparable oil prices are higher. The market is definitely anticipating better things from an earnings perspective coming out of the energy sector, which in turn should help the whole UH SMP five hundred as far as earnings growth as we move into the third and the fourth quarter of this year. And what do you make of the story

today by Bloomberg's own Mark Shank, beware oil bowls. Just as US oil production seems low enough to drain supplies, demand is about to fall off a cliff consumption gasing consumption that is usually ebbs in August and September. And he said that a lot of people worried that the price is gonna start falling again. Yeah. Well, and certainly if oil demand falls off the cliff, yes, we're gonna have a certain problem with the price of oil, and it will, it will then it will definitely go down.

UM oil in general, though, of course, is a UH you know, a global UH industry, so we need to really look at the global demand as well. And UH not that long ago the International Energy Agency Administration excuse me, actually increase their UH forward looking assumptions for global demand up from about eight hundred million barrels UH for the year too close to one point three point point four billion. So what we're seeing globally is on on balance, a

little bit an increase in demand for oil. At the same time, globally, we've seen rig comes rig counts come down as well, so we think that we're moving a little bit closer to a point of equilibrium. We're not there yet, but we wouldn't be over the surprise in the next six or twelve months if oil is able to settle it more to equilibrium type of price. Do you foresee any increase in consumer spending? Do you think

that consumer discretionary stocks will do well? Damn? Consumer discretionary spending should be increasing as we continue to progress throughout the year. And there's a couple of data points that we would point to that would back this up. Um One is that you do have wages on the rise, and it's been shown that as wages will go up, consumer spending pence to go up as well. Uh. Two is at home prices have not only been uh strong,

but they've been increasing in price. Uh. Most recently you had the case Schiller twenty city home price index up five pot year of a year. So with interest rates being as low as they are right now, we would expect home prices continue to rise. The reason why that's important, The reason why that's significant is for the average consumer, their largest I said, isn't their stock portfolil, but rather

it's their house. So as the home price goes up, they feel more confident and that tends to lead to uh, the more spending. Of course, we have that SMPK Suler Home Press Index out tomorrow. TOMA. One more question. The Federal Reserved two day meeting probably don't do anything on rates, but they send us a signal on the economy. How does that influence your outlook right now? Yeah, what you'll probably see is them singling that the economy looks good,

but they're still concerned about international markets and US. They'll they'll stand pat and an old likelihood, uh, though they might raise the specter of a potential rate increase, if not September, but potentially more of a December event. So if we saw something other than what I just described, that might make us make a change in our capital market forecast. But for now, uh why just articulated is what we're respecting from the Federal Reserve. Tom Brinker, thank

you so very much for joining us. The senior investment manager and managing director of Wealth Advisory at Brinker Capital with eighteen billion dollars of assets under management in Philadelphia. And yes, he is watching the convention closely trying to figure out what it means for investors. This is Bloomberg