Federated's Orlando: Market Feels Similar to Tech Bubble(Audio)

energy shares. Right now, X on mobile is down three point six percent, Chevron down three point six percent as well. West Texas Intermediate crew to forty dollars of barrel down three point nine percent, Gold up to eighty, the ounce to thirteen fifty five, a gain of two tens of one percent. Tenure down sixteen thirty seconds that yield one point five percent. The SMP down three to seventy, a drop there of two tens of one percent. The down down thirty four, also at off of two tents of

one percent. Na's stack of one game of four tenths of one other set. I'm Charlie Pelletts, and that's a Bloomberg Business flash. You're listening to taking stock with pin Box and Kathleen Hayes on Bloomberg Radio. Oil oil at forty bucks a barrel? Wasn't it well? About fifty heading for sixties? Supposedly dipping below that key forty level, big factor wing on the stock market today. We want to step back to and take a broader look. It is early August. We have a couple more FED meetings ahead

of us. We have a job support on Friday. We have a big, big, big presidential election with so many issues at stake. How do you put it all together to come out with a forecast for this year? Heading into seen? Phil Orlando joins us now. He's chief equity market strategist, his group head of the macro balance and Growth Income teams for Federated Investors here in New York City. Welcome back, Phil's great to have you, Kathleen, always a pleasure to be your guest. Well, you know just where

are we? You know, in a couple of months where it was all about oil that seemed to receive the Fed's been headlines back and forth. You know, in your heart, in your gut, where are we? It's all about everything. I mean, so you can throw the ramifications that breaks it into there as well, corporate earnings, the Fed interest rates, that there are probably half a dozen things that you've got to focus on simultaneously. And where we are, uh, and we've been dead wrong, is that we're scared to

death right here. The market up here at you know, record highs is extended. We're trading at twenty two times trailing earnings, where at nineteen times this year's earnings. Uh. And you've got nothing but what we think our headwinds on the you know, horizon across the valley. And so we're sitting here with sort of a cautious neutralish position with a dividend centric portfolio to protect us while we're way for some clarity and the market just keep it

going higher. And and you know, at our at our meeting today, we were talking about how this reminds us. Uh. My boss told the story of how his parents fired him as their advisor in the latter stages of the tech bubble in the ninety nine period, and he was mortified and his mother was like, well, son, I know you're trying your best, but but this just isn't working. We're going to invest in some of these internet stocks and that kind of thing, and obviously that didn't work

out so good. But you know, this is sort of what it reminds us. Alight, if that reminds you of N nine and the bursting of the of the tech bubble, what does consumers spending now remind you of? Consumer spending is actually in decent shape. And and so that that disastrous GDP report we saw on Friday, the one glimmer that came out of that is that consumer spending was pretty good up four And then you say, okay, well, why was consumer spending pretty good? Retail sales the last

three months have been have been fine. The first quarter was terrible. The second quarter was much better, and and that's good because we're now into the early stages of back to school season, which is critically important. And then historically there's like an eight to historical correlation between the successor failure back to school and the successor failure of holiday, and holiday and back to school are the two most important seasons of the year. So from the consumer standpoint,

we're feeling pretty good about things now. Cap X and manufacturing is a is a very different story for for a number of reasons. We we thought we were getting to a bottom of the manufacturing cycle because the dollar was starting to weekend and oil prices are starting to strengthen. But now post breaks it. You know, over the last five or six weeks, the dollars strengthened five or six percent against the euro, oil prices are down, and now

folks are starting to say, well, wait a second. You know, um, should we be rethinking what our earnings assumption is on for this year or maybe our earnings assumption because the two bedrock issues that we were using to support our thesis for a stronger seventeen or moving in the wrong direction. Uh. And so some of the data points we've seen factory orders, durable goods, cap good sales, that those numbers have gotten a little sloppy of late. So sloppy of late. Oil.

I just don't you your quick take on oil too, because you know this is it's got so many it manages energy companies. It's also kind of a global macro signal, isn't it. We've had we've had a pretty good call in oil. So so we think twenty six dollars that we saw in the first quarters, the bottom and as we started to bounce off of that, what we saw were a series of one offs that took about three and a half million barrels a day off the market. Uh, Libya, Venezuela,

the Canadian wildfires, you know, etcetera, etcetera. And and so it looked to us as if there was going to be sort of an unsustained, anible move up in oil. And and that move went up to about fifty two bucks. And our thought was, Okay, we've extended ourselves. This move is going to come back into the high thirties. We we you know, sort of thought something thirty thirty nine dollars is about right, and I guess we're danna about forty one is or so now. So we're moving in

the right direction. Um, And that underpin part of our caution on what earnings look like for next year. The bulls are saying, oh, we're gonna do a hundred and thirty five dollars in SNP earnings next year. I don't think there's any chance we do a hundred and thirty five dollars in earnings if if oil is going in the wrong direction, the dollars going in the wrong direction. So something you know, in the bucket a quarter neighborhood

seems a lot more reasonable. And even at that, we're trading now at about seventeen and a half times next year's earnings, which again seem a little rich to me given some of the issues on the horizon, not the least of which are the risks from Briggs at the FED and and UH and the election. Let me ask you about government spending, because you note that that has

lipped and it accounts for about total GDP. So so there there were four elements of that report on on Friday, the GDP report that that we were horrible uh government spending. It wasn't horrible, but it was negative government. Uh spending on defense at the federal level was down. UH. State and local spending was down as well. So you know, you would think that the government would be trying to prop up the economy here, sort of prettying things up

for the election. But you know, at least for one quarter, that didn't happen. Uh. You know, Capex was was was terrible, Housing was wasn't great. Um. You know, so there were there were a number of issues that that were were problematic. The only thing, as I said, that really stood out and looked great. Was the consumer the consumers in pretty good shape. But these other elements of the report, you know,

don't point a particularly good picture. I mean, the GDP run rate coming out of the Great Recession is is two point trendline growth in the United States over the last half century or so is is about three point one percent. So we're running below trend line. And and the n b e R tells US National Bureau of Economic Research that that given the depth of the recession that we came out of, we probably ought to be

somewhere between four and five percent right now. So GDP growth, you know, depending upon your point of view, is probably limping along at about half speed. And and that's not a great place to be. So if the Fed Reserve says there's actually still a chance of September hike, I mean, and I think if you pushed that person, and I think it was Rob Kaplan who said that, he'd say, well, of course, that's that's if the data pickup. That's if we have two months of strong jobs absent that though, um,

no move in September, maybe no move in December. Film well, our call has been December. But but this is an interesting situation because when you've got a guy like John Hills and Wrath at the Journal writing articles at the FEDS thinking about September, you've got to believe that they're legitimately thinking king about September. So why might September beyond the table for the Fed? The labor market has picked up,

Both is ms have picked up. Retail sales, as we talked about a moment ago, have been much stronger over the last quarter or so. So the even inflation, not not the core PC, but the p p I and the c p I have picked up over the last couple of months as well. So the key metrics that the FEDS looking at have been pretty good. But there's another aspect to this, separate and apart from the GDP miss that we saw on Friday, and that is the

proximity to the election. We've done the work on this UH and we've gone back over the last half century or so and have determined that the FED, in between Labor Day and the election in presidential election years, would prefer not to be involved in changing monetary policy. If they can avoid it. They'll preload changes before Labor Day. They'll they'll give us a bunch of changes after the election, but they'd like to keep that two month period in

between clean unless they absolutely have to act. And right now, uh, you know, our senses that the Fed doesn't have to act. So unless something you know, happens to the data significantly one way or the other, our best guess is the Fed is probably on hold into the December f O MC meeting. Got any thoughts on investing in gold? You know, the price of gold is up more than so far

this year. Yeah, and and you know, uh, we looked at this, uh, in the environment, the post Brexit world, that the concern about the FED, the concern about you know, who's going to win the election, and what kind of fiscal policies are we looking at in that environment, that there were three havens that made sense to us. Uh, long treasuries, long dollar, and and long gold. And gold is doing well and it probably ought to have a place in your portfolio as a as a hedge of safety. Here,

thanks very much. Phil Orlando is the chief equity strategist at Federated Investors, giving us his outlook for the stock market and what to do with your money. We're going to take you through to the clothes. Next, I'm pim Fox My co host Kathleen Hayes, This is Bloomberg. H