Invesco’s Hooper: Tech Is Attractive Despite Headwinds

trade tensions received, at least temporarily. To get a sense of where we move to next or we go to next with the markets, we welcome Christina Hooper. Christina is chief Global market strategist for invest Goo. She joins us live from the Phoenix Convention Center at the b n Y Melon Pershing Insight Conference. Christina, thanks so much for being with us. It really does appear that certainly one

of the main drivers for investors sentiment is trade. Is that your sense absolutely and what I would say, more specifically economic policy on certainty created by the current tariff situation and the threats of more tariffs. So right now we're looking at markets that are broadly expecting rate cuts that I put that in plural. Before the end of this year, PIMCO came out and so that there could be a fifty basis point rate cut in July if

economic conditions deteriorate. Do you agree with that assessment. I think that is extremely unlikely. I think the FED wants to certainly be very careful and thoughtful about any rate cuts it makes, and so what we're more likely to see is communication around standing ready to ease. But I would be very, very surprised to see a fifty basis point rate cut in one fell swoop. So I guess Christina, one of the things that Lisa and I discussed back and forth is you know, what does or what do

multiple rate cuts tell us? Does it really suggest that this economy perhaps is weaker than maybe the markets are discounting? Well, it really all depends on how the FED frames this, because keep in mind, we've heard a lot of chatter from FED members over the last several months around inflation targeting and the idea that we could potentially see the FED changing its inflation target raising it so to speak.

Um that would mean that essentially the FED could cut rates without any changing economic conditions and it would be a really easy way to ease without causing alarm. So if the Fed does not cut rates, what happens to equity markets? If the Fed does not cut rates, It's all about the language. It's all about what we see

in the announcement. If they take out the patient language, I think that will matter a lot to markets and won't cause any kind of sell off because I don't know if we're going to see any rate cut in June. But it's all about the language and perhaps what we see in the dot plot. But I mean, for example, because right now markets, if you look at FED funds futures contracts, they are except pricing in two and a

half rate cuts by December. Let's say the Federal Reserve signals or just doesn't cut rates at all, or cuts rates once. I mean, does that does that's for a big sell off. It all depends on how this plays out, right, because we can see FED funds futures change quite rapidly, and so expectations might change by the end of the year. But let's assume in that scenario that Fed funds expectations remain the same um FED funds futures remain the same in that kind of kind of environment, we would likely

see disappointment in markets, at least temporarily. So, Christina, one thing that I guess that Lisa and I are hearing more and more from economists and from strategists that that appear on our show is the you know, the expectation that maybe mid quite likely to see a recession. Is that something you think is reasonable? Well, we're certainly following it closely, but from our perspective where we stand today, we don't think, um that a recession is the base

case for now. A lot can happen between now and then, and some of it is certainly dependent upon UH trade policy and where that goes. But it seems as though major central banks stand ready to provide accommodation. We've already seen financial conditions ease in just the last few weeks, and I would suggest that this is going to be an environment where once again UH central banks step in

and save the day. UH. We could certainly see a deceleration in growth, but at this stage it seems unlikely that we actually see a recession by mid Christina, are you seeing your clients making big allocation shifts at this point? We are not, um clients understand, and what we stress

is taking that long term perspective. Now, that doesn't mean there aren't small tactical shifts, and I certainly think that what we're likely to see going forward is continued to focus on a growth tilt within US equities, and I'm hoping that will also see something of a tilt towards more income producing asset classes, given that we're likely to

be in a lower for longer environment. We're talking high old bonds, well, not necessarily high yeld bonds specifically, but an array of higher yielding asset classes that would include high yield bonds, um munis, including higher yielding munis, but also convertible bonds as well as dividend paying stocks. Sometimes they get overlooked, and I think many of them have been overlooked in the recent rally. So, Christina, we are

more than ten years into this economic cycle. So as you think about where you're allocating money in the equity markets, are there certain sectors that, just given where we are in the cycle, appeal more to you than some others. Well, we see this cycle continuing, although of course decelerating, and so that would suggest uh and overweighting towards the growth style in this kind of environment, and so I would favor technology and to a certain extent, healthcare names as

being quite attractive. Now. Of course, that doesn't mean there aren't headwind for those sectors. In particular, tech is likely to face more regulation. But this is more of um uh, you know, two year to three year outlook, um, And right now tech looks attractive despite some of the head winds we could see. So I just I'm curious, given the fact that you're bullish on risk assets over the near to long term or certainly the even the near term,

do you think that treasury yields are too low? Tenure yields right now two point one per cent, and if so, how much could they rise? Well, treasury yields UM are definitely low relative to where they have been, but that doesn't mean that that's going to change. And what it does mean, though, is that it makes equities look more attractive.

It makes dividend paying stocks look more attractive. So I think we could continue in this situation for a while, UM, because I think the bond market is accurately reflecting the fear in the market that we're not seeing being reflected in stocks. Christina has the global trade tensions. I guess the escalation of some trade tensions is that caused you guys to rethink maybe your allocation to emerging markets. Is it just too risky to to maybe be a little

bit too aggressive there. Well, what it's encouraging us to do and what we've what we've been advocating for some times to be very discerning and emerging markets. There's no reason to change your overall waiting to emerging markets, but it's important to be selective within emerging markets, focusing on those areas that are actually benefiting UM from what's going on in in uh the larger macro environment, including trade wars,

as well as the FED turning more accommodative. UH. So I would favor in general Asia e M in this environment. Christina Hooper, thank you so much as always for being with us. We love getting your insights. Christina Hooper is chief Global Market Strategistic invest Go, which overseas nearly a trillion dollars. Facebook uncovered emails that may indicate the chief executive officer Mark Zuckeenberg. Zuckenberg knew of quote questionable privacy practices.

That comes as scrutiny continues to mount with respect to big tech and their privacy as well as just UH their size issues, their dominance of different markets. This is definitely one of the focuses here at the b n Y Mel and Pershing Insight Conference, especially given the fact that big tech has accounted for a good proportion of the incredible rally that we've seen in US equities over

the past few years. Joining me here on site, Phil Orlando, chief equity market strategist and head of Client portfolio Management that Federated Investors overseeing about five billion dollars in assets. You are going to be on a panel delayed gratification? Are we going to see delayed gratification for all of the naysayers of big tech? How much do these rising issues of regulation around big tech cloud your view or affect your view when it comes to how to allocate

two tech shares? I think we could have some chopped this summer, and certainly this technology issue that has just popped up on the wires could certainly contribute to that. You look at UH sort of the political environment that's going on in Washington right now. You're hearing a lot of populism in terms of technology is getting too big. It's unregulated. We need to break them up, put some

more laws in place. UH. And then you think about the fact that we've got the democratic primaries coming up, I think the right at the end of this month, I'm absolutely positive this will be a topic of discussion in terms of the Q and A with the candidates and the and the moderators. So the the noise, the fewer, the headline risk associated with this issue is likely to get bigger rather than smaller over the next couple of months.

Our view is maybe the you know, the market UH could could have some chop over the over the summer months, and and you know, the technology issue could certainly be one of the issues that contributes to that chop. So, Phil, one of the things that's clearly been UH, you know, impacting markets over the last several months is trade concerns, first with China UH and then with Mexico, and of course the Mexico trade issues very tightly tied to immigration

UH and how that should evolve. I know you recently put out a note on how you think UH immigration UM rules should be amended. Give us your thoughts on that. So the immigration issue is has been a hot button issue for me for a couple of years now. And and uh, the note that I just put out this week, uh looks at a couple of the big macro issues. On the one hand, you just got the Jolts report on Monday, the JULTU reports pretty good, seven and a

half million new jobs. We've got more new jobs that we're creating in this country then we've got them ployed people on the sidelines that could possibly fill them, all right, So that's a good thing and a bad thing. On the other hand, our for our organic fertility in this country is at a cyclical trough. Are are women are only having an average of one point seven children per woman? That that's half of what the rate of fertility was

when I was born in the fifties. I love the clinical terms for this, the organic fertility rates people having babies go on. Yeah, And and we understand what's going on. Women are focused more in their careers and their education, and and with a trillion and a half dollars of student loan dead couples, I think are making a conscious decision to have smaller families rather than larger families. It's expensive. I know, my kids, my youngest as a junior at

Penn State right now. So I'm well, exactly exactly. So, So the point is that that we're we're producing less kids, and yet the labor market is strong enough that we need more workers. The solution, the way to bridge that gap is have an intelligent immigration policy, and and intelligence is sort of the key word here. That is an oxymoron when when referring to our leaders in Washington right now,

they can't get out of their way. There's like the Keystone Cops trying to solve what should be a slam dunk issue in terms of making sure that we've got enough qualified workers coming in from from outside of the country in order to fill these jobs. So I think it's a legitimate question. It's one that that's been bothering me. I I so much so that I probably read about it every six months, you know. So it uh and

so I wrote about it this week. So aside from fertility issues, and this is actually a very important one. I don't mean to diminish it. I mean it's one of the major drivers that people point to in Japan and why that abum. But I want to shift to one other area that's stagnant, and that is a US inflation. It does not appear to be going up, and we are seeing up markets price in increasingly. The Federal Reserve will cut rates next week and certainly thereafter. Do you

think that's the right call? Inflation is benign? There's no question. The core Personal Consumption Expenditure Index, which is the FEDS preferred measure of inflation, is sitting at one point six percent as of the latest reading. Then we got a CPI number this morning. I think the core PC, the core c p I year a year, came down two percent even, Is that right, Lisa, Yeah, so it was core I'll look it up. I think it was two percent. Now, the spread the relationship between the PC and the CPI

tends to be about a half percent. So that's consistent with Okay, that's consistent with the one point six pc numbers we are now. The market, I think, has built up in its mind that that inflation is too low and that the Fed is going to ride to the rescue at next week's f O m C meeting and start a rate cutting cycle. We disagree with that, and I think if, if, if we're right, that the Fed

is not going to start cutting rates next week. That could represent some disappointment for the market, because the market has rallied pretty strongly here over the a couple of weeks. And there are a couple of issues. So issue number one is that inflation. I don't think it's a problem. I think it's benign, but I don't think we're risking a deflation or disinflationary sort of the environment. Point number two, We've got the G twenty meeting coming up in Osaka, Japan,

at the end of the month. That's a very important meeting because we're expecting that she and Trump are gonna get together, uh and and you know, shake hands and and have a nice conversation, much like they did in Buenos Aires last year. And what that will do is not create a deal, but allow the the the beginning of a series of conversations between our minions and their minions too. I think get a trade deal back on track, let's say by Thanksgiving. Uh. And then the third issue

is that that I wrote about this last week. The job's number we saw last Friday was terrible, and everyone's freaking out that we're going into recession. And I don't think that's the case. I think we had a bad number. I think it's an aberrant number, and I think the FED would be prudent to wait for another job's report or who before they they change policy dramatically. So my best guess is a cut from the FED, maybe at the July thirty one meeting at the earliest, and I

think the market may be disappointed next week. What FED should do next week is take the dot off the board and then give us some happy talk about needing to come in, wanting to come in if they need to later in the cycle. Very good, Phil Orlando, Thank you so much for joining us. Phil Orlando, chief equity

market strategist ahead of client portfolio management from Federated Investors. Well, the prospect of the U s slapping tariffs on Mexican goods is off the table for now, but it does appear that President Trump's patients with Mexico hinges on what may be an undeliverable promise, and that is to reduce some of the stream of immigration UH that the US

is seeing at its southern border. Here to explain more about this is Josh wind Grove, a White House reporter joining us from Washington, d C. Josh, can you give us a sense of how much President Trump is sort of watching the flow of migration at the border in order to gauge whether or not to ramp up the

rhetoric here with Mexico. I mean, he he has indicated that it is all about that, and that if those numbers don't go down it was a hundred and thirty three thousand apprehensions in May at the US Mexico border, then he's going to reserve the right to essentially do more,

including maybe unsuspend those tariff threats. And we seem primed to kind of come to a head on it again, because of course there's a lot of reasons that the number is so high, and even those close to the presidents say that it's not there's no way that Mexico can do it on its own. Is a mix of factors, and Trump supporters would say that does include the need

for changes in Congress. Refugee advocates would say it also includes addressing the root causes of the unrest in Central America that's sending these migrants on the road in the first place. So, Josh, is there any expectation that the plans that Mexico has initiated in terms of sending troops to its southern border. Can meaningfully have an effect. Yeah, I think most people think it would meaningful have an effect. I spoke yesterday with Barack Obama's former ambassador to Mexico,

who thought it was a good framework. You know, everyone thinks, I think that this might be a good step. It's a question more of is it enough to really cut down that number? A hundred thirty three thousand is more than triple the same month a year ago. And I guess time will tell. One wrinkle on this though, is these numbers normally fall in the summertime. It's hot. People don't want to be, you know, walking a long distance

in the United States as much. So if we do see those numbers drop, it could simply be be because as a seasonality. And then the question is, does take credit for that and you know, call his plan to win and move on? Uh? And even if he does do that, when they start rising again traditionally in the fall, as one would expect, does he get angry? Does he

call it Mexicogan and say you're not doing enough? So, Josh, the reason why markets are so focused on that, and that's certainly one of the questions here at the b N Y Melon Pershing's inside conference point N team, where we are in Phoenix. The reason why people are focused on this is because US trade with Mexico is so fundamental to certain industries, in particularly the auto industry. I'm just wondering how companies can even make plans right now.

I mean, basically, given that this all kind of hinges on a flow of migration here, what are the prospects for the U. S m c A to get past and some sort of longer lasting deal to give people conviction at this point? Yeah, I mean you raise a great point. Let me try to do with one point one. The scale of this is really difficult to overstate. Aside from China, the US buys more goods from Mexico than

any the country. A five percent tariff across the board would affect a ton of stuff, and it would also affect a ton of stuff that crosses the border a bunch of times, like an auto production as you mentioned, So that tariff could compound pretty quickly in some of these companies to get into the weeds a bit a bit. Don't even have systems set up like the way they collect tariffs as his own you know, the whole gauntlet

to run, you can imagine. And so if you've never been paying any you you you don't even know where to begin. So the potential headache for exporters, importers the economy is difficult to overstate. On the other side of the President simply likes tariffs. He believes that they are both an effective tool in negotiation and he believes that they're an effective thing generally. So I don't think you would ever rule out the chance that he would do it. He does want that U. S m C a trade deal.

A lot of analysts think it's very difficult to imagine the Mexican government ratifying that deal. Is they still have to do. Of course, Congress also needs to ratify it if those tariffs are in place, So maybe we'll see if Congress can move on in the summer. So, Josh, you mentioned that hundred thirty thousand number of crossings recently. Is there a number that the Trump administration would find acceptable? Um, is there something we should be looking for? Well, yeah,

it's a good question. I mean, they were we were down sort of the fifty thousand range just at the beginning of the year. I think if they got it back there, they'd be happy to claim victory. It's also noteworthy to say that this isn't the highest it's ever been. Diane fine Scene, a Democrat from California's noted this in

a hearing yesterday. Was around one point six million coming around across the border annually, uh in and around two thousand Right now, we're on pace or nine hundred thousand, maybe a million, so a high number, higher than in recent years, much higher than in recent years, still fairly well below the highs that the US has scene in the past. So I guess that I'm wondering what are we looking for going forward in terms of some kind

of guidance of the progress being made here. I think all I should be in July on that June number. Uh The US releases CDP releases annual or sort of monthly excuse me, monthly numbers of apprehensions at the border. If that June number is, you know, fair a bit lower than one thirties three, that's probably a good sign. If it is higher than, you know, I think all

eyes will be on the President to react. And if it is lower and we get through a summer and we don't hear much about this again, investors might want to look again back and if that number starts rising in the fall, Traditionally, as I said, fall the weather gets a little more reasonable people, those numbers tend to rise again. Regardless of these measures, those numbers could rise again, in which case we could be back to square one.

Josh Wyn Grove, thank you so much. Josh wyn Grove is a White House reporter for Bloomberg News, reporting from Washington, d C. It is going to reach more than a hundred and five degrees where we are, which is the Phoenix Convention Center at b and Y Melon Pershing Insights Conference for nineteen and one. Area of focus is the ongoing debate man versus machine, at least that's how it's been cast, the rise of E t f S, the

cannibalization of the active management industry. Joining us now to sort of give us some real talk on where we are in this evolution is Jeff McCarthy, chief executive officer of E t F S Exchange Traded Funds at BNY Melon, here with us at the Phoenix Convention Center. So, Jeff, let's start with just sort of a state of play. How much has money flowed out of active into passive into e t f s. How far are we in

this evolution? Yeah, thanks Lisa. So I think when you look at active funds, we've seen a continuous outflow over the last ten years of these funds. Now, the trick is you've seen the active fund market grow largely because of capital appreciation, but they've had negative inflows. On the inverse, E t s have a positive inflows year after year. This year year today, for the first four months of two thousand nineteen, we've seen eighty six billion flow into

these products in the US. Last year two thousand seventeen over four hundred. So it's definitely an asset class or a structure I should say, I don't want to call it an asset class that's gaining momentum and gaining investor flows. So, Jeff, is there any end in sight to this trend? From your perspective, I think it's going to continue. And one of the things to look at is how big is

the mutual fund market in the US. It's an over It's over twenty trillion in assets, and the E t F market is just at four trillion, So there's a lot of room to grow. There's a lot of aspects that are uncovered, especially when you look at the defined benefit to find contribution the four oh one k universe that's largely not penetrated by e t f s, And when e t f s make more headways into that area, I think you're going to see an asset growth pop

in the e t F industry. So my impression is that in US equities, e t f s have already gotten a substantial share. Is that is that correct? I mean, do ETFs count for a significant proportion of retail investments and say the s yeah, I mean e t F today the market is seventy eight percent held in equity products sixtent and fixed income right, and then the list goes down, so they're largely held as equities strategies. But I don't think you know the end is in sight.

I think you know ETFs continue to be, especially on the passive strategy, a product of choice. I mean institutional investors and retail investors use these products, and I think that's key to having a healthy investor access market. And seventy eight percent of investors by Greenwich Associates say that e t f s are their preferred vehicle for index strategies, and and Jeff, is it what to what extent? Is it just the lower fees that are driving e t

f s? What's from your perspective some of the key drivers share? Well, I think low fees is the number one, right, all investors, institutional, retail, they're all price sensitive, right. And if you look at the flows into these products, of the flows going to products with expense ratios at twenty basis points or less, but then sixty of those are

products at nine basis points and less. So there's really no reason why an investor should pay more than single digit from an expense ratio for product to get broad exposure into the US market. Because e t s are liquid, liquid,

they are available, and they're transparent vehicles. Okay, So when you're talking to prospective investors in e t f s, is the low fee kind of the key aspect Because we've seen Fidelity, for example, have a negative a negative fee type of fund right that's been introduced to try

to lure people in. We've seen cut fees cut to zero and at a certain point, uh, you have to wonder the viability of some of these of these companies of fund manager companies and where they're actually getting their money. Are people paying in other ways? I mean they are paying other ways. Now, I'm never gonna say, you know, Fidelity isn't gonna be viable, right, It's a it's a powerhouse asset manager. And I think if you look at Fidelity strategy, they have so much to offer investors, and

so they'll offer investors products at zero, right. But to customers of Fidelity, why because they bring them into the Fidelity family, They leverage and they cross sell other products that are necessary for those investors. You have seen some ETFs come to market this year at zero or negative right, pain investors to invest. But you have to look at

the fine details of those products. Right. They have disclosures, meaning they're waving their fee for the first year or until the fund gets to a hundred million in assets, and then the expense ratio goes up to nine team basis points. So it's not necessarily free. And I think you know the broad lesson of the best things in life are never free. You should apply that to investing. And I think you have to look at the product, the characteristics, What is the investment objective, what is the

components of the index versus just the cost. But going back to my previous set statement, investors are price sensitive and cost is a large factor into asset allocation selection. Jeff McCarthy, thank you so much. Jeff as the chief executive officer of exchange traded Funds at b n Y Melon. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on

Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on Twitter at Lisa A. Bram wits one. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.