Market Is Ripe For A Near-Term Pullback: Miller Tabak's Maley

and on Bloomberg dot com. We'll just in the last minute, I'm looking at something that I haven't seen in a long time, and that is all three major industries lower than ASDAK has just turned lower now and is down a tenth represent of course, the S and P down a quarter represent and the DOAO has been down about half a percent. But still we're talking very very small down. Let's bring in somebody who knows a lot about records

and stock market action. Matt Melee is managing director in chief markets strologist add milleran tay Back, and he joins us from Newton, Massachusetts. Today. Matt, we're down today, but we're down very very small. Do we hold onto these records even as we wait for another stimulus round? You know? It's it's it's funny because this rally has been seems to be waning a little bit in the last a couple of days. Even though you know, each day we seem to try to test the all time high in

the SMP and toil. This morning we got above the inter day all time high. But even when we reached that inter day all time high and uh forty five minutes ago, the the breath the advances versus decliners were actually negative. And we've seen that kind of that breath uh, you know, pulling back recently, volume has dropped off considerably, and so people, I think, are a little bit nervous as we're making this new high. It's kind of a point where people can step back and say, geez, you know,

we're up fifty percent in just five months. We have, you know, evaluations, even though that's a lousy timing tool, valuations above twenty times earnings. Uh, it's it gives people a little bit of a reason to pause, and to be honest with you, if we did pull back from here, it wouldn't be the worst thing in the world. I mean, pauses, pull backs are and even corrections are normal and healthy in any market. So, Matt, one of the the uh, the characteristics of this rally off the bottom is it's

total lack of breath. It's been driven by you know or seven names, and if you pull those names out, we're actually down four percent year of her year. How concerned are you about that lack of breath? Um just from a market you know, maybe just the stability a

technical perspective, Yeah, there's no question. I mean a lot of people are you know, each people are saying, well, jeezy stocks deserve to be moving higher, and and that's true to a certain degree, but it also tells us that the overall economy, the breadth of the economy is not as strong as as some people would like to think. And therefore it's I guess my point is every time we get a narrow rally, people come up with excuses

why it's it's it's actually nothing to worry about. But each time it seems to be something that people should have worried about, and we do see a pullback of

some sort of substance. So not a lot of people have been talking about cynicals and you know, a rotation into cyclicals, But are we really going to see a rotation in this market action we talk about, you know, the five stocks being the biggest part of the composition of a the s and it seems to me that even if we do have a rotation, it's going to be so small that it's going to be barely noticeable. Yeah, I I agree, And of course one of the things

that that I worry about. Uh and again it's it's funny because I've I've actually become more constructive on the market on a longer term basis, but near term we definitely look like we're getting right for a pull back. And one of those reasons goes to what you just mentioned, Vonn, is that we talk about how well can some of these um and you know, cyclicals do if we get another round of another wave in the coronavirus. I mean, we've seen these kind of whether it's a second wave

or a second half of the first wave. The weather hasn't gotten cold yet, and what we've seen from Australia and New Zealand and other places in the southern Hemisphere as the weather got colder, they did see a new wave. In fact, in Australia it was worse than the first one. So if we get that kind of thing and and we get some sort of a lockdown, I don't think it'll be anywhere near as severe as the last one.

But if we get some kind of a semi lockdown, we're already seeing that with the school, with some of the College is h that's going to make it tough for some of these cyclical stocks to rally in the way that some people think they will. All right, so we still have the pandemic risk out there. Give us a sense of the political risk, big, big, big election coming up in November. How are you factoring that in? Well, the in the market is not factoring it at all

right right now. And one of the things I mean on two things. Number one, you know, long term uh is a lot of people will point out that the Democrats have actually been better for for the stock market or uh more more more more often than not, although certainly President Trump has been uh as a GOP president has been very positive for the stock market. But but on a on a near term basis, you look at it,

where what's the starting point? The starting point right now as we're moving towards the election, as we get past these conventions and really move into the election season, the market is an all time high. It's overbought on a

tentacle basis, it's expensive on a fundamental basis. So if we start to see that the that the President Biden, especially if we talk about you think about Elizabeth Warren maybe being you know, in charge of the tragury Department or in charge of even the Justice Department, that will have a negative impact on certain aspects of the marketplace. So uh, and especially if it looks like the Democrats

are going to have a full sweep. I think that a longer term it may not be the worst thing in the world, but near term, with the market the way it is, people are gonna have to start to factor that in. And that's another reason why I'm more cautious on the near term prospects for the market. But what would you do about banks right now? You've always had such strong thoughts on the banks, but they're really

in the duldrums. Yeah, it's really a concern. And when you get somebody like Warren Buffett, who obviously he's been you know, we we've heard all the news about him upping his position in Bank America, but then we find out he's he's pulling him back in a lot of other areas. It's still a concern for me. And now, even though interest rates have moved up a little bit

in the last week or so. Uh, they're not going to go up a lot higher even if they even if they stabilize up this this kind of slightly higher level. But the other thing that really concerns me is I continue to watch these European banks. You look at the European Bank Index, it's rolling back over again from a pretty low level already, and they've been in a performing

for quite some time now. It just shows that there's some stress on the overall banking system, and I think it shows, you know, concerns about you know, whether we're going to have the situation with bankruptcies while they pick up and get past the political questions. Matt Mally, thank you so much for joining us. We appreciate they appreciate that. Matt Mally, managing director in chief market strategist for Miller Tabek,

joining us on the phone from Massachusetts. Uh, yeah, Vonnie's I'm glad you brought up the banks because they just can't seem to get out of their way here, and yet they have a whole myriad of issues you have to deal with. As Matt suggested, those low rates and the potential right offs. It's amazing because they're one of the areas that didn't rally ever, even when people were saying, look,

they're they're way under valued here. Yeah, exactly, so the whole host of issues that they have to deal with. So we'll look forward to those earnings the next quarter. It is time for Bloomberg Opinion. We're joined today by Bloomberg Opinion calumnist Sarah Haws actually covers retail for Bloomer. She's based in Washington, d C. Sarah, A busy day today for you, Thanks for joining us. We had Walmart,

Home Depot, Coals all reporting earnings today. It seems like Walmart Home Depot they're kind of seeing some benefit here from changing buying habits, but Coals not so much. What are your key takeaways? Yeah, I think that's exactly right. All of us are spending so much more time in our homes, and that clearly has been a benefit to

Home Depot. People have taken on renovation projects they wouldn't have otherwise if they didn't suddenly have to have a home office, for example, or they're pulling forward renovation projects that maybe they were planning to do a year or two down the road, and so comparable sales growth. They're a booming twenty UM and Walmart also benefited from all

these traumatic changes to our lifestyle. Not only are people cooking more at home, but again trying to trick out their backyards to make spending climate at home more valuable UM and enjoyable sporting goods, that kind of thing. And so those two held up fairly well in the quarter. But old, you know, consistent with what we saw in the commerce department retail sales numbers last week, clothing just

continues to be a real weak spot. People are just not spending money in that product category, and that showed up in the weak results for coals in the quarter. Now that's something that you might anticipate because there are no events to go to, this very little entertaining at

home and so on. So clothes you can understand. But can Walmart UM Home Depot keep up these figures even as stimulus recedes, because you know, there was that check and then there were extra unemployment insurance payments, But they've gone away for the moment, Yes, And I think that's a real risk, and I think that's why you're not seeing their stocks really pop on these results this morning,

even though they beat expectations. Walmart cited repeatedly in its earnings materials that the government stimulus was a real boon for it in the quarter, that when you saw those checks in early May and June, that that was clearly propping up spending in general merchant NAE categories, And as we got deeper into July, they said, spending basically normalized,

sales normalized. And so I think UH investors are looking at these results and seeing a real risk that the Congress doesn't do more to support consumers, that this strength is simply not going to be replicated. And Sarah, you wrote a fantastic column today just on this issue that you really hope that the folks in Congress are taking a look at some of these numbers that are being released it and more importantly, listen to some of the commentary by the c e O s about what they're

seeing in terms of future demand. It would suggest that maybe they better get moving. Yes, exactly. I think if we don't see uh, you know, any progress out of Washington soon, it could be really destructive. You had some of them executives offering color about how the back to school shopping season is going so so far, and it's not going great. I think choppy was the word used

on the Walmart call, uh, and understandably so. Right, So many parents don't even know if they're trying all that's going to be going back to school in person or virtually, and don't even know exactly what supplies to buy, you know, do you need a laptop or do you need a backpack? Um? All of those spending decisions are kind of on ice

right now. Um. And so against that backdrop, and with the unemployment rate as high as it is, Uh, it's just really hard to see how the back to school season and the really crucial holiday season set up well for these retailers. If Congress doesn't take some action, are retailer is changing the mix of what's available in their stores. So, for example, is Walmarts, you know, getting rid of the backpacks just in case there won't be as much demand.

Is it putting in more leisure where Yeah, Cole talked about this a bit on its earnings call this morning that it definitely is going to shift its assortment to focus more on comfy clothes, on home products because people are still spending a lot on pitching appliances and that kind of thing um really shifting its assortment to those

product categories where people are still spending money. Cools also talked about cutting the total number of items that it offers, so it said by the holiday season, it expects that skew count or the number of individual items that itself to be on um and instead to really focus on a few key items that it thinks can sell really well and buying really deep into those particular items. So I think that's a change you can expect to see

when you're in stores in fall and winter. Sarah, do you have the sense that retailers in general, whether it's a coals or home depot um, can continue to invest in their digital businesses, Because it just seems like the money that Amazon continues to invest in its e commerce business, whether it's fulfillment and distribution centers or just tech technology in general, is just just outstanding and it's almost hard

to replicate. How about these other retailers, what are they doing in terms of investing in in their e commerce businesses? So well, all three of these retailers are trying to do is leverage their store footprint, kind of turn it into not an Alba trouss, but a help in this digital era, and one key approach to doing that is

to invest in curbside pick up um. Particularly since the pandemic, this has become a really popular format, especially in the suburbs where these stores tend to have, you know, big sprawling parking lots and it's easy to kind of pull up in your car and never get out, have someone drop your items in your trunk or your back feet. Um. So they're really investing in making those services work well.

And that's more complicated than you might think, because they have to think about how to allocate in store labor just pick those orders for you quickly, and they have to think about the technological experience of how you can safely let them know, hey, I'm outside and I want you to bring those items to my car now. And so I think that's where you're going to see a

lot of investment from all of these retailers. Pick Up for home depot has always view to be quite a large percentage of their digital sales overall, and so I think you'll continue to see all of them lean into making that a good experience in a way to differentiate themselves from Amazon, which simply doesn't have a lot of can order outposts from which to do that. So, Sarah, how do the peers of those retailers that have been

successful differentiate themselves to also be successful? So, for example, Lows, how does Lows get some market share from Home Depot? And when it comes to Walmart, obviously this this Well, there's there's no one like Walmart, but there's a petrea of dollar generals and so on. Sure, I think Walmart,

you know, its advantage is always that everyday low price focus. Um, you know, Target is clearly a close competitor, and I think Walmart needs to focus on leveraging its muscle with UH suppliers and vendors right now to keep making sure it offers the lowest prices and that it continues to

win on that metric. Particularly as we are heading or as we're in a recession that doesn't look to be letting up any time soon, shoppers will become more value focus and so price will be an important point of differentiation. I think Loads the focus in winning relative to Home Depot.

There It's interesting, typically Lows UH store footprint is thought of as a disadvantage because it's not Its stores tend to be located in more suburban and rural areas as opposed to in dense urban areas where home depot tends

to be more concentrated. UM, But that might not be such a disadvantage right now if folks in uh, those in rural and suburban areas are more willing to visit a physical store compared to those in urban areas, so kind of leveraging that could be a lover for lowest of pole and I expect we'll kind of see that in its results. It's two key results when they come out tomorrow. Sarah Holzac with all of the answer is no one. If she's in Washington, d C. I hope

they listened to her down there. So Holza is columnist with Bloomberg opinion on retail primarily, but it turns her home to a lot of topics. Well, the housing market is the one area of this economy that continues to show real strength across the board. Just last month, home sales jump erect UH. So obviously low interest, low mortgage rates are key driver. Let's see what else it's driving

this market. We welcome Sherry Chris, president and CEO of Realology Expansion, brand's portfolio that includes better Homes and Gardens, Real Estate and e r A based in Madison, New Jersey. Sherry, thanks so much for joining us here. So again, the

residential housing market very very strong. What are the key drivers that you think are pushing that market, Well, Paul's it's interesting because, first of all, there's a pent up demand from April and May due to COVID, and people that would normally be moving couldn't move during that time or couldn't look during that time, so that two months of inactivity has has caused a demand. But there are

other things as well. There's a lot of migration patterns that are happening across the country where people are consumers are exiting large cities for outlying areas, um consumers want to buy a different type of home, things like that. So it's not really driven by people having to move, which is typical of the past. It's more people want to move now. So I am absolutely fascinated by this data. The chows that suburban areas are seeing, you know, anything

that comes to markets snapped up. Do people really have that much savings set aside, you know too, to put together a mortgage? Are they getting what they thought they would get for their houses or their condos or their apartments. In the city's sherry Well, Bonnie, some people are buying without selling their existing home. They're renting out their property.

And when we think about the mortgage rates being at such a low, historical low, and the fact that you know, with the average sale price hovering around three hundred thousand, now, it doesn't take much for people to you know, put that down or less and by a home. So we're not talking millions of dollars. And uh, you know, I don't know this for a fact, and you may know better, but I think at the beginning of COVID, people started

liquidating certain assets. Cash was something that they wanted to have, and now they're looking for a home and the housing market has, you know, it's really exploded over the last couple of months. So is this how much of this is being driven? Do you think by the exodus from maybe more densely populated areas like like Manhattan for example, Um, and people really do just looking to get out of a city type environment gets a more suburban area. Part

of it is, but not not all of it. I mean, if we think about the two cities that are h you know, having that problem right now. Manhattan obviously one in San Francisco is another one where there are a lot of very popular outlying areas that people could move too. And now that many of the large companies, including ours,

you know, we're not opening our headquarters anytime soon. But if you look at the West Coast with Facebook, Google, Twitter, et cetera, and all of those employees are working from home, they don't need to live in the Bay Area anymore. And the same is true with Manhattan, yeah, exactly. And Sherry, the fact that housing starts throughout twenty two points per month over a month, and obviously they were up seventeen

and a half percent the month previously. I know that's partially because everything got shut down so much back in March or April. But where are these starts? Are builders now sort of changing their ideas on what to build, where to build and what's the bare minimum necessary? Like are people demanding, for example, at least a bit of a garden. Well, people are demanding and through better homes

and gardens. The magazine, which were affiliated with we did a number of consumer surveys during COVID and one of the things that came out loud and clear that people are looking for properties that have, you know, the possibility even extended outdoor space, UM, a front porch, a different type of living area, places where their children can study, where you know, both spouses can work in offices, and

so the configuration is different. But when you think about the builders, I think the builders are taking more of a calculated risk right now because they're seeing, you know, what definitely is a pent up demand in the housing industry, and they are they're moving forward. We only have a four month supply of listings, so that's causing a backlog right now where people who would like to move and buy a new home are hesitant to put their existing

home in the market because there's nothing to buy. Sherry, just an indulgence for me, given that you're affiliated with that magazine that Homes and Gardens real estate. Obviously, what is the one thing that people are most buying? Is it flowers? Is a part your furniture? And if it is, what kind of party of furniture. Oh, that's a great question, Bonnie. Um. What people want to do is extend their living area

into an outdoor space. So it's patio furniture to dine outside. Um, it's outdoor kitchens are very popular, and so if you think about moving your kitchen and dining room outdoors, UM, it just extends your space. Particularly as we're continuing to somewhat isolate at home, you want to enjoy where you're living.

And one of the things that we found anecdotally, UM, in talking to you know, our many brokers and agency and consumers across the country is that when people were inside for an extended period of time, you know, you start looking at the faults of your home and that causes you to want to either make changes or get outside. Sherry, thank you so much for joining us today. Sherry Chris as president and CEO of Real g Expansion brand's portfolio,

which includes Better Homes and Gardens real estate. Josh joins us the senior portfolio manager at Aberdeen Standard Investments. And Josh, we've been talking about the market and how we're at, you know, all time highs, which really boggles the mind, giving that people are just suffering out there except for you know, the top of the top one per cent. What do you make of it? Why is the market

fundamentally making highs? I think the real reason for that is because there's no other place really to invest when you look at interest rates and how low they are, nteniare you get left in one percent for investment there? So I think people are viewing this as the only alternatives right now. In addition, we've just seem massive stimulus by government on the US and in Europe and then said in ECB s so much money at this problem.

So um, there's so much liquidity in the system and it's I believe it's been driving up the stock market. So Josh, talk to us about the infrastructure space. Here are give us the sense of what the pandemic has meant to infrastructure investing, and people just kind of pulled back the reins, pulled back the money to see what happens or is it still moving forward? So it depends on which subsector with an infrastructure and certainly governments and

local governments of space and budget deficits and issues. But we actually believe there's a lot of opportunities within the infrastructure space, both on the public and private side, and part of that is from stimulus packages um for because of COVID. In addition to the fact that you just

see certain sectors a prime for growth. And I'll give you one example, to start on the communications sector, right, we all know because of the pandemic, how important it is to have that broadband connection to it um because people are working from home, kids are in zoom school from home, and that's just spotlights how important it is.

It's basically the come as essentially utility to that. So we were excited about the communication sector prior to because of the transition to five G, and now COVID has

just put a stoplight on it. You know, you think about what's happened over the past twenty years, how we've all transitions from landlines to cell phones to smartphones and the next wave of technology it's five G and we believe that invested in cellular tavere or so those are those large steel structures that least based on the steel, powers and essential component infrastructure component that will allow the five G to actually happen and grow. Huh. So that's

one area. And then there's also of course, you know energy and green energy. Well, how much time do you spend wondering what will happen if President Trump wins for a second term, given particularly that we saw yesterday for example, that he's going to allow Arctic drilling going go ahead. So he's been president for about three and a half years now and we still see a tremendous growth in the renewable sector. And that's not only happening in the US,

is happening throughout the globe. You know, the EU passed the largest stimulus package into Martiall Plan with the focus

on climate change. So there are great opportunities to invest in renewables and that's going to continue to happen because not only it's good for the environment, but it now also makes economics sense as the cost of solar and wind on part with carbon emitting alternatives and some geography, So we believe it's gonna The next catalyst for renewable energy is storage, and storage costs have come down about over the last decade. It's expected to come down over

the next five years. But if you think about how important that is if you have a solar farm and the sun is shining during the day and now you could store that energy and use it at night and make that infrastructure as that even more valuable. So we believe, regardless of who wins the election, renewables are a great place to invest over the next ten years or so. How about if President Trump is successful in opening up the Arctic, would you be investing in some of those

projects up there? Um, we probably would not be invested generally, don't for an infrastructure investment. We're not looking to take specultive views on commodity prices or the e MP side of it, So we're really looking for the more stable, predictable cash flows in our infrastructure investments. Do you look outside the US as well, Josh? I mean Europe is pretty much ahead of us in many ways, particularly when it comes to broadband and five G and towers and

so on. Well, so it's interesting. I wouldn't. Um, we do invest globally, and Europe's important part of it. In some ways, we're actually ahead of them. So if you think about the tower sector in the United States, of the towers are owned by independent tower companies. In Europe

it's only about twenty, so there are great opportunities. We like a company called seal Next, which is consolidated that right now, so you'll get there or get natural organic growth as data is growing thirty UM, as we're all using more than with intensive applications on the phones. Plus you'll get the inorganic growth as a cell phone companies are going to sell off their tower assets, as we've seen here in the United States, and that's beginning to

happen in Europe. So here in the States it seems like infrastructure spending is fairly bipartisan. What do you expect to see out of Washington, no matter who's which administration is in the White House over the next couple of years. As you know, we try to get this economy on the other side of this pandemic, try to get this economy development growing again. And I think that's an important

point you make. I believe that's the only issue that both the Democrats and Republicans agree on that we need to spend more on infrastructure. So I think regardless of who wins, we could see infrastructure spending. But what I will say is when we look to invest at Aberdeen specifically, we're looking for currently right now, with the opportunities and once and if there is an excellent infrastructure stimulus package, to me, that's a free call option for our investments.

So we believe in that when and if that will happen, it will just enhance the value of investments will currently make it. So Josh never did get the infrastructure week, So what makes you so convinced that there will be something like that next time around, no matter who the president is, and that there will be money left Because the Treasury is issuing so much right now just to keep the economy from going too far underwater, why would they issue more money for an infrastructure sort of spend.

Totally agree, and that's a great point, and that's why I said initially, any investment we make is based on the environment we see right now, and if something does happen to free call options. But the point you make is that the governments don't have enough money, the local and federal government to spend on infrastructure, so we believe they will use more private capital to invest on infrastructure.

We saw that in Europe during the last financial crisis, and we believe that could happen in the United States. And we have seen some more privatezations PPP public private partnership and actually to increase about ten x over the last decade. So we think there's a great opportunity if you're investing in both public and private infrastructure. Josh Deats, thanks so much for joining us. We certainly appreciated Josh Deet's Senior portfolio manager Aberdeen Asset Management. They have six

hundred forty five billion dollars in assets under management. Vannie, you may not know this, but the real infrastructure play, the only one I'm focused on, is this gateway project that kind of upgrade the Northeast Transit UH railroad so we can get more trains in and out of the city. That was a crucial thing before the pandemic, but maybe not so much after it. Fair boys working from home,

Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio m